Almost every type of trader looks at charts, at least some of the time. Plenty of retail traders, high net worth traders, hedge fund managers, macro traders look at charts. Everyone looks at charts. Even George Soros and Paul Tudor Jones. When Paul Tudor Jones saw the stock market crash in 1987 and 2008 he surely used charts. But then a key question still lingers. And then what?
The top traders do not solely look at charts. Everyone likes to use charts to make life easier to help plot where price is and how it has progressed. But the top traders are always looking for some sort of additional confirmation that their analysis can be correct. Additional confirmation from variables outside of the chart. Confirmation from things such as news, sentiment, global macro forces. They know many times the charts alone are not enough to draw in other traders into the move to cause them to profit.
Everyone has the ability to look at the same charts. Everyone has the ability to see the chart patterns and price patterns. Everyone can slap on a few technical indicators. Everyone can draw a trendline. Everyone can plot a few fibonaccis. Everyone can look at a few key moving averages.
The better question is what analysis do you do after you have looked at your charts? Everyone can see the most popular chart and price patterns. And then what happens? Sure there is different room for interpretation of the charts and of the price action. I agree, there can be differences.
But what analysis do you do that has nothing to do with a chart that can help you place a better trade?
If you choose to plot all of the above, and then what will you do to attain your trading edge?
Where is your trading edge going to come from? How can you spot the false patterns and false breakouts from other traders?
Years ago when I was attempting to find a trading edge in my beginner years, the way I would answer the trading edge question was to try out many things in the beginner trader cycle and price action trader cycle.
I used to believe a trading edge was in discovering the secret chart and price patterns that other traders did not know about. I used to believe that the trading edge was found in what secret combination of technical indicators you used together. Somehow, magically if you just chose the right ones and waited until they all lined up that would provide the trading edge.
I used to believe that the trading edge was in how you tweaked your indicators to find just the right settings. I used to believe that the trading edge was in how you used multiple time frames analysis. I used to believe the edge was in how you drew your trendlines and fibonacci levels perfectly.
Then I discovered the trading edge was in the information that you can only find outside of the charts. It was an order flow and information flow advantage. The trading edge lies in having an interpretation advantage over other traders.
This is why you see all those gradual trends occurring or see the move spaced out over several days. Certain market participants are late to the party. They are late to realizing something new about the market. The market can like to gradually price in some new piece or change in sentiment or the global macro situation.
Some traders do not believe it, so do not adjust their positions. But as the market starts moving against them they are forced into acting on the change in sentiment/fundamental value.
The traders who have an interpretation advantage can get in early and ride the move as other traders gradually realize that they need to adjust their orders and exposure to the new market environment. When enough of them have adjusted their trades and moved the market, the trader with the interpretation advantage can then exit their position as the market has reached a level of equilibrium and the easy money has been made already.
Sharing A Trading Edge?
Now some people may ask, if your trading edge is so good, why are you sharing it with this website? The truth is that even with order flow it is still subject to interpretation. You can have different order flow traders come to two very different conclusions about the global macro environment and predictions for future scenarios.
Also if the edge has not been eroded after several years, then it must mean it is a durable edge that can stand the test of trading time. I must be exploited endurable inefficiencies in the marketplace that will always keep on occurring rather than non-enduring inefficiencies that may exist for a few weeks or a few months then go away such as news spike trading from back in 2005/2006.
And frankly, not many people are willing to toss their technical indicators and chart analysis in favor of order flow. They may think it is too hard, or they suffer information overload.
And even if many traders happen to find my trading edge and get rich and suck out all the money from the forex inefficiencies that I teach, then I can always use my order flow mindset to find new inefficiencies. Once you know how all the various market participants interact with each other then it doesn’t get very hard to go into a new market and find new inefficiencies.
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