Nobody Knows Which way the Market is Going to Move
As we discussed earlier in the week, you don't actually have to know which way the market is going to move to make money. The fact of the matter is, that nobody... and I mean NOBODY, knows with any degree of certainty, which way a market is going to move.
How many trading gurus have you come across on your social media platform of choice, preaching to their seemingly brainwashed audience that they can predict the future like nobody else? Your rule of thumb when it comes to these charlatans should be to act cautious around anyone who claims to know with any degree of certainty, which way a market will move. If they're charging for the privilege, then you should instantly turn around and run. Fast.
I wanted to highlight the following key points from Monday's blog and if you have any post-it-notes handy, put the words in big black texta and stick them above your trading screen:
Profitable trading is about finding your edge and exploiting it consistently over the long term. You have to alter your mindset from worrying whether you're right or wrong in predicting which way a market will move, and instead make emotionless decisions that line up with your trading system.
Trading isn't about being right or wrong. It's about making money.
That's right, those that actually make money in the trading game, don't actually need to know. It might seem a totally backward thought when traders only make money when they get the market direction right, but trading is a backward game that requires you to stop thinking with the masses and get your head outside the box.
Price Movement is Governed by Supply and Demand
While nobody knows with any degree of certainty, which way a market is going to move, we do know that price movements are governed by supply and demand. This is the buying and selling activity of other traders. The fact that these traders are simply just other human beings, means they're predictable.
Supply and demand zones are simply predictable areas where buyers and sellers are waiting on the chart. They are predictable because when it comes to supply/demand (support/resistance on a chart), it is simply an area where price has reacted in the past.
We know that markets are lazy. As markets are just a reflection of human activity, we can identify areas of supply and demand, then figure out the path of least resistance between them and make trading decisions accordingly.
By identifying the path of least resistance between supply and demand zones, we trade with an edge on each position.
Using an Electrical Storm as an Analogy for The Flow of Price
On one of my many visits to the online forex forums that I used to frequent at the beginning of my trading career, I stumbled across an analogy for the flow of price that still resonates with me to this day.
Think of a farm in an electrical storm as representing your trading day. Just like you can't predict which way a market will move, you won't ever be able to predict exactly where the next lightning bolt will strike.
But as you know that lightning will more likely strike the high points, to give you the best chance of predicting where the strike will occur, you can lay down rubber matting across the open field and then build tall metal towers on the surrounding mountains to catch them.
In this analogy, the tall metal towers on the hills represent your entries and exits because this is the path of least resistance for the lightning to run to. The rubber matting doesn't conduct electricity, so a strike is much less likely to occur here.
You want your stop loss to be on the matting where there is hardly any reason for lightning to strike. You then want to continue to allow lightning to predictably strike the high points toward your profit target.
But sometimes despite all logical predictions, lightning wont always strike the towers where you expected. This is just like trading and if lightning did strike your matting, setting it on fire, we can use this as an analogy for a losing trade. It wont happen as often as the towers are hit, but it will happen from time to time.
Can you see that the science here is just like your edge in trading? To make money, you just need to be right more times than you're not. So trade in the path of least resistance.
Your Epic Trading Opportunity!
Can you see the opportunity that is presented to you by the market each and every day in the form of charts? The charts, scattered with support/resistance lines already drawn out show us where the electrical storms are likely to happen at all times.
In the form of support and resistance, the market has already laid the grass with matting to tell you where lightning is least likely to strike.
You don't even have to build the towers on the hills to catch the lightning, you just need to be able to spot them. Just like huge metal towers, these entry zones are unmissable to a trained eye.
All you have to do is spot them, trade them and then manage your risk so that if by the odd chance lightning decides to burn your matting, you survive. It really is that simple!
Best of probabilities to you!
Peace ✌🏻.
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Blogging about markets is all about sharing ideas and making us see all possible angles. I look forward to having you follow along and reading what you throw at me.
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