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Want to Improve your Trading Results? Think Like a Sleuth

Gabe Velazquez

In many respects, successful market speculation is about trying to outwit our opponents. In the trading arena, much like in the jungle, only the strong survive, and the weak perish.  When referring to strength in the trading realm, this translates into discipline, strategy, and flexibility. For those that are lacking in any of the aforementioned, let’s just say, they end up at the bottom of the food chain.

The strong market speculator not only understands how other traders think but how all the puzzle pieces come together for the ideal opportunity. Like a sleuth following the clues of the market she relies on facts, not hearsay, rumor or innuendo.  The market always leaves clues, but most traders are too busy looking for confirmatory information thus losing their objectivity.  Any good detective will tell you that they only rely on the facts, and never on what people tell them. That’s because people will often not tell the truth, while facts almost always lead them to their culprit. The same can be said of all the pundits out there, and only the charts are factual.

All these aspects of trading are what make trading challenging, and at the same time very interesting. Because trading is extremely competitive, knowing how the money makers (the institutions) operate is critical to surviving.  Like good market detectives, uncovering the footprints that are left by these big players is a big part of our core strategy here at Online Trading Academy.  In addition, those that lose money consistently (retail traders) also leave evidence behind. This information is just as valuable for enhancing probabilities.

As an XLT instructor I put my sleuth hat on and look for trades that students can benefit from. Our motto here in XLT is “earn while you learn”. On March 13th, I was conducting a futures XLT, and as I do in all of these sessions I was looking for clues that would afford us low risk opportunities in the Futures markets.  I noticed that the EC (Eurodollar) futures were approaching a good quality demand level. I advised students that I was taking the trade and that if the risk was appropriate for them they could take it as well.  The caption below shows where the purchase was made.

Figure 1

The fact that the EC (Euro) was coming into a demand level was only one piece of the puzzle.  I made the observation to the students that the odds of this trade working were increased because of another important factor: An inversely correlated market was hitting its supply level at the same time. Doesn’t it make sense that if markets that trade in opposite directions both hit their respective supply and demand zones simultaneously, that the odds would be high?  The answer of course is yes, and that is what detective work does for you.

In the XLT we teach students to look for clues in inversely correlated markets so that the probabilities that they make money are increased, thus lessening their risk.  As you can see below, the trade worked, not only for me, but more importantly for the students who elected to take the trade.

Figure 2

The lesson here is that like good detectives who have to stay detached from their personal views and biases while investigating a case so do traders when looking at the market.  Because in the end, the market doesn’t care about your hopes or wishes, but time and again, it will leave plenty of clues for those market speculators that are watching through an objective lens.  To test this theory, ask yourself this question: Are you bullish because the information before you is bullish, or are you bullish because you happen to be fully invested in the most aggressive stocks and your retirement depends on the market continuing to rally?

Until next time, I hope everyone has a great week.

This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.