If you've read this blog before, then you know that I am a lawyer by profession, and a trader by avocation. As a lawyer, I've had countless opportunities to see juries in action. You might wonder what juries have to do with trading. Stay with me and I'll explain. Time and time again I've seen a group of 6 or 12 average men and women listen to evidence in a trial, sometimes extremely complex, sometimes simple, and come to the right conclusion. Now its not perfect and I'm sure we can all come up with a few times when the jury system was compromised, but all in all, juries work. The group mind appears to be very capable to sifting through vast amounts of complex information and testimony, throwing out the things that really don't matter, and coming to correct conclusions. It really is fascinating.
Markets run in a very similar way. You have millions of trades every day and each trade is a vote on whether the stock, bond, commodity or currency traded is worth more or less than it was just moments ago. In a very real way, the market is a jury deciding the guilt or innocence (read strength or weakness) in whatever is being traded. This means that the price of any liquid currency or stock is always exactly what it should be (the crux of the Efficient Market Hypothesis) and is perfect based on available information. What makes markets move then? That is a question which could (and probably has) given rise to a vast amount of academic research. My simplistic thought is that markets are living things. There is a constant in-flow of new information that the market reacts to. These reactions are, in very general an simple terms, what move the market.
Why is this important? For many reasons, but what got me thinking about it is that I've started working with MetaTrader4 and am playing with the hundreds of indicators which have been created for it. With very few exceptions, these indicators are simply processed indications of past and present price movements. It seems funny to me that we use processed price to try to divine future prices. I guess I'm more of a purist when it comes to indicators. If price is what we are going to use to try to guess what the prices in the future might be, then any permutation that takes away from the purity of price itself, has to be less helpful. Price tells us all we need to know. Are prices trending? Look at daily and weekly charts. If you can't see a trend, there is not one. Will prices break up or down? Look at how prices have trended, draw support and resistance lines, and wait and see. Indicators like Moving Averages, RSI and MACD only tell you what price has done, not what it will do. They have uses, but truly only in telling us where current price stands compared to historical price. To think otherwise is merely buying in to what brokers, system sellers and others who are only interested in what they can get you to buy, are trying to get you to do.
Want to be different? Want to do better than you've been doing trading with inferior or old information? Here's the secret: Think for yourself. Use price and think for yourself. It really is as simple as that.
Until next time - Happy Trading.
Markets run in a very similar way. You have millions of trades every day and each trade is a vote on whether the stock, bond, commodity or currency traded is worth more or less than it was just moments ago. In a very real way, the market is a jury deciding the guilt or innocence (read strength or weakness) in whatever is being traded. This means that the price of any liquid currency or stock is always exactly what it should be (the crux of the Efficient Market Hypothesis) and is perfect based on available information. What makes markets move then? That is a question which could (and probably has) given rise to a vast amount of academic research. My simplistic thought is that markets are living things. There is a constant in-flow of new information that the market reacts to. These reactions are, in very general an simple terms, what move the market.
Why is this important? For many reasons, but what got me thinking about it is that I've started working with MetaTrader4 and am playing with the hundreds of indicators which have been created for it. With very few exceptions, these indicators are simply processed indications of past and present price movements. It seems funny to me that we use processed price to try to divine future prices. I guess I'm more of a purist when it comes to indicators. If price is what we are going to use to try to guess what the prices in the future might be, then any permutation that takes away from the purity of price itself, has to be less helpful. Price tells us all we need to know. Are prices trending? Look at daily and weekly charts. If you can't see a trend, there is not one. Will prices break up or down? Look at how prices have trended, draw support and resistance lines, and wait and see. Indicators like Moving Averages, RSI and MACD only tell you what price has done, not what it will do. They have uses, but truly only in telling us where current price stands compared to historical price. To think otherwise is merely buying in to what brokers, system sellers and others who are only interested in what they can get you to buy, are trying to get you to do.
Want to be different? Want to do better than you've been doing trading with inferior or old information? Here's the secret: Think for yourself. Use price and think for yourself. It really is as simple as that.
Until next time - Happy Trading.
