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WE HAVE ALL suspected it at one point or another in our careers, but here it is in writing:

The markets conspire to make the majority of traders wrong practically all the time.

Some would say “all the time, period”. I prefer not to go that far. Nonetheless, it does sometimes appear to be a mass conspiracy. I prefer to think of this fact differently:

The markets MAKE people get it wrong because they wait for “confirmation”.

This can be confirmation of their system, or confirmation of their feelings, or just vague confirmation, which isn’t confirmation at all.

Here is one common example: A market begins to move up. A potential trader looks with interest. “It looks promising,” he thinks, “but I’ll wait for just a little more confirmation. I’ll let my Bollinger Bands be broken, my ADX to go above 20, and my moving averages to cross over. Then I’ll be sure.”

Then, the market jumps up suddenly.

“Now, I’m sure!” the trader thinks excitedly as he pushes the buy button…

and the market drops like a rock.

What happened? The trader checks his plan. He can’t find anything. He consults his forex manual, which is as thick as a telephone directory. No good either. He shrugs. “It must have been a bad trade.”

…then he goes back to trading. And repeats this cycle until he loses his account. The end.

Well, here is what happened – every market move only has a certain number of pips or points in it. The more you wait, the further it has to move to get into position. Thus, by the time most indicators line up, most of those pips have ALREADY BEEN USED UP. You hop onto the boat just in time for it to go the other way. And here’s the irony – if you had bothered to look at the bigger picture, or a different timeframe, you would have probably seen it coming.

I could write a book about this, but I’ll keep this to a simple analogy:

Trading is a bit like driving. You need to know your vehicle, the trading and charting platform. Then, you have to take driving lessons and pass a test. That’s your backtesting and some demo trading. But MOST IMPORTANTLY, you must understand the difference between planning and perception.

When you drive, you probably already know the upcoming roads pretty well, from experience. These days, we even have GPS systems (trading systems) to tell us what is coming up. Now, most days that is fine. But what if someone threw a large rock in the middle of the road? Your GPS isn’t going to tell you that! No about of PLANNING will save you. You have to use your EYES and PERCEIVE the condition of the road as unsafe. Similarly, your trading system tells you what can happen as a matter of course. You have to use your eyes to see that the road hasn’t suddenly fallen away. This is usually blindingly obvious when you look at a higher timeframe.

Moral of the story: If you are trading a single timeframe system, you need to keep your eye on a higher timeframe. Otherwise, your system is going to be “tricked” by the markets simply because you weren’t watching where you were going.

With best wishes for your trading,

Kaye Lee
Private Fund Trader/Head Trader Consultant
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