See the photo below?
It shows the screens of a trader at a proprietary trading firm.
What don't you see? You don't see price charts with 'trend lines' drawn in.
What do you see? The 'charts' you see are not individual price charts but graphs tracking pricing models such as relative value calculations.
But the charts are only one component of the overall decision-making process.
Also shown is the trading activity of other participants.
I'll cover why in a minute, but first:
The key takeaway from looking at the trader's screens is that when making a trading decision, the trader considers multiple data sources—or, as I say, "multiple points of evidence."
Why 'multiples'?
Before establishing his multi-billion dollar quantitative fund, WorldQuant:
Igor Tulchinsky traded for 12 years at Jim Simons' Medallion Fund, famed for having the best record in investing history.
As Igor says: "Because all theories are flawed, the best approach is to collect as many of them as possible and use them all, in as optimal a fashion as you can devise, simultaneously."
Why focus on the activity of others?
Much of the methods touted in so-called trading education and advice are skewed towards hindsight.
And as the best trader of our time Jim Simons famously said, "Drawing conclusions from hindsight is a complete waste of time."
Regardless of the best-laid plans, when it comes to taking action—as in any competitive sport —you're responding to the actions of others.
In the short term, trading is about game theory more so than prices. Make sense?
As Jim Simons revealed about his trading, "We don't want to predict price, but we want to predict when other market participants are going to do something."
Reality check
To quote Igor again: "Trading signals decay, whether you use them or not, because if you don’t use them, others do."
This underscores the importance of staying ahead by continuously analysing multiple points of data.
By doing so, you can validate or invalidate your strategies in real-time, minimising risk without putting your capital on the line.
What's great about trading?
Few people will put in the work to understand what the market is saying (through multiple points of evidence).
As a trader who wants nothing more than 'consistent performance,' this is a genuine, time-tested approach to reaching that goal in something that has longevity.
Because most people won't pay the price to reach the goal, it retains its efficacy because it's uncrowded.
Forex and derivatives trading is a highly competitive and often extremely fast-paced environment. It only rewards individuals who attain the required level of skill and expertise to compete. Past performance is not indicative of future results. There is a substantial risk of loss to unskilled and inexperienced players. The high degree of leverage can work against you as well as for you. Before deciding to trade any such leveraged products you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading on margin, and seek advice from an independent
Editors’ Picks
EUR/USD flirts with daily highs, retargets 1.1900
EUR/USD regains upside traction, returning to the 1.1880 zone and refocusing its attention to the key 1.1900 barrier. The pair’s slight gains comes against the backdrop of a humble decline in the US Dollar as investors continue to assess the latest US CPI readings and the potential Fed’s rate path.
GBP/USD remains well bid around 1.3650
GBP/USD maintains its upside momentum in place, hovering around daily highs near 1.3650 and setting aside part of the recent three-day drop. Cable’s improved sentiment comes on the back of the Greenback’s irresolute price action, while recent hawkish comments from the BoE’s Pill also collaborate with the uptick.
USD/JPY edges up above 153.50 with all eyes on US CPI figures
USD/JPY appreciates above 153.00 but remains on track for a 2.4% weekly loss. Trading volumes remain subdued on Friday, ahead of the IS CPI release. The Yen remains supported by hopes of a stable government and calls for further BoJ tightening.
Editors’ Picks
EUR/USD: Yes, the US economy is resilient – No, that won’t save the US Dollar Premium
Some impressive US data should have resulted in a much stronger USD. Well, it didn’t happen. The EUR/USD pair closed a third consecutive week little changed, a handful of pips above the 1.1800 mark.
Gold: Metals remain vulnerable to broad market mood Premium
Gold (XAU/USD) started the week on a bullish note and climbed above $5,000 before declining sharply and erasing its weekly gains on Thursday, only to recover heading into the weekend.
GBP/USD: Pound Sterling remains below 1.3700 ahead of UK inflation test Premium
The Pound Sterling (GBP) failed to resist at higher levels against the US Dollar (USD), but buyers held their ground amid a US data-busy blockbuster week.
Bitcoin: BTC bears aren’t done yet
Bitcoin (BTC) price slips below $67,000 at the time of writing on Friday, remaining under pressure and extending losses of nearly 5% so far this week.
US Dollar: Big in Japan Premium
The US Dollar (USD) resumed its yearly downtrend this week, slipping back to two-week troughs just to bounce back a tad in the second half of the week.
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