One of the great battles fought every day on the trading battlefield.
It is of the stale versus the electrifying trading information.
In one of my earliest books I read (Trading & Exchanges: Market Microstructure for Practitioners) which helped form the foundation for my trading philosophy, it includes a few key pages on stale prices and stale information. Paying close attention to this information, and finding a way to incorporate it into my news trading strategy and eventually global macro trading strategy has been so important to my trading journey.
First let’s go over stale prices briefly.
From page 134-135:
“A stale price is an old price that no longer accurately reflects the value of an instrument… Traders who know that values have changed will eagerly trade at stale prices if they can benefit from the change in value, and they will refuse to trade otherwise. If values have risen, well-informed traders will eagerly buy at the low stale price, and they will refuse to sell at that price.”
As a simple example when EUR/USD was trading around 1.4000 back in April 2014, that was a “stale price.” That price did not reflect the economic reality of the Eurozone versus that of the United States. That price did not reflect the divergent monetary policies that were going to happen, etc. So the well-informed traders eventually were eager to go short at those prices, and kept on hammering the price lower, more towards its true value. (EUR/USD is around 1.0600 as I write this). Those well-informed traders on the global macro situation were not interested in going long. Why go long on something that you believe is not going to go up in value? So they sold out of their long positions if they had any, and they started shorting the EUR/USD in the subsequent months after April 2014.
They key here is to know the true reasons why a price should move in the near future. To know the true reasons if the current price is “stale price” because it no longer reflects the true value of the financial instrument. Relying solely on moving averages and chart patterns will not get you as close to the truth as order flow trading, expectations analysis and global macro trading.
Now onto stale information…
On pg 229 of the book Trading & Exchanges, it says:
“A price reflects information if that information cannot be used to forecast future price changes. If that is the case, the information is in the price. Information gets into the price when all traders are aware of its significance or when informed traders push prices toward their estimates of fundamental value. Information that is already in the price is stale information… traders cannot trade profitably on stale information.
The most common mistake that traders make is to trade on stale information.”
One of the big reasons that traders fail is because they are trying to trade based on stale information. Whatever information they are using to make trading decisions… is well… stale. It’s not important. Those uninformed traders think it is important, but it is not. So the vast majority of aspiring traders that you see on the trading forums, the social trading websites, etc, they don’t make any sizable amount of money and keep it, because they trade on stale information. They trade based on systems that don’t accurately measure the difference between stale information and electrifying information. And since their trading philosophy and system cannot measure that, they don’t really have a trading edge.
Quite frankly, there is a lot of this kind of delusion going on. Developing the skills, the philosophy, the consciousness to automatically detect it and refocus on other tasks is important.
To further clarify this, there are two kinds of stale information.
There is the stale information that is already priced in. It could have moved the market, but it is already priced in. So it’s not going to. If it wasn’t priced in, then it could move the market, but since it is already priced it, it is not going to move the market.
Then there is the other kind of stale information which is, the trading system itself, what the philosophy and cause behind the system, thinks it will generate order flow, but it won’t. Like a trader who believes that a crossing over of the MACD or stochastic, etc, is going to generate massive order flow. Such a trader thinks they have an edge, but actually do not. So this is the other kind of stale information.
If you every hear of statistics of the traders that don’t make it, why is that so?
Well, one reason is that they are trading on stale information. The information, even if they interpret it perfectly, will not give them a trading edge. It takes the right information, properly interpreted over a sustained period of time for a trading edge to harden into reality.
So the large swaths of traders – in the forums for instance, etc, all believe their trading systems are interpreting information that gives them an edge. But that is not so. They haven’t realized it yet. And many of them never will, unless they have the massive desire and learn a more effective philosophy. Lots of traders are fooling themselves, with lack of knowledge about the fundamental essentials of good trading. And one of them is to avoid stale information and LOAD UP on the electrifying trading information.
So if you are not getting the kind of results you seek, then check, make sure, BE SURE, that the rules of your trading system, trading philosophy, can actually plug you into the information that matters, and interpret it in a way that matters.
That is the simple reason. Obviously, one could get into more complex reasons – but if you increase your awareness of this, you are well on your way.
The real money, the big money in trading is going in the opposite direction of the vast forum crowd. So if this order flow stuff sounds “weird” or looked down upon by the forum crowd, by your friends, take it as very positive sign of a vast gold mine waiting for you to come in with open arms.
This information about stale prices and stale information is just so crucial to understand, because it can form the foundational principles of multiple types of successful trading strategies.
I discovered that about ten years ago.
Here is the picture of the highlighted pages and information from the book:
Stale Information, Delusional Advice from Childhood and Beyond
As I got older and thought more deeply about what people told me growing up, what people told me in school, and the records of my thought in my journal, I eventually realized something:
Most people gave me useless information. Most gave me stale information, delusional information and advice. They gave me boring and useless information. I couldn’t really do much with it for health, wealth and happiness.
Perhaps you feel the same way and have been coming to the same conclusion?
Similarly, in a traders journey, there is the crucial skill of determining STALE from ELECTRIFYING information.
A trading philosophy and system’s profitability very strongly depends upon accurate thinking and action upon THIS.
So don’t focus on trading systems that only measure stale information – because what can you possibly do with that?
FOCUS on trading systems that identify and take advantage of the ELECTRIFYING information flow, and can quickly disregard the STALE INFORMATION.
This is one of the crucial questions you should be asking yourself:
Am I trading based on stale information, or electrifying information? Is my trading system generating signals based on stale information, or electrifying information?
You can even put a version of that on your desk or your wall.
Warren Buffett sits around reading all day and occasionally things come together to make a big deal or investment. IN other words, most of what he reads he already knows. Most of what he reads is STALE – boring, not going to lead to anything worthwhile in life. But, occasionally, he finds the ELECTRIFYING INFORMATION. That leads to action and profits and joy.
Now, a trader can be much more active that Buffett. Such an active traders maximum opportunity set and potential return percentage on capital, is far far higher. So you can find the electrifying information much faster. Usually every month. Sometimes every week and sometimes every day.
When you get really good at this – it’s not that hard. Most information gets interpreted fairly quickly. Some in a split second. Some in a few seconds. It can all happen pretty fast for you, when you get truly good at it.
There was a day many years ago when I did not know what I have written above. Now you do. And you are far better off for it.
If you want to plug yourself into the ELECTRIFYING trading information that can fatten your bank account, then CLICK HERE for the Order Flow Mastery Course.