So I heard you’re learning about trading.
Indicators, price action, trend lines, P/E ratios, mutual funds, you name it.
You’ve spent hours upon hours absorbing all sorts of trading related content.
You feel ready.
You place your first trade. You win… or lose.
You’re hooked. “This is the best endeavor in the world!” you proclaim to yourself.
You place more trades. Weeks go by. Months. Maybe years.
Many emotional roller-coasters later, you’re still in the same place. Or even less.
Why? “Why is this happening to me even though I’ve spent all this time studying the markets!? There MUST be something more to learn”.
So, you go back to studying.
Your trading gets a bit better. However it’s still not at the level you assume you should be at.
Frustrated and confused, you repeat the cycle over and over again – never finding that elusive “consistency” that everyone is talking about.
Let me tell you why. It’s because whatever you have been studying is flawed. Most trading related information on the web is just regurgitated bullshit that is spouted by so-called “Guru’s” everywhere.
EVERYTHING you have been learning about is what I call Surface Information. The tip of the iceberg so-to-speak.
You know what REALLY drives price? No, not earnings, not valuation, and definitely not your cup-and-handle pattern. It doesn’t even fucking matter what the company sells.
Other people. Particularly other people’s perception is the KEY factor in driving the price of ANY instrument, ANY vehicle, and ANY market.
What causes a $10.00 stock to go to $10.01? Some schmuck buying at $10.01 because he thinks it’ll go to $10.02 or greater.
What causes the $10.01 stock to go to $10.02? Some schmuck buying at $10.02 because he thinks it’ll go to $10.03 or greater.
You get the idea? The ONLY way price moves ANYWHERE is because people PERCEIVE that price will go higher after they get in.
Of course, since we’re dealing with people here, they each will have their own perception of where price will go due to their own reasoning.
Unless you’re the world’s greatest magician and are able to read the minds of everybody that is in the particular instrument you’re holding, you will never be able to reliably forecast where it is heading.
The only thing you can know for sure is if it is going in your favor at THIS current moment in time. And how can you tell if it is? Well.. are you green or red?
If you’re green, great. People are piling on top of each other (do imagine a pile of bodies constantly stacking on top of each other) in the direction that you are perceiving. If you’re red, get the FUCK out – people are jumping into a ditch and you’re getting dragged along with them.
Obviously it takes more than just being green or red after you get in to be consistently profitable. You need an ironclad risk management strategy as well as great understanding of yourself and the mathematics of probabilities.
Just understand that your indicators or fundamentals will never reliably predict price and is doomed to fail once human emotions(yours and other participants) come into play.