Page 31 - Trading #101 Course – Part One: Trading Basics

TRADING #101 COURSE – PART ONE: TRADING BASICS /2017-10-06

one thing I found was that most systems tried to predict the market—and most failed
miserably!

It seems the more we try to predict the market, the more it can’t be done. Just as we
cannot predict future life and world events, we cannot predict future market events. The
fantasy that many traders believe in is that we can predict the future of price activity.
The reality is that we cannot. Hopefully, I’m not bursting any bubbles out there, but
better to hear it now than lose a ton of money later!

The most successful traders fully understand this concept, accept it, believe it, and
implement it. They trade based on the current reality in the market versus the fantasy.

Master traders grasp the concept of risk and probabilities in trading. They recognize and
respect the concept of money management and stop-loss setting. In addition, they
understand that trading is both a science and an art.

If trading were just science, you could buy a mechanical trading system, start it, walk
away, and come back and be rich. If a “black box” system did exist, it would be so
expensive that you and I could not afford to buy it. In fact, it would probably be kept so
secret that we would not know it existed!

Don’t get me wrong—there are some good technical science “tools” on the market
today, but remember, they are tools only, not the “Holy Grail.”

Dangerous Opinions and Indicators

When I began trading, my indicators indeed gave me signals that prices or trends may
change, but they did very little to help me consistently time those changes accurately
enough to make money. Instead, these indicators caused me to form counterproductive
opinions.

Three examples that show how opinions and indicators can be dangerous:

1. Opinion – MACD Example

Let’s say you have bullish divergence in a moving average convergence/divergence
(MACD) oscillator, and you now have an opinion in your mind that prices should change
from the current downtrend to an uptrend.

So, you look for a reason to go long, an entry signal. One comes along and you take it.
You think to yourself that you would not have normally taken that signal if you did not
see bullish divergence, but with bullish divergence you feel you should. Prices then
continue downward even lower and the bullish divergence remains bullish so you stay
with your long position.

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