Lessons from the Pros


Shutting Out the World

Another week passes and unsurprisingly there is more volatility and more ups and downs in the currency markets than ever. With more talk on changes in policy regarding Quantitative Easing from the Fed and German Flash PMI figures falling low, is it any surprise to see both the equity and currency markets jumping from one move to another in the blink of an eye? These market conditions are certainly not for the faint-hearted by any means and who could argue that with everything going on it can get so challenging to ever know what to really do when it comes to placing a trade.

Having taught and interacted with hundreds of traders from around the world, I have often noticed how most market speculators tend to search the web for any little but of news or information they can find to help them get an idea of which way the market is going. Let’s face it through, trawling the world-wide web for news can easily become very confusing, as there will always be a difference of opinions out there at any given time. One article says the markets have more upside to go, while another respected analyst is saying the complete opposite…who can you listen to? I would hazard a guess that given the choice of opinions out there, the voices with the most respect are often given the greatest attention.

Be honest with yourself, if you wanted to take business advice from someone and were given the choice between Donald Trump and a local grocery store owner, who would you choose? Now I am not even suggesting that the local businessman has not got adequate business knowledge. In fact he may be running a highly successful store but still, he is not known as widely as someone like Trump is he? With the clout and profile Trump holds, we would expect that when he gives his opinion, people listen.

So do you think this dynamic is any different when it comes to opinions in the financial markets then? Let’s take a trip back in time to the spring of last year when the fate of the Eurozone was of primary importance in the market and news. One minute Greece was going to be leaving the EU then the next we hear rumors of Germany printing Deutschemarks in secret preparation for its own decision to leave the single currency. Enter then one of the biggest market heavyweights of them all: Mr. George Soros, the man who once broke the Bank of England and one of the most successful investor, trader and fund manager of all time. As reported on the Reuters website in mid-April of 2012, Soros had his own feeling towards the fate of Europe, as shown below:

In this piece, Soros warned that the euro crisis could destroy the EU and went on to say as highlighted above, “…the crisis is getting worse. It’s not over yet and it is going in the wrong direction.” Tough words of wisdom from one of the greatest market speculators at all time. As we can also see, via Facebook 350 people recommended this article to others. When somebody respected speaks, people do listen. So what is my point?

Let me be clear in saying that I have the utmost respect for George Soros. The man is a legend and I will never doubt or ignore his opinion, however I also recognize that it is also nothing more than an opinion. We are all entitled to our opinions and when you have a knack of being right (like Soros clearly has) people should definitely take it into account but that does not mean that that opinion will always be the right one either. Even Mr. Soros can get it wrong now and then can’t he? I would never make a decision based on somebody else’s opinion only. I need to give it my own thoughts too and make a decision for myself and be held accountable. Now how many people do you think read this article above and (based on Soros’ track record) became even more bearish on the EURUSD at the time? I would hazard a guess that this was quite a few indeed and who could blame them. Just look at the chart of the EURUSD at the time:

We were in a long term established downwards trend with a ton of bad news coming from Europe on pretty much a daily basis and now one of the most listened to voices in the markets is saying that things are likely to get worse – who wouldn’t want to get short this market? From an objective point of view, it would make sense to go with this trend by shorting Supply levels but even still, we also need to anticipate that all trends come to an end: fast forward to the summer of 2012:

Roll on late July 2012 and lows being made on the EURUSD at the 1.2050 mark, only to rally consistently for the rest of the year making higher highs and higher lows to reach the heights of 1.3650. So much for all the doom and gloom of the future of the EU eh?

So what can we learn from this? Well that is a simple answer in that we must always remember to be as aware as possible of our surroundings in the market place and look to what the charts are actually showing us, rather than what we want to see. Sure, it can be hard to ignore the opinions of someone with Soros’ stature but I bet even he would advise people to not put all their faith in his calls alone, as he will be the first to admit that even he gets it wrong from time to time. And let’s be objective here: who says that he is wrong? Not me. The EU could still fall and things get even worse but that can happen over a long time and Soros himself never gave us a widow did he?

To combat the desire to read news and reports to help my trading, I decided a long time ago to just leave it all out of the plan, to shut myself from opinion and just trade the prices I saw in front of me on a chart, nothing more, nothing less. This way, I developed the ability to remain unemotional and logical in my trades, only respecting the laws of Supply and Demand and managing my risk at all times. After all, news, reports and opinions only encourage a trader to place a value on the market, which is a very subjective way to look at things. By simply focusing on price and nothing more, we pay attention to the one thing in trading which never lies to us and that’s the price itself.

See you in two weeks and take care,

Sam Evans


DISCLAIMER 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.

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