Hello all,
I will start here with the first part of the BANDWAGON THEORY (1/?), the first important key concept that I planned to introduce to you. This very important topic is going to be split in a few parts (don't know how many just yet).
The Bandwagon theory is an allegory for markets behavior. It's a brief story - at times funny, at times dramatic - that has a special reading key: it describes the behavior of market participants, both the smart money and the average trader. I believe this theory is so important, compelling and useful that its full understanding is worth alone the equivalent of months (if not even years) of market exposition and has the potential to save you a lot of time, money and mental pain.
It is not an overstatement that a profound understanding of the message and the hidden wisdom in this theory can create the conditions to reach true trading mastery. A mastery founded into the beliefs that market moves in waves, and those waves are mainly generated by emotions.
In my recent interview with Dale Pinkert I mentioned two types of emotions: fear of losing and greed. I think greed is only secondary to lack of success in trading. When you realize you can only bring your position that far and should instead take (partial) profits often (maybe at those high probability target areas indicated by program trading), because market structure and price dynamics will eventually bring price close to and beyond your entry price level, the greed part of the equation disappears. But the fear part of the equation stays: we will eternally fight our fear of losing money, as well as, our fear of losing an opportunity to make money. I will discuss these points in more detail when I will touch on the market psychology.
The Bandwagon Theory provides an insight into the inner workings of the markets and how the average trader is ‘manipulated’ for profit. Some of you are now thinking "ha-ha I knew the game was rigged and 'they' are after us all!". That would not be a fully correct statement.
Indeed it would be more honest to mention self-manipulation because consistent, professional traders and those ‘in the know’ cannot directly cause others to lose money.
Well, they can only use information that the average trader does not have because he or she hasn't learned it yet, to position themselves successfully in the markets. This is not about COT, insider trading, secretive information or special technical indicators. It is about understanding that the psychology we all bring into everyday life activity is dis-useful for correct and consistent trading. Why? Because when money is involved, our emotions and judgement are skewed. And such skewing is related to how we perceive and relate to money and how we were educated about it, which depends on how and in which conditions we were brought up.
You see, the responsibility of poor trading results is the lack of market-oriented psychology or maybe I should say money-oriented psychology. All the main and most costly mistakes done in trading, also by well capitalized traders, relate to money and risk management. Risk more than 1% per trade when you are starting and you won't see your 4th month (indeed 80-90% of forex traders blow their account up within a 3 months time-span, according to statistics). Traders are paid for the quality of their decisions. Losing money clearly means that the decision and/or execution process is ineffective and professional traders understand that.
Let me know what your thoughts are.
Thanks
Have a great eve
Cheers
-fibstalker
I will start here with the first part of the BANDWAGON THEORY (1/?), the first important key concept that I planned to introduce to you. This very important topic is going to be split in a few parts (don't know how many just yet).
The Bandwagon theory is an allegory for markets behavior. It's a brief story - at times funny, at times dramatic - that has a special reading key: it describes the behavior of market participants, both the smart money and the average trader. I believe this theory is so important, compelling and useful that its full understanding is worth alone the equivalent of months (if not even years) of market exposition and has the potential to save you a lot of time, money and mental pain.
It is not an overstatement that a profound understanding of the message and the hidden wisdom in this theory can create the conditions to reach true trading mastery. A mastery founded into the beliefs that market moves in waves, and those waves are mainly generated by emotions.
In my recent interview with Dale Pinkert I mentioned two types of emotions: fear of losing and greed. I think greed is only secondary to lack of success in trading. When you realize you can only bring your position that far and should instead take (partial) profits often (maybe at those high probability target areas indicated by program trading), because market structure and price dynamics will eventually bring price close to and beyond your entry price level, the greed part of the equation disappears. But the fear part of the equation stays: we will eternally fight our fear of losing money, as well as, our fear of losing an opportunity to make money. I will discuss these points in more detail when I will touch on the market psychology.
The Bandwagon Theory provides an insight into the inner workings of the markets and how the average trader is ‘manipulated’ for profit. Some of you are now thinking "ha-ha I knew the game was rigged and 'they' are after us all!". That would not be a fully correct statement.
Indeed it would be more honest to mention self-manipulation because consistent, professional traders and those ‘in the know’ cannot directly cause others to lose money.
Well, they can only use information that the average trader does not have because he or she hasn't learned it yet, to position themselves successfully in the markets. This is not about COT, insider trading, secretive information or special technical indicators. It is about understanding that the psychology we all bring into everyday life activity is dis-useful for correct and consistent trading. Why? Because when money is involved, our emotions and judgement are skewed. And such skewing is related to how we perceive and relate to money and how we were educated about it, which depends on how and in which conditions we were brought up.
You see, the responsibility of poor trading results is the lack of market-oriented psychology or maybe I should say money-oriented psychology. All the main and most costly mistakes done in trading, also by well capitalized traders, relate to money and risk management. Risk more than 1% per trade when you are starting and you won't see your 4th month (indeed 80-90% of forex traders blow their account up within a 3 months time-span, according to statistics). Traders are paid for the quality of their decisions. Losing money clearly means that the decision and/or execution process is ineffective and professional traders understand that.
Let me know what your thoughts are.
Thanks
Have a great eve
Cheers
-fibstalker
"markets traded by programs/HFT offer a significant trading edge..."