There is a lot of bullshit in trading. Indicators are a perfect example. Indicators are widespread. They are some very simple tools which makes them super easy to use. Easy to use, however, is not the same as useful!!! Indicators show simplified, distorted images of what price is doing. It makes no sense to look at a distorted image and hope to see the real picture. Price, on the other hand, is the source code. It’s the only thing that matters, it’s what everyone sees, it’s what everyone takes into account and it’s what everyone trades!!! Because indicators are so simplified they only show a fraction of what’s really happening and of what we need to know. There are of course other very good reasons for not using indicators and many other trading tools. But the idea is that all of these tools and indicators are by-products and imitations of what price does. Although I’m clearly biased, the point I’m trying to make here is not actually if indicators and other trading tools and even my favorite price action trading work or not in theory, if they give any trading advantage or not. The real question is if traders can make them work or not in practice.
There was only one thing that was bugging me from the beginning of my 5 years of trading hell. It started when I managed to double one of my first accounts in less than two weeks. Back then I was reading the news and using indicators of course and I was a noob. And I felt super excited about the future. But in the back of my mind there was this question. “How the f@#k did I do that? Can I do it again?” And deep down I knew I had no idea how and I knew I was pushing my luck. I had one or two favorite indicators but I also did many other things and in general I just did what I thought was a smart decision. I don’t know how to explain it better. And of course I lost all of my money the next week. A classic story.
I think it was this question that drove my development. And it also helped me spot and evade most of the bullshit. I say most because some of the bullshit is very well camouflaged. But I know that later the question evolved into “Do I understand how and why it works?” The question applied to the market and also to what I was using to analyze and trade it. And to this day I don’t see a way to make indicators work. There could be a way but I just don’t see it. That being said, I am guilty because I do occasionally use a single exponential moving average. Old habits die hard I guess and I like the way it looks on the chart.
In my experience if you don’t understand something, you won’t be able to make it work, even if it works in theory. The thing is that traders have to follow or stick to certain strategies. They have to do the same things over and over and over again. The problems begin when they start losing and then dealing with the consequences. How do traders know if their strategy is actually any good? There are so many things that can go wrong and lead to losses. Traders can control some of them and others they can’t. How do they know what they did wrong and what they did right, what to fix and what to leave, when they don’t have a clue and don’t understand the how and the why of what they are doing. They simply can’t know. If a player does not understand the rules of the game, he can’t play the game.
Here is what I know now. I understand exactly how the market behaves and why. I understand exactly how to enter every single trade and why. I understand the how and the why of every single thing I do. I don’t wonder, guess or assume what can happen and why. Losing some of my trades is simply a part of the equation.