These traders are simply responding to the effect, entering in the HOPE that the momentum of this move continues in the same direction, long enough for them to attain a profit.
Hope is not good enough for me.
A better way to trade is to understand the CAUSE of price movement
Can you easily make the difference between a system that trades the EFFECT vs the CAUSE. Can you tell if your approach tries to exploit the CAUSE or the EFFECT ? If your own trading cosmology focus mostly on the EFFECT,do you in fact increase your risk ? And Why ?
Do you think these are just theoretical considerations that have nothing to do with the harsh realities of trading. Once you click buy/sell you can only hope price will go in your direction ???
What's your take on that ?
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I think this is relevant and not just a linguistic convention. Thanks for bringing this up.
I tend to agree with the article. The movements of price by itself, up and down, are all effects. The cause is generally unseen and figuring it out has to do with the 'logic' of price moves (not where, but when and why now). Of course, because of the feedback nature of the market, the visual effects feed back and become causes...etc.
Hmmm.... Maybe a more helpful discussion might be about conditions under which a price stops being (mostly) an effect and becomes a cause (i.e. when is price move sufficiently convincing).
I feel like the paradigm is valid... but slippery. Lacks rigor... as most things trading do.
"...the degree to which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader." - Mark Douglas
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Indicators are symptoms of the market.
A new trader should focus on the core of the market first and understand
the basic principals before adding any indicator to their chart.
Most new traders (including myself when I started) do everything backwards.
We focused on how much we could make instead of how much we could lose.
We searched for a holy grail and based our trading off indicators instead
of realizing the most important part was right in front of us (there is no holy grail).
The causes of those 4 phases of the market are supply and demand.
Price goes through a series of tests where the amount of supply
in the market is tested and the amount of demand is tested.
In an uptrend, as price rises, the demand decreases. Higher prices = less people are wiling to pay.
Price gets to a point where there is little to no demand where supply overtakes demand and
price has no choice but to move back down.
The opposite can be said for a downtrend. In other words -
When price moves down, it tests supply vs demand. As long as supply is more than demand,
price will continue to move down until demand overtakes supply and price has no choice but to move up
When I look at a chart (daily, 1hr, 5min) I focus on supply and demand based on Market Profiling techniques, Order Flow and Time and Sales.
I think that high volume points are more reliable. Low volume often is a simple sign of lack of interest, which is not very predictive of future price moves.
High volume is more interesting, as it will serve as a catalyst afterwards. The catalytic reaction kicks in, when half of the traders that participated in that high volume game realize that they are the pigs that get slaughtered.
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