Waiting and Anticipating – Market Speculation

In many respects, successful market speculation is about outsmarting other market participants. In the trading arena, much like in the jungle, only the strong survive and the weak perish.  When referring to the strong in the trading realm, strength translates into having a proven strategy, discipline, focus and flexibility. For those that are lacking in any of the aforementioned, let’s just say, they end up at the bottom of the food chain.

The strong market speculator not only understands how other traders think but how all the pieces of the puzzle come together for the ideal opportunity. Like a sleuth following the clues of the market they rely on facts, not hearsay, rumor or innuendo.  The market always leaves clues, but most traders are too busy looking for confirmatory information thus losing their objectivity.  Any good detective will tell you that they only rely on the facts, and never on what people tell them. That’s because people will often not tell the truth, while facts almost always lead them to their culprit. The same can be said of all the pundits out there; only the charts are factual and a good resource for market speculation.

All these aspects of trading are what make trading challenging and at the same time very interesting. Because trading is extremely competitive, knowing how the most profitable players (the institutions) operate is critical to surviving.  Like good market detectives, uncovering the footprints that are left by these big players is a big part of our core strategy here at Online Trading Academy.  In addition, those that lose money consistently (retail traders) also leave evidence behind. This information is just as valuable for enhancing probabilities.

As an XLT instructor, I put my detective’s hat on and look for trades that students can benefit from. On September 13th, I was conducting an XLT Futures session and, as I do in all of these sessions, I was looking for clues that would afford us low risk opportunities in the futures markets.  I noticed that the BP (British Pound) futures were approaching a good quality demand level. I told students that I was taking the trade and that if the risk was appropriate for them they could take it as well.  The image below shows the entry, stop and target.

The fact that the BP (British Pound) was coming into a demand level was only one piece of the puzzle. I made the observation to the students that the odds of this trade working were increased because of another important factor: An inversely correlated market was hitting its supply level at the same time. Doesn’t it make sense that if markets that trade in opposite directions both hit their respective supply and demand zones simultaneously, the odds would be high?  The answer of course is yes, and that is what detective work does for you.

In addition, we now have to WAIT for BP to hit our level as we ANTICIPATE that at the demand zone it will stop falling and rally away. This is different than what most traders do. The majority will not feel comfortable doing this. Instead they will need confirmation or will short as the downside momentum accelerates into the demand zone.  This is not low risk. In fact, I would argue that this is high risk trading.

As we can see below, the British Pound indeed stopped falling and turned higher and hit the target later that evening.

The lesson here is that market speculation requires traders to be like good detectives who stay detached from their personal views and biases while investigating a case. In the end the market doesn’t care about your hopes or wishes, but time and again it will leave plenty of clues for those market speculators that are watching through an objective lens. Once all the clues are in place we wait for the market to come to us and anticipate that the market is likely going to turn where we have our orders. This is not easy. As Tom Petty aptly put it, “The waiting is the hardest part.” So have patience because, generally, good things come to those the wait.

Until next time, I hope everyone has a great week.

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