Sunday, 28 September 2014

Understanding The Market

Trading is a lot like Golf.   There is a lot to learn, but with a few basics you can enjoy your first game, only to realize you have a lot more to learn.  You might even get lucky and make par.  I bet however you are likely not going to be a consistent golfer without a few lessons.  Without time at the driving range.   Most people need help improving their swing, their long game, short game, and their putting.  There are a lot of clubs in your golf bag but chances are you will use only 3 plus your putter.  Your driving wood, your long iron, pitching wedge, and your putter.   Maybe a sand wedge.   Lets face it you will spend a lot of time "on the beach" (the sand trap).  Anything else will work but really you aren't that good of a golfer to make a difference.  So why bother practicing with every single club and playing with every single club when you need to improve just a few things...

Same goes for trading.  At first stick to the basics, get comfortable with your chosen strategy's indicators.  Don't light up your trading station like a Christmas tree thinking 5 indicators are better than 1.  The indicators pretty much all give you the same signals.    All you need is an entry signal, a confirmation signal, and exit signal.  And of course technical analysis.  In golf you look at the layout first.  If it's a short par 3 with only 100 feet, you are not going to pull out your driving wood....  Leave Big Bertha in the bag, get your Pitching Wedge and have at 'er.  So when the trend is long, you look for long opportunities.   When the market is slow, you stay out or grab less pips.  I prefer to just stay out.  When it rains you get your umbrella.  When you get rained out you go home.  Twilight hits and you pay half price, and you might have guessed in when you trade slower markets or markets about to close, you might want to reduce your lot size to mitigate risk.

I chose Golf as a subject because a lot of people can relate to it. So now choose your hobby and relate trading to it.    Chances are you'll find your approach is similar.  Just thinking about it you are going in the right direction, that is to "understand" the market, versus "learning" about the market, versus "studying" and "being taught".    A lot of traders make the mistake of wanting someone to teach them without having to study or learn.  And if they make it to the learning stage they don't quite try to understand the market.   I'd have to say that's the biggest road block for traders.  Always looking to find the answer from someone else when only you have the answer.  When you pick up golf you need to be taught, study, learn, and understand the game to play it well.