So someone told you about a guy who turned $5,000 into $2,000,000 by day trading and you started the quest for the trading holy grail. You started reading every day trading book you could find. You bought a couple of day trading systems and day trading courses. You’ve studied the charts and know everything there is to know about technical analysis. You know all about support and resistance and pivots and trendlines and what not. You understand how to set trailing stops and profit targets. You’re ready to put your newfound expertise to work and retire in two years.
If riches do not fall into your lap, it’s because you didn’t read the charts right. That wasn’t a real double top. That was a false breakout which became a pennant which became a flag and then turned into a talking duck. Here’s a tip: Save yourself some money and don’t buy anything else which talks about technical analysis. It’s killed more traders than mortgage-backed securities.
If a mechanical day trading system ever works at all, it will eventually fail. They all do. I repeat. They all do. It’s not hard to understand why.
Neither Greenspan nor Bernanke has ever moved a market. No economic report about CPI or PPI or unemployment has never moved a market. Computers have been known to move markets but I’m pretty sure it was only when they were turned on by a person. HUMANS move markets. Humans who trade. Humans who buy and sell. Not exactly an earth shattering epiphany but you would be surprised at how many traders never seem to grasp this concept. Humans with access to large amounts of money move markets. Guys at banks and hedge funds. Traders who swing 5,000 contracts at a clip. You won’t ever move the market. Neither will I. But if you and I and a bunch of other small traders all panic at once, we might move it temporarily.
A trading chart shows you what happened in the past. It cannot tell you what’s going to happen in the future and it also cannot tell you what’s happening right now. Levels and trenlines only hold if a very large amount of money steps up to play at those spots and a chart definitely cannot tell you how much money is being put into action. This is why one should stay away from charts.
If a technical analysis situation occurs and the market moves in the direction that it’s “supposed” to move according to the technical analysis, it’s not because the chart said so. It’s because more money went that way at that time. It’s always about the most money. New money coming into the market and scared money leaving the market. This is a combination which causes sharp moves. It triggers momentum. And that’s what being a day trader is all about. Riding momentum.
I know more than one professional day trader. Guys who have made a lot of money. Seven figure money. They all concentrate on reading the order book. Reading the price action. The information in the bids and offers. If they use technical analysis at all, it’s role is very minimal and they will all tell you that normally it’s more of a hindrance than a help. They spend their time watching the market depth trader or DOM.
If you want to make money day trading, you have to learn how to anticipate what the big players are going to do next. You have to learn how to read the price action in the order book. You have to learn how to decipher the information in the bids and offers. The biggest traders in the world trade on this information. So should you.
