Why You Need to Think Outside the Box...
I don't really care what you do but if you do the same as everyone else you will likely get the same results. This is not all bad if you are looking for a winning model to pattern yourself after in a particular industry or buying a franchise but in the trading world it can be deadly.
This is because the trading industry is set up in the way of two distinct variables that never change. You will have a winner and you will have a loser on every trade executed. It is that simple folks. Trading is the ultimate form of pure competition. There are only two outcomes possible. You will win or you will lose.
When you consider the majority lose (as in 80% or above) you quickly realize that the game is most certainly stacked against the trader. To be good at trading or one of the minority you must think differently. For example I see all sorts of explanations of why the Dollar tanked on the Fed raise and the reason. You know, "Yellen was too dovish", or "the markets didn't feel that the Fed would follow through with as many cuts as it promised" and all that other hogwash. These are the people that generally got caught on the wrong side of the trade and are looking for some deep and profound reason why this happened to show that they are not as foolish as it seems.
Well like I was commenting on yesterday, they are as foolish as it seems. It was nothing more than order flow. Skewed highly one way or put another way "a highly crowded trade". Contrary to popular belief the market looks for an equalibrium point where both buyers and sellers unite to create a volume area. This cannot happen while one side is highly leveraged one way. The market will sell off to find that equalibrium point, accelerating as it runs stops where buys become sells.
There are two ways to look at it that make sense. The first is that the Dollar is at the end of its 7-10 year cycle. This is obvious if you look at a 50 year chart of the Dollar. In other words it won't rise that much more and will generally move down in a choppy way for a couple of years then accelerating at some point in the next three to four years where the major move takes place. The YEN did the same thing recently and topped out at its cyclical high in the 127 area which by the way yours truly called and ever since then it has moved sideways to down. Yet you find even the macro traders buying the dip. As for me I sell the rises looking for a certain level before I get in. The problem with this type of trading is you have to be ultra patient and the move takes place over months or years. How many traders do this? Not many. They all prefer to trade the noise.
The second and probably more relevant is the markets are highly manipulated at the moment. People giving all sorts of advice as to why central banks can't maintain control of the markets. This is nonsense. The Fed has the ability to print its own money. Soon to be digital. It can dam well do what it feels it wants to for a very long time. Measured in decades. There is no entity out there with enough cash that the fed can't blow out of the water if it wants too. Same with the ECB and any other central bank. When they work together as they are now they are nearly omnipotent and no they won't run out of money. I hate to break it to the naysayers but we are not going to hell in a hand wagon. Technology first of all is not going to let that happen and secondly we are at a distinct point of change in the markets that will set the stage for what they will be like for many years to come. If you think of the markets like in the past then they are going to surprise you. If you adapt to the changing times then you keep all possibilities on the table that are fast becoming reality. So although fundamentals are important they are not as important as some would have you believe any more. Have a good weekend.
This is because the trading industry is set up in the way of two distinct variables that never change. You will have a winner and you will have a loser on every trade executed. It is that simple folks. Trading is the ultimate form of pure competition. There are only two outcomes possible. You will win or you will lose.
When you consider the majority lose (as in 80% or above) you quickly realize that the game is most certainly stacked against the trader. To be good at trading or one of the minority you must think differently. For example I see all sorts of explanations of why the Dollar tanked on the Fed raise and the reason. You know, "Yellen was too dovish", or "the markets didn't feel that the Fed would follow through with as many cuts as it promised" and all that other hogwash. These are the people that generally got caught on the wrong side of the trade and are looking for some deep and profound reason why this happened to show that they are not as foolish as it seems.
Well like I was commenting on yesterday, they are as foolish as it seems. It was nothing more than order flow. Skewed highly one way or put another way "a highly crowded trade". Contrary to popular belief the market looks for an equalibrium point where both buyers and sellers unite to create a volume area. This cannot happen while one side is highly leveraged one way. The market will sell off to find that equalibrium point, accelerating as it runs stops where buys become sells.
There are two ways to look at it that make sense. The first is that the Dollar is at the end of its 7-10 year cycle. This is obvious if you look at a 50 year chart of the Dollar. In other words it won't rise that much more and will generally move down in a choppy way for a couple of years then accelerating at some point in the next three to four years where the major move takes place. The YEN did the same thing recently and topped out at its cyclical high in the 127 area which by the way yours truly called and ever since then it has moved sideways to down. Yet you find even the macro traders buying the dip. As for me I sell the rises looking for a certain level before I get in. The problem with this type of trading is you have to be ultra patient and the move takes place over months or years. How many traders do this? Not many. They all prefer to trade the noise.
The second and probably more relevant is the markets are highly manipulated at the moment. People giving all sorts of advice as to why central banks can't maintain control of the markets. This is nonsense. The Fed has the ability to print its own money. Soon to be digital. It can dam well do what it feels it wants to for a very long time. Measured in decades. There is no entity out there with enough cash that the fed can't blow out of the water if it wants too. Same with the ECB and any other central bank. When they work together as they are now they are nearly omnipotent and no they won't run out of money. I hate to break it to the naysayers but we are not going to hell in a hand wagon. Technology first of all is not going to let that happen and secondly we are at a distinct point of change in the markets that will set the stage for what they will be like for many years to come. If you think of the markets like in the past then they are going to surprise you. If you adapt to the changing times then you keep all possibilities on the table that are fast becoming reality. So although fundamentals are important they are not as important as some would have you believe any more. Have a good weekend.
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