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EYES WIDE SHUT

The Market is NEVER

easier to read beneath 400 moving averages, 12 Fibonacci studies, and 343 different trendlines.

FX traders who spend their lives poring over charts in dark basements lit an array of two three or even four glowing screens are missing the whole essence of the market. Technical analysis isn’t and never will be the alchemy that every trader pines for.

The drivers of the FX market are so diverse and wide-ranging that to concentrate on any single facet dramatically reduces the chances of success. You would think that the advances in technology that gave the market access to more and more data to populate more and more charts would have led to (more and more) success.

Not so.

When this PIG started in the markets Oh so long ago it was alongside a friend a colleague that literally shaped my trading future. He was the guy who got me the job in the first place. Nowadays he is what you would call “old school.” In fact, he was even considered “old school” back then, and such were his methods.

It will be comforting to all the “tech heads” out there to know that he relied on charts. However, the big difference was that he did them manually every morning himself. No fancy algo’s or pattern recognition software for him. Just a piece of graph paper and a pencil.

He liked to say “what am I doing? I am simply recording the movements of the market to record buyers and sellers.” He favored point and figure charts, and that was all he needed. We worked in a major American bank known for its trading prowess as well as a knowledgeable and experienced sales team of which we were a part.  The traders would often call over to check what he saw as resistance and support levels, and he was incredibly accurate.

The charts were a tool nothing more, nothing less. Simply a measure of market activity, but one of many tools. It is very easy to become too tied up in technical analysis, feeling that the answer “must be there somewhere.”

I have written before about why bank traders are successful and retail trading is much more challenging. I have found another reason.

It’s teamwork, but something more. Just being around the buzz of a dealing room, drinking in the atmosphere that is generated and exchanging ideas is almost priceless. Bank dealers are an opinionated lot. Just go to a bar in any of the primary trading centers on a Thursday evening and just listen. Free knowledge? Yes! Invaluable insight? Definitely!  Scary but exciting? Without doubt! What you will see and more importantly hear is like a living breathing “dealing for dummies” book.

A question. “How many traders woke up on April 18th and had decided by looking at their charts that Sterling was a “buy”? By all accounts, it was probably about 50%. That is interesting in itself but more on that in a minute.

At 9.30am that morning Theresa May announced a General Election in the U.K. and Sterling went from 1.2565 to 1.2906 before correcting a little, to close at 1.2841. There is not a single chart that could have predicted such a move. The counter argument, of course, is that no one could have anticipated such an event, which is also true. However, a fundamental analyst or a more balanced trader would have been more alert that something was going to happen as at least one of his four screens would have been tuned to the news.

I said earlier that the sterling buyers would have totaled 50% maybe more maybe less. But this in and of itself brings a significant point. Different traders interpret charts in a variety of ways. It is often not as stark as two traders, one saying up and one saying down when looking at the same chart but there is “plenty of not seeing the wood for the trees” as my mom would have said.

There is a big trading world out there don’t let yourself become hemmed in by what you’ve read or seen online.

The Market is NEVER

easier to read beneath 400 moving averages, 12 Fibonacci studies, and 343 different trendlines.

FX traders who spend their lives poring over charts in dark basements lit an array of two three or even four glowing screens are missing the whole essence of the market. Technical analysis isn’t and never will be the alchemy that every trader pines for.

The drivers of the FX market are so diverse and wide-ranging that to concentrate on any single facet dramatically reduces the chances of success. You would think that the advances in technology that gave the market access to more and more data to populate more and more charts would have led to (more and more) success.

Not so.

When this PIG started in the markets Oh so long ago it was alongside a friend a colleague that literally shaped my trading future. He was the guy who got me the job in the first place. Nowadays he is what you would call “old school.” In fact, he was even considered “old school” back then, and such were his methods.

It will be comforting to all the “tech heads” out there to know that he relied on charts. However, the big difference was that he did them manually every morning himself. No fancy algo’s or pattern recognition software for him. Just a piece of graph paper and a pencil.

He liked to say “what am I doing? I am simply recording the movements of the market to record buyers and sellers.” He favored point and figure charts, and that was all he needed. We worked in a major American bank known for its trading prowess as well as a knowledgeable and experienced sales team of which we were a part.  The traders would often call over to check what he saw as resistance and support levels, and he was incredibly accurate.

The charts were a tool nothing more, nothing less. Simply a measure of market activity, but one of many tools. It is very easy to become too tied up in technical analysis, feeling that the answer “must be there somewhere.”

I have written before about why bank traders are successful and retail trading is much more challenging. I have found another reason.

It’s teamwork, but something more. Just being around the buzz of a dealing room, drinking in the atmosphere that is generated and exchanging ideas is almost priceless. Bank dealers are an opinionated lot. Just go to a bar in any of the primary trading centers on a Thursday evening and just listen. Free knowledge? Yes! Invaluable insight? Definitely!  Scary but exciting? Without doubt! What you will see and more importantly hear is like a living breathing “dealing for dummies” book.

A question. “How many traders woke up on April 18th and had decided by looking at their charts that Sterling was a “buy”? By all accounts, it was probably about 50%. That is interesting in itself but more on that in a minute.

At 9.30am that morning Theresa May announced a General Election in the U.K. and Sterling went from 1.2565 to 1.2906 before correcting a little, to close at 1.2841. There is not a single chart that could have predicted such a move. The counter argument, of course, is that no one could have anticipated such an event, which is also true. However, a fundamental analyst or a more balanced trader would have been more alert that something was going to happen as at least one of his four screens would have been tuned to the news.

I said earlier that the sterling buyers would have totaled 50% maybe more maybe less. But this in and of itself brings a significant point. Different traders interpret charts in a variety of ways. It is often not as stark as two traders, one saying up and one saying down when looking at the same chart but there is “plenty of not seeing the wood for the trees” as my mom would have said.

There is a big trading world out there don’t let yourself become hemmed in by what you’ve read or seen online.

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