You can’t predict the market. It’s a trap that traders often fall into.
Our goal as traders is to prove the validity of our strategies repeatedly, but it is inevitable that this logic will not always work out as it should. Due to the unpredictable nature of the market, many factors may divert the path of logic. You’ll know that no strategy is 100% loss-proof if you’ve been in the industry for a long time. The trading strategy is a probability game, and risk management needs to be added to protect against times when it fails to fulfill its logic.
The market often shows you what you need to do, so why would you try to anticipate it instead of acting on what it shows you?
To decode the secrets of the market, it is more sensible to act on the market rather than make predictions.
Acting on The Market
The market may not have any logic, and there may be no logic to the markets. The trading market is a chaotic place where many different motives meet with their own goals.
Sometimes, it happens during peak and busy hours or at random times. It is impossible for the market’s logic to be coordinated and boiled down to one specific motive when there are multiple participants with various motivations and strategies. The market cannot be driven by one logic or strategy.
The Trading Trap
In the market, there are various participants, so common knowledge could be a trap. Most of us are simple traders unable to affect market prices or moves. As a result, our money isn’t heavy enough to impact large liquidated markets.
Some, however, have the power to affect the price and influence the market. In this case, large institutions play a key role. They have huge capital, which they can use to place orders, which will cause prices to move. They can create impressions, traps, and false momentum games using common knowledge.
Tricks From The Pros
It is common knowledge that Hedge Funds and large institutions, etc., occasionally allow these common knowledge strategies to work for them, giving them the illusion that common knowledge strategies work consistently. Then, they can cash out of these strategies repeatedly, creating the false impression that they work consistently.
Those without enough capital are entirely at the mercy of those with enough to influence prices, which is why common knowledge can be a trap for traders.
A Wealth of Logic
It is possible to be the best analyst in the world, but you can be wrong many times on the actual trading floor.
In addition to the number of different logics to choose from, many of which contradict each other, strategies can fail. Several strategies are based on momentum, while others are based on reversals, while others are based on opposites. Some are based on opposites, while others are based on positives.
It depends on the scope of a trade to determine whether to be long or short on a given trade vehicle. The same strategies can also contradict themselves, depending on the timescale at which they are applied. With so many participants and varying strategies and timeframes, a chaotic and unexplainable logical system emerges. Despite being the best analyst in the world, you can still be wrong in actual trading.
It’s All About Risk Management
Your success is determined by how you enter trades by your risk management strategy, even if you can predict the market’s significant movements.
It may be possible to anticipate major moves, but sometimes, you won’t be able to measure the drawdown before it turns in your favor. You may not have the cash or patience to hold on until the turn occurs.
Bottom Line
There is always some degree of logic behind every good strategy, as every trader will tell you. However, this basic statement seems obvious to me, as it is not rational to assess the market based on what appears to be a reasonable strategy but is also unstable. Trade according to your trading plan and manage your risk. Decoding the market’s secrets is easier if you act on the market.
