Why are there so many opinions on the market? Which is the right answer?
I am keen to learn to trade forex. There are so many concepts to juggle but I cannot even get basics like ‘what is the trend’ and ‘where to buy and sell’ right. It is very confusing. When I ask around, there are so many opinions. Even my peers cannot give me a consistent answer. How do I know which analysis is correct?
Indeed many traders are boggled that markets can be up, down or sideways and one should buy, sell or wait all at the same time. To a conscientious scientific mind, if the market is not a buy then certainly it must be a sell! Right? Right?
Then it must appear that chart analysts are 1) confused 2) fickle-minded 3) evasive, since simple answers are not forthcoming, or always ending with ‘it depends’ or accompanied with a multitude of charts and qualifiers.
It may not be so baffling if traders realise one fact: that there is no absolute correct answer.
The blind men and an elephant is a story that may be the best way to explain the market. One man who touches the trunk proclaims that the elephant is like a snake. The one who touches its body encounters a wall. One man who touches one leg declares that it is a tree.
What is market trend? Up trend or down trend? Silver price example
A trader looking at silver price over a long horizon going back as early as 2008 (blue zone) sees price movement after April 2011 (pink zone) as a retracement. What is market trend? Up. Looking to buy or sell? Buy, since silver is getting cheaper.
A trader who has a shorter horizon, let’s say he confines his view of silver to price action after April 2011, sees silver sinking lower. What is trend? Definitely down trend. Buy or sell? Sell, because as price goes lower, the more evidence to support the down trend.
Should I buy or sell at this price level? AUDUSD example
A short term AUDUSD trader spots the pair moving in an up trend since August. Obviously a trend follower will choose to buy. In this case the zone 96.70-96.80 is a resistance that must be overcome before price can move higher. What to do? Buy a genuine price breakout above this level or enter a retracement at a significant level far below.
On the other hand, an AUDUSD trader committed to big picture over a longer period of time cannot fail to notice that AUDUSD has fallen below a multi-year support. The logical expectation is a pullback to test this level. And a pullback is in fact the best place to sell.
What should traders do?
Determine a trading plan and stick to it. Get it right within the requirements of this plan and put everything else aside. A trading plan should start with a time frame or horizon that one is comfortable with. How can one form a trading plan?
- Your trading plan should fit your personal objective(s).
- Put together the facts and arrive at your conclusion.
- Determine what kind of price action will change your mind. Until these appear, do not waiver.
- Accept that other traders have different observations and may disagree with you.
- Their disagreement does not make you wrong; each of you is looking at a different part of the market.
- Learn from others but resist the urge to follow another trader unless you know his plan is the same as yours.
- When you are unclear step aside. Do not blindly follow others.
- Do not wear multiple hats at the same time.
- Focus on doing one thing correctly and consistently .
There is no right answer in the market. Getting it right to make more money at trading is a matter of having a suitable trading plan, understanding the market at the level you chose to operate and then executing your plan accordingly and consistently. And as wise men says ‘we are not out to make all the money in the market, we are out to make a little bit of money for ourselves whenever market presents us the opportunity’.
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
Soh's Twitter account @sohtionghum
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"I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."