All Financial Wisdom

Trading is not guessing what the market will do

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This is one of the key points that every trader must internalize. Good traders don;t guess what the market will do. If trading were anything like futurology, our mathematical hope would be a real mess.

Those who are able to know what prices will do in the future has all the win in trading. Sure, that’s the way it is. But nobody is able to guess what the prices will do in the future. You have to eliminate that mindless thinking and not obsess about knowing what the market will do in the future.

A trader does not have to play to guess the future, he simply has to trade on what happens in the present. The here and now.

The natural tendency, however, is to approach trading as if it were a gambling game. The fact that in fact there is apparently a 50% chance to guess whether the price increases or decreases, further powers this ridiculous concept. Nothing could be further from the truth.

A good trader must focus his trades on the exhaustive analysis of what the price has done in the past and is doing in the present moment, and to detect windows of opportunity in which the probabilities of the price make a certain movement more likely. But you are trading odds , you must never forget it.

For example: imagine that based on your hours of display, you have verified that the price has a high probability of rebound. What will you do when this figure is forming in your graphics?

Well it’s clear: try to position yourself long, because you know that in that situation, the odds are in your favor. But at any moment, you will know that that movement that is statistically generated in your favor could not happen on this occasion, and that is why you use your stop loss to protect yourself from that circumstance.

That is the mentality that a trader must follow before any trade. However, if you pretend to play fortune teller: you assure that the price will go up when you see that figure, and you take a slightly less accurate entry.

It is possible that you enter without a stop loss so why risk that a small corrective price, will move you out of that trade when you know with certainty that the price will rise. You will understand that this trading mentality is completely without merit.

Hence the importance of knowing the behaviors of the market, of understanding them based on observations day by day. If the only competitive advantage when taking a position was the ability to guess where the price will go, it would not take hours and hours of screen analysis to be successful.

So when taking a trade, think internally of a situation where the odds are in your favor, and not with 100% certainty that the price will go up or down. This has nothing to do with psychology. The price can go up, down, sideways etc…but your job isn’t to guess. A good trader makes an informed analysis.

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