Apply What You Know About Order Flow

Eventually there comes a time when you have gathered up all the information.  You have read all the books.  You have watched all the videos.  You have read all the articles.  But in order to take the next leap in your development as a trader you need to actually apply what you have learned.

That is one of the many problems with traders.  They do not attempt to apply what they know.

They gather up all this wonderful information about trading, whether it is technical indicators, chart patterns, forex robots, etc.  But they may never actually apply what they know to a series of trades and record what happened.  And also more importantly, record why it happened.

I know because I was in that same situation.  I downloaded every free ebook, watched every video, read every article, read all the trading books “you are supposed to read.”  Many of them contained the moving average, stochastic, and chart pattern strategies, just rehashed.

I still have copies of some day trading ebooks that I downloaded years ago that I thought would make me rich.  I signed up on all the forex newsletters that promised a free ebook.

I look back at them and see what a fool I was for believing in them.  They had some special technical indicator system where you use a certain set of moving averages, with a RSI, and stochastic.  And when they all line up you could scalp the forex market for 20 pips or so.  I laugh because I didn’t know any better.  It was just a process you go through.

Even when I did apply the system, I didn’t know where to proceed from then.  I had tested out the system with a bunch of trades in Metatrader, and then what was I to do?

I didn’t know what was the next step to evaluate system profitability and to further improve a trading system.  Was I supposed to tweak my indicators?  Look for cleaner chart patterns?  Find better support and resistance?  Was I supposed to look for divergence in the technical indicators?

I didn’t have the order flow mindset back then.  I didn’t have a list of the best trading questions to ask.  So the next logical step for me was to go to price pattern analysis and try to trade naked.

These same strategies are being rehashed and taught in trading articles, and you have an army of new trading books constantly being released that talk about the “high probability” fibonacci entries etc.  They talk about the “new ways” to determine when the market is trending and present to you some moving average crossover.

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Soros Bank of England

When George Soros broke the Bank of England, he didn’t care about any of those things.  He didn’t care about the moving averages.  He didn’t care about the RSI or stochastics.  He didn’t care about the chart patterns.  He didn’t care about the price patterns.  He didn’t care about the forex robots.  He didn’t care about the fibonacci’s.  He didn’t care about the Ichimoku.

Soros is not going to clutter his mind with such things.

Because Soros knows such things do not move the market.  I am not saying he always knows what moves the market or is always correct.  He is not always correct as he has had many losses including $600 million during the St Valentines Massacre that I previously talked about.  But he does know about order flow and global macro analysis.

What he cared about back then was the global macro analysis of the situation.  And global macro works just as well today as it did back in 1992.

You may find me talking about Soros breaking the Bank of England many times.  For the example illustrates many different order flow, liquidity, news, sentiment, sensitivity, central bank intervention, and global macro principles all rolled into one example.  One perfect example.

A person going back and looking strictly at a chart may or may not have found chart or price patterns.  There may or may not have been a forex robot signal.  There may or may not have been a moving average crossover.  There may or may not have been a divergence signal.

Whether there were any of those patterns was irrelevant, for they did not move the market.

Clutter your mind with knowledge about things that can move the market.  Remove the clutter about things which do not move the market, and never will move the market.

Hunger for Knowledge?

Have a hunger for knowledge.  But have an even bigger hunger to apply, implement, and execute what you have learned.

Steven Schwarzman, the chairman of the Blackstone Group, once said:

Apply What You Know

Most people don’t apply the knowledge they have learned.  Sometimes they feel it is too hard.  Other times they don’t have a blueprint or sufficient examples.  Other times they don’t have the motivation.  Other times they suffer information overload and quit.

The ones that apply, execute, and implement attract the money.  That is how it has always been and how it will always be.

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