Lessons from the Pros


What Do I Want and What Do I Need?

“Consistent trading is simple, not easy.” Those are the words that I find myself telling people when they first enter the world of market speculation. While we all long for a way to achieve our short term income and long term wealth goals and see trading as the way to do it, most forget that tackling the market on a regular basis also comes bundled with its very own set of challenges. Yes, by nature this is a very simple activity whereby we look to buy low and sell high, manage our risk and follow a plan but as is often the case, it is being human which gets in the way!

I always like to break human behavior down to defining the difference between what we want and what we need. Some people choose to live their lives in a state of constant want, never truly being satisfied by what they already have and instead focusing their attentions on what they don’t have. When they get the things they want, they then move their focus onto the next thing on the list. Now please, do not get me wrong and think that I am being critical of people who want things which they don’t have – I myself want things from time to time, it’s simply a part of our makeup. However, if we devote all of our attention on the wants, are we ever really going to find ourselves satisfied with what we have?

You see, there are other people out there who look at life on the flipside of this and rather than put time into what they want, they instead focus on what they need. Ask yourself this: what things do you need to get by. Food, water, family, friends, a place to live and a means to pay your bills? These needs will pretty much always be our priorities and once these priorities are recognized and met, then the rest really becomes about what we want as a bonus. The point I am trying to make is that if we can be happy knowing that we have everything which we need then the wants will tend to take care of themselves over time. Imagine if you lived your life saying that the only way you could be happy was if you had everything that your wanted? It would never end! How frustrated would you become? When you have what you need and can be happy with this then the rest will simply fall into place over time.

So what is the relevance in this discussion to trading you ask? Well as I have said many times before, one of the most fascinating things about trading the financial markets is how much you begin to notice parallels in our behavior when we trade to how we also live our lives. It is almost like the markets are a mirror image of our lives. I have always told my students how we never really trade the market itself but instead we trade our beliefs about markets at the time we are placing the trade. Let’s face it, we can never know exactly what is going to happen next in the market, so we instead play the odds to our advantage. If a trader believes that they have all the tools they need to be successful in the markets then they will stick to their plan and act when they see a trading opportunity in front of them. If another trader is worried that they don’t have the tools to be successful then they will find it difficult to execute when a solid trade setup presents itself. They will inevitably find themselves in a state of want, searching for more and more information to help them “know” when to take a trade or what direction the market is going to head in next.

Here at the Online Trading Academy, we choose to gain an edge by thinking and acting like an Institution would think and act. When you really understand how the biggest banks trade, then all you need to do is emulate them. Sure, not every trade is going to work in your favor but with solid risk management in place, they don’t need to all be winners. When you know what a true picture of Institutional Demand and Supply looks like on a price chart, you realize that you have everything you need and then it becomes about seeing the opportunity on the chart and taking it. The dilemma comes when you begin to want more information and start to bring more forms of analysis to the table. Take this for example:  

Euro Growth Cut May 29th 2013

On May the 29th, just a few weeks ago the Organization for Economic Co-operation and Development (OECD) cut their forecasts for European growth, saying that the continent was falling behind the rest of the world in the expansion of  its economy. The trader who chooses to read a news story like this would no doubt take this as a great reason to short the Euro in light of the negative news and according to the rules of traditional technical analysis, this would have made sense. Take a look at the chart of EURUSD at the time: 

May 29th 2013 Pre Rally OECD

Every signal we see is telling us that shorting the EURUSD is the way to go: The Trend is down, the market is failing to make new highs, Moving Averages are sloping down, there is convergence between price and the oscillator and of course the news is bad. For the trader who wants to collect as much information as they can, the recipe on the table is shorting all the way.

However, what about the institutions? Do we think that they are using the same tools and reading the same stories? An institution is nothing more than a business which needs to buy low, sell high and keep its costs low. Selling after everyone else has sold would not be good practice in reality would it? In fact, if everyone else is trying to sell then this may be a great time to buy from them at a cheap price. We can already see that someone with a lot of orders was trying to buy Euros cheap on the 23rd of May, as shown by the big rally. That’s all the information I would need to make my play. As we can see, the institutions had their way after all: 

May 29th 2013 Post Rally OECD

  After a small drop, the Euro fell into an area of demand and rallied over 500 pips, although the news was telling us the complete opposite. Our students are taught to recognize the difference between thinking like a retail trader who wants every signal they can find to tell then what to do and thinking like an institution who knows exactly what they need to do to keep risk low and reward high, in spite of the news going on around them. In our On-Location classes and Online Extended Learning Track, we teach our students what they need to be successful in today’s markets. Drop in sometime to one of our worldwide campuses to find out how to define your wants and needs for short term income and long term wealth solutions. I hope you found this useful.

Until next time 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.