One reason why 95% of traders fail is that when beginning traders go to view the forex charts on various websites, they usually are loaded up with moving averages, technical indicators, etc. That is the standard, default and preset thinking of the forex websites. That’s mediocre thinking though. They assume that is what the average trader wants. Well the average trader doesn’t make the big profits. The average trader is not on the highest point in the trading profit ladder.
That is the ‘default thinking’ of most traders when they start attempting to find success in the financial markets. Most of the forums, trading articles and websites preset thinking is to explain market movements through using technical indicators, moving averages, Elliott waves, divergences, support and resistance, chart patterns, etc. That is there default thinking. When they see a huge move occur, those are the tools that they look at to explain why the market moved.
They think the market stabilized at a nice support level, the bullish divergence was forming, momentum index turning higher, the moving average crossed higher, and boom the market exploded higher. They think they can have a big kumbaya between those tools and the market.
When in reality many of them are mumbo jumbo B.S.
38 Fib Example
If the market is in a downtrend and retraces to 38 fibonnacci level, consolidates, then continues the downtrend trend making new lows, the 38 fib didn’t “cause” the market to move hundreds of pips. There are all sorts of people who believe that the 38 fib caused the market to find resistance there, to consolidate, and ultimately make the trend continuation move.
That flies in the face of the way large market participants act. It is almost laughable when you are an order flow trader and have attained the order flow mindset. A big macro fund that likes to execute billions of dollars of orders isn’t just going to execute them because the market is hitting the 38 fib. Somehow magically there are going to be massive offers lining up to sell at the 38 fib level, to stop prices from pushing higher, and to ultimately cause the market to continue the downtrend hundreds of pips. That is some wishful thinking.
Some very wishful thinking. I can just see the scenario playing out. Some hedge fund manager gets an alert from one of his traders about how the market is hitting the 38 fib, he then tells his trader to sell 2 yards (2 billion). I highly doubt that is how large order flows are generated. But some traders believe it still to be such.
I used to believe that when I was stuck in the technical indicator and chart pattern mindset. Not anymore.
Sheer Trading Luck
Now some people may say well why did the market stop at the 38 fib, then continue its downtrend? My answer would be that if that happened, then other factors came into play to generate order flow and move the price. Other factors, some of which occurred outside of the charts. Just because most new traders do not try to explain it doesn’t mean they can’t be explained.
It just so happened by sheer luck that the order flow generated just happened to occur where the 38 fib level was. It was sheer luck. But some people may say that they have backtested it and say why does it happen 20% of the time or 40% of the time if it was luck? Well it can still be luck. All sort of various trading systems and methodologies work some of the time. They may not have an edge, they may not generate a profit, but I am sure all sorts of trading systems generate winners, some of the time.
All sorts of forex robots or moving average crossovers generate winners some of the time, or in certain market conditions. They may generate some winners, but not necessarily be profitable as the losses eat into your trading account.
The key is not whether it works 20% of the time, or 40% of the time. The key is whether it gives you a big enough trading edge to make money. There are all sorts of people who believe that if they have the 38 fib line up to support their trades that the success chances suddenly go higher.
Such thinking is not rooted in order flow generators and liquidity thinking.
I am not saying the 38 fib generates zero order flow. I do believe it is possible for it to generate tens of millions of dollars, even potentially hundred of millions of order flow. But such paltry amounts is not enough to affect the price most of the time. Such paltry amounts are not going to move the market hundreds of pips to a trend continuation. You need more aggressive order flow from other sources, from other market participants.
Order Flow Trading Success
Don’t be part of the 95%. Instead be part of the 5% that actually studies the news impact and labels it on their charts when appropriate. Notice and learn when a sentiment and fundamental value shift has occurred. Notice when a global macro move is occurring.
If 20,000 traders are all viewing those charts with the same default indicators, are they really going to provide you an edge? And even if they do provide an edge, how big is it? Is it a 1% edge or a 2% edge? You don’t want such minuscule edges. You want a bigger edge. Small edges only show up after an extremely long series of trades, which can take many weeks or months.
I prefer huge trading edges that start showing up within the first series of trades. Of course some people can get lucky and catch a few huge winners without knowing why they did so.
So a very nice win rate and huge profit in a first series of trades could be the stroke of genius, or it could be luck. Which of the two depends on if you know relatively clearly which market participant was providing liquidity, which market participants or group of market participants moved the price in your favor, why they chose to take those actions and generate order flow, and who provided liquidity to exit your trade.
I don’t want to be on the ‘slowlane’ of technical indicators or chart pattern trading. That is assuming they get you anywhere at all.
I prefer to be on the correct lane and the ‘fastlane’ of order flow trading.
I prefer to make trading profits, huge trading profits while still young enough to enjoy them. Screw that invest for the long term and hope to compound at 5-10% a year for 40 years and you will have a bunch of money at retirement. Huge trading profits this year, this month, if the order flow, liquidity and volatility, and my own personal mindset and actions allow for it.
And in order to make huge trading profits while still young enough to enjoy them, you need a trading system, a methodology, a process, and habits that give you a very large edge from the very beginning.
Order flow trading success and huge profits requires shifting your default mindset from that of technical indicators, forex robots, chart patterns, etc to that of stops, option barriers, news, market sentiment, market expectations, market positioning, global macro, etc.