We all read the charts, know the patterns, understand the candlesticks, and do our best to interpret the market's next move. Yet, 90% of retail traders struggle to break even after hundreds of traders. There are very few traders that can beat the market over a long period and that's a fact. But, why?
Let me ask a different question. Where do we all learn how to trade? E-books, trading courses, trading mentors, and so on, correct? And all this information is available to the public. So, most of the traders are receiving rather similar information from almost identical sources, and as the result, they all think the same way. Meaning, we all sell at the resistance and but the support. Or wait for a breakout and jump right in, for example. Isn't this some sort of a self-fulling prophecy?
One of the indications of this idea is the fact that technical analysis, as a tool, "works" for so many traders. Of course, when it doesn't, we rationalize the poor outcome and would stick to our old books. Why? Because we that’s all we got. There is nothing else to guide us, traders (not investors) other than technical analysis. We can’t switch gears or explain why every losing trade happens. But, if we all act based on the same principles, then why technical analysis doesn't work more often than it does?
There are two theories that could explain this:
The first idea is what we hear from the experts and read in every trading book. It's our own fault! Because we can't make correct decisions and our mind is flawed. Our decision-making part of our brain is always challenged by filtering through emotional vs logical inputs and is highly prone to different biases and flaws. Of course, understanding these biases could help minimize our logical errors, and with practice, we learn how to control our emotions. So, with years of experience, we can master the art of trading, but even then, beating the market is not guaranteed.
Now, let’s discuss the second idea of why our trading logic fails, but first, let me pause and ask you this: What is the number one strategy to win any chess game? Isn't it by predicting the next moves of your opponent? You guessed it, the answer is, yes. If you play chess professionally, all you want to do is to create a situation that you could predict the next moves of your opponent or put them in a situation that they behave as you have planned it. It's with that method, you can win the game the way you want.
This explanation might involve the institutional traders. They, too, know all that we know. They wrote most of the trading books we swear by. They also know that retail traders provide the liquidity that institutional traders need, and, unlike them, retail traders have a limited ability to move stocks specifically those with large market caps.
They are winning this game because they know how we think, they spread the news we act by, and they taught us how to react to the charts. This is not to say that we always must act against what we have learned as technical analysts, but the main point is that if you want to play this game well, you need to learn how to play chess and see the world from the perspective of your opponent.
Let me ask a different question. Where do we all learn how to trade? E-books, trading courses, trading mentors, and so on, correct? And all this information is available to the public. So, most of the traders are receiving rather similar information from almost identical sources, and as the result, they all think the same way. Meaning, we all sell at the resistance and but the support. Or wait for a breakout and jump right in, for example. Isn't this some sort of a self-fulling prophecy?
One of the indications of this idea is the fact that technical analysis, as a tool, "works" for so many traders. Of course, when it doesn't, we rationalize the poor outcome and would stick to our old books. Why? Because we that’s all we got. There is nothing else to guide us, traders (not investors) other than technical analysis. We can’t switch gears or explain why every losing trade happens. But, if we all act based on the same principles, then why technical analysis doesn't work more often than it does?
There are two theories that could explain this:
The first idea is what we hear from the experts and read in every trading book. It's our own fault! Because we can't make correct decisions and our mind is flawed. Our decision-making part of our brain is always challenged by filtering through emotional vs logical inputs and is highly prone to different biases and flaws. Of course, understanding these biases could help minimize our logical errors, and with practice, we learn how to control our emotions. So, with years of experience, we can master the art of trading, but even then, beating the market is not guaranteed.
Now, let’s discuss the second idea of why our trading logic fails, but first, let me pause and ask you this: What is the number one strategy to win any chess game? Isn't it by predicting the next moves of your opponent? You guessed it, the answer is, yes. If you play chess professionally, all you want to do is to create a situation that you could predict the next moves of your opponent or put them in a situation that they behave as you have planned it. It's with that method, you can win the game the way you want.
This explanation might involve the institutional traders. They, too, know all that we know. They wrote most of the trading books we swear by. They also know that retail traders provide the liquidity that institutional traders need, and, unlike them, retail traders have a limited ability to move stocks specifically those with large market caps.
They are winning this game because they know how we think, they spread the news we act by, and they taught us how to react to the charts. This is not to say that we always must act against what we have learned as technical analysts, but the main point is that if you want to play this game well, you need to learn how to play chess and see the world from the perspective of your opponent.
