Brilliant writingIt really worth the time i spent here. Subscribed & will be following each posts. Let those words keep coming. Thanks a lot. Best Regards.
- #26
- Dec 14, 2018 6:06pm Dec 14, 2018 6:06pm
- | Commercial User | Joined May 2007 | 7,685 Posts
Why fight the market?
The reason I attached the British pound chart to this post is to give you context as to what I'm talking about. I don't know when you're reading this, but the lesson lies true regardless of what market or year you were talking about. Unfortunately, many Forex traders will look at the market and do a bit of mental masturbation. They talk about how they could have made so much money shorting when the market pulled back from rally, or if they just jumped in at a specific price, because the market had gotten "too cheap."
Looking at the GBP/USD pair, you can clearly see that the British pound is essentially "too cheap." However, if you had spent any serious time trying to buy this market, you have more than likely loss quite a bit of money. This is the problem with Forex traders that rely on technical analysis, they don't understand that there is a lot of sentiment behind this horrific chart. Let me ask you this question: if you decided to buy this pair, based upon what the chart look like, what in the hell were you thinking?
I'm not saying that there weren't times when the market rallied during this horrific run lower, but wouldn't it have been easier to simply trade with the overall trend in another pair? I think we get too focused on a specific market or get a thesis in mind that clouds our bias. There is a perfect example of that going on at CNBC right now. (Yes, I know it CNBC and they know absolutely nothing about financial markets, but go with me on this.) There is an analyst named Tom Lee who I believe is probably the worst technical analysis on Wall Street. He has been making the bullish case for Bitcoin for over $10,000 right now. Unfortunately for him, it's the wrong $10,000. He started talking about how bitcoin was looking cheap at $14,000. As I write this, bitcoin is currently trading at about $3900.
Now I'm not saying that it can't go back to $14,000 someday, just that it's not going to anytime soon. As for my own opinion, I think it's going to $0. There are over a dozen central banks right now messing around with experimental cryptocurrency. Guess what? The Bank of England and the Federal Reserve are two of them. In other words, we may very well get cryptocurrency, but it's not can be from some dude in a basement, it's going to be from the banking cabal of international gangsters like we've always known.
In another one of his brilliant moves, he has discussed how he expects a 10% "Santa Claus rally" between now and the end of the year. It is now December 14, and the market has lost 200 points in about four days. (S&P 500)
Think about it this way, this is a guy who's paid what I would assume would be at least a six figure salary, and he is so married to the idea of certain things happening, that he can't change his bias. He's willing to go in front of thousands of viewers every night and prove just how bad he is at his job. Beyond that, he is fulfilling and need by CNBC: to give you some type of hope. Meanwhile, I've been shorting the E-mini S&P 500 futures, and doing quite well.
So going back to the British pound chart. The sentiment is most certainly down due to the Brexit, so this should tell you one thing: you simply sell this pair until something changes. Granted, there have been a couple nice bounce is but the reality is that they have only led to nice selling opportunities. When the GBP/USD pair was rallying, the trade was the buy the EUR/USD pair, or perhaps something along the lines of an exotic pair. You don't want to get bogged down with something that is essentially getting worse by the minute.
When I was a new trader, I would trying to buy the market because "it had fallen too far." I've since learned that you simply go with the flow. If are going lower, the market doesn't give a shit about what I think "too low" is. You must follow the market. If you do decide to try to go against the market, ask yourself this question: "if I really am buying at the absolute bottom, and my going to have the fortitude to hang on through all of the volatility to change the trend?" I can tell you decidedly that the answer to that is an emphatic NO.
My girlfriend, who has never traded the thing in her life, was looking at the GBP/USD chart today and asked me "who in the world is buying this?" If you are not a company doing some type of Forex transaction out of necessity, those are words of wisdom. It's a bit ironic that it's always the people who know the least about trading that figure these things out.
The reason I attached the British pound chart to this post is to give you context as to what I'm talking about. I don't know when you're reading this, but the lesson lies true regardless of what market or year you were talking about. Unfortunately, many Forex traders will look at the market and do a bit of mental masturbation. They talk about how they could have made so much money shorting when the market pulled back from rally, or if they just jumped in at a specific price, because the market had gotten "too cheap."
Looking at the GBP/USD pair, you can clearly see that the British pound is essentially "too cheap." However, if you had spent any serious time trying to buy this market, you have more than likely loss quite a bit of money. This is the problem with Forex traders that rely on technical analysis, they don't understand that there is a lot of sentiment behind this horrific chart. Let me ask you this question: if you decided to buy this pair, based upon what the chart look like, what in the hell were you thinking?
I'm not saying that there weren't times when the market rallied during this horrific run lower, but wouldn't it have been easier to simply trade with the overall trend in another pair? I think we get too focused on a specific market or get a thesis in mind that clouds our bias. There is a perfect example of that going on at CNBC right now. (Yes, I know it CNBC and they know absolutely nothing about financial markets, but go with me on this.) There is an analyst named Tom Lee who I believe is probably the worst technical analysis on Wall Street. He has been making the bullish case for Bitcoin for over $10,000 right now. Unfortunately for him, it's the wrong $10,000. He started talking about how bitcoin was looking cheap at $14,000. As I write this, bitcoin is currently trading at about $3900.
Now I'm not saying that it can't go back to $14,000 someday, just that it's not going to anytime soon. As for my own opinion, I think it's going to $0. There are over a dozen central banks right now messing around with experimental cryptocurrency. Guess what? The Bank of England and the Federal Reserve are two of them. In other words, we may very well get cryptocurrency, but it's not can be from some dude in a basement, it's going to be from the banking cabal of international gangsters like we've always known.
In another one of his brilliant moves, he has discussed how he expects a 10% "Santa Claus rally" between now and the end of the year. It is now December 14, and the market has lost 200 points in about four days. (S&P 500)
Think about it this way, this is a guy who's paid what I would assume would be at least a six figure salary, and he is so married to the idea of certain things happening, that he can't change his bias. He's willing to go in front of thousands of viewers every night and prove just how bad he is at his job. Beyond that, he is fulfilling and need by CNBC: to give you some type of hope. Meanwhile, I've been shorting the E-mini S&P 500 futures, and doing quite well.
So going back to the British pound chart. The sentiment is most certainly down due to the Brexit, so this should tell you one thing: you simply sell this pair until something changes. Granted, there have been a couple nice bounce is but the reality is that they have only led to nice selling opportunities. When the GBP/USD pair was rallying, the trade was the buy the EUR/USD pair, or perhaps something along the lines of an exotic pair. You don't want to get bogged down with something that is essentially getting worse by the minute.
When I was a new trader, I would trying to buy the market because "it had fallen too far." I've since learned that you simply go with the flow. If are going lower, the market doesn't give a shit about what I think "too low" is. You must follow the market. If you do decide to try to go against the market, ask yourself this question: "if I really am buying at the absolute bottom, and my going to have the fortitude to hang on through all of the volatility to change the trend?" I can tell you decidedly that the answer to that is an emphatic NO.
My girlfriend, who has never traded the thing in her life, was looking at the GBP/USD chart today and asked me "who in the world is buying this?" If you are not a company doing some type of Forex transaction out of necessity, those are words of wisdom. It's a bit ironic that it's always the people who know the least about trading that figure these things out.
- #39
- Mar 31, 2019 10:05am Mar 31, 2019 10:05am
- | Commercial User | Joined May 2007 | 7,685 Posts
Sometimes, you need to be ruthless.
While a lot of times you hear that money management is critical, I would be a lier if I told you I always followed this. While I hesitate to say this, there is something rather important to be gleaned from this lesson. There are a lot of paradoxes when it comes to trading, and this is one of the biggest: While it is crucial to be careful with your position size, there are times when it pays to double down.
First, lets remind ourselves that there is always another trade. This means that if you miss a chance to make money, you will have that chance again - as long as you don't rush it. I would also put this out there: If you get a signal to go into the market, you are doing so as a certain amount of variables have told you that the market is more likely to do something - but it doesn't have to. If you find something that tends to work out more than it fails, that is what is know as an edge. However, nothing is 100 percent correct and reliable, so this is where we need to accept that there are a lot of random variables out there that the market will react to. Even if you have a great set up, it can and will fail at times. However, over the longer-term, if you take these signals you should make money statistically.
Now that you have your trade set up, you set the parameters of what you are willing to accept. (i.e. stop losses or take profit orders.) However, if you are trading with the longer-term trend AND YOU FUCKING SHOULD BE, there is the possibility that we break above a major resistance barrier, or support in the case of selling, and go much further. This is where you step on the gas, so to speak.
What you need to do this is an obvious level on the charts. You also need an obvious break of an important level. It is at these times that we are looking to make much more on a trade. Take a look at this USD/SGD chart. You can see the hammer that would could have bought at the first arrow, and you would have seen the 1.32 level above as resistance from the Sept 2010 area. When we approached it in late 2014, we broke out. You could have take profit here, and would have been okay. However, putting a stop loss a bit lower allows the market to at least try to break out. Once it does take off, you have another important level. You can put your stop loss just under the level, and when we retest it, you can put another position on. Even if you get stopped out, the second position will only cost you a small amount in relation to your winning position. In other words, it is WORTH THE RISK. The rewards outweigh the risks involved. That is where we find our profits.
In this case, you would have cleaned up.
Unfortunately, it is natural instinct of a lot of traders to double down on losing positions. Wall Street calls it "dollar cost averaging." Its for losers quite frankly. You should also understand that stock traders are not leveraged, and that's a huge difference anyway. The biggest issue is that sometimes it can work, and you get bailed out by buying a market even lower, and building the size bigger, taking more risk. However, we all know that it only takes once time to blow up. We have all done it. I know I have.
Therefore, you can never double down on a losing position. However, you should double down on what is working and at the correct time. Most of the time we won't be in that situation. However, the bigger and more obvious levels are to be paid attention to, and absolutely crushed when the trade offers a clear sign as to where we are going directionally. I suggest that if you are looking to add this to your trading, look for monthly chart levels to experiment with. Once you get really good at it, you will learn how to do it with smaller levels. (As I have to with the prop desk I work for in the futures markets.)
In short, less of what isn't working, and a hell of a lot more of what is.
While a lot of times you hear that money management is critical, I would be a lier if I told you I always followed this. While I hesitate to say this, there is something rather important to be gleaned from this lesson. There are a lot of paradoxes when it comes to trading, and this is one of the biggest: While it is crucial to be careful with your position size, there are times when it pays to double down.
First, lets remind ourselves that there is always another trade. This means that if you miss a chance to make money, you will have that chance again - as long as you don't rush it. I would also put this out there: If you get a signal to go into the market, you are doing so as a certain amount of variables have told you that the market is more likely to do something - but it doesn't have to. If you find something that tends to work out more than it fails, that is what is know as an edge. However, nothing is 100 percent correct and reliable, so this is where we need to accept that there are a lot of random variables out there that the market will react to. Even if you have a great set up, it can and will fail at times. However, over the longer-term, if you take these signals you should make money statistically.
Now that you have your trade set up, you set the parameters of what you are willing to accept. (i.e. stop losses or take profit orders.) However, if you are trading with the longer-term trend AND YOU FUCKING SHOULD BE, there is the possibility that we break above a major resistance barrier, or support in the case of selling, and go much further. This is where you step on the gas, so to speak.
What you need to do this is an obvious level on the charts. You also need an obvious break of an important level. It is at these times that we are looking to make much more on a trade. Take a look at this USD/SGD chart. You can see the hammer that would could have bought at the first arrow, and you would have seen the 1.32 level above as resistance from the Sept 2010 area. When we approached it in late 2014, we broke out. You could have take profit here, and would have been okay. However, putting a stop loss a bit lower allows the market to at least try to break out. Once it does take off, you have another important level. You can put your stop loss just under the level, and when we retest it, you can put another position on. Even if you get stopped out, the second position will only cost you a small amount in relation to your winning position. In other words, it is WORTH THE RISK. The rewards outweigh the risks involved. That is where we find our profits.
In this case, you would have cleaned up.
Unfortunately, it is natural instinct of a lot of traders to double down on losing positions. Wall Street calls it "dollar cost averaging." Its for losers quite frankly. You should also understand that stock traders are not leveraged, and that's a huge difference anyway. The biggest issue is that sometimes it can work, and you get bailed out by buying a market even lower, and building the size bigger, taking more risk. However, we all know that it only takes once time to blow up. We have all done it. I know I have.
Therefore, you can never double down on a losing position. However, you should double down on what is working and at the correct time. Most of the time we won't be in that situation. However, the bigger and more obvious levels are to be paid attention to, and absolutely crushed when the trade offers a clear sign as to where we are going directionally. I suggest that if you are looking to add this to your trading, look for monthly chart levels to experiment with. Once you get really good at it, you will learn how to do it with smaller levels. (As I have to with the prop desk I work for in the futures markets.)
In short, less of what isn't working, and a hell of a lot more of what is.
