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 looks range bound in the sub-1.1600 area
Following Wednesday's hiccup, EUR/USD resumes its weekly downturn, remaining in the sub-1.1600 range, while the US Dollar (USD) gains momentum across the board on the back of solid retail sales numbers and the weekly labour market report.
GBP/USD remains on the defensive around 1.3400
GBP/USD maintains its bearish tilt unachanged toward the end of Thursday’s session, hovering just above recent multi-week lows around the .3400 neighbourhood. The positive UK labour market statistics offered instant support for the British Pound, but the strong tone in the Greenback kept Cable’s price action subdued.
Japanese Yen adds to intraday losses; USD/JPY climbs to 148.80 amid broad-based USD strength
The Japanese Yen selling remains unabated through the early European session on Thursday, which along with a goodish pickup in the US Dollar demand, lifts the USD/JPY pair to the 148.80 region in the last hour. Data released earlier today showed that Japan clocked a smaller-than-expected trade surplus in June.
Editors’ Picks
EUR/USD looks range bound in the sub-1.1600 area
Following Wednesday's hiccup, EUR/USD resumes its weekly downturn, remaining in the sub-1.1600 range, while the US Dollar (USD) gains momentum across the board on the back of solid retail sales numbers and the weekly labour market report.
GBP/USD remains on the defensive around 1.3400
GBP/USD maintains its bearish tilt unachanged toward the end of Thursday’s session, hovering just above recent multi-week lows around the .3400 neighbourhood. The positive UK labour market statistics offered instant support for the British Pound, but the strong tone in the Greenback kept Cable’s price action subdued.
Gold price retains its positive bias amid a broadly weaker USD; lacks bullish conviction
Gold price trades with a mild positive for the second straight day on Thursday, though it lacks follow-through and remains below the $3,350 level through the early European session. Reports that US President Donald Trump was considering replacing Federal Reserve Chair Jerome Powell raised concerns over the future independence of the US central bank.
Bitcoin Cash targets 52-week high as on-chain data indicate room for growth
Bitcoin Cash (BCH) is trading in the green by 2% at press time on Thursday, following a 6.39% price surge on Wednesday. Rising in a parallel channel pattern, BCH shows signs of increasing bullish momentum and nearing the $500 psychological level.
Could Iran block the Strait of Hormuz? Why Oil is on edge after US strikes
As the Israel-Iran conflict reaches new heights, an old threat is coming back to haunt the markets: that of the closure of the Strait of Hormuz. This narrow arm of the sea in the Persian Gulf, wedged between Iran to the north and the United Arab Emirates and Oman to the south, is much more than a simple sea passage.
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