Forex – Forex Killer – eBay – Sky High Auctions – Succesful Online Businesses and other money making opportunities. » Day Trading And Astrology…er, I mean…Technical Analysis

So someone told you about a guy who turned $5,000 into $2,000,000 by day trading and you started the quest for the trading holy grail. You started reading every day trading book you could find. You bought a couple of day trading systems and day trading courses. You’ve studied the charts and know everything there is to know about technical analysis. You know all about support and resistance and pivots and trendlines and what not. You understand how to set trailing stops and profit targets. You’re ready to put your newfound expertise to work and retire in two years.

Here’s a piece of advice from someone who’s been there. Take all those charts and any day trading systems or books which talk about charts and throw them in the trash because if you attempt to trade using that nonsense, you’re going to lose.

If a mechanical day trading system ever works at all, it will eventually fail. They all do. I repeat. They all do. It’s not hard to understand why.

Alan Greenspan was not a god. He never moved a market. Bernanke hasn’t moved one either. Housing reports don’t move markets. Computers have been known to move markets but as far as I know, they were all programmed by a person who had the ability to override the program and in the grand scheme, there are far less computers trading than most people think. Guys running major banks and hedge funds move markets. Huge traders who can trade thousands of contracts at a time move markets (google “the flipper bund”). Governments move markets. I don’t move markets. Neither do you. But a whole bunch of small traders acting all at once can move the market.

A chart is nothing more than a graphical representation of what happened in the past. It means nothing. Support and resistance levels only hold up if someone or a group of someones with A LOT of money is willing to buy or sell at those levels and traders who have access to a lot of money don’t decide to buy or sell based on trading charts. They decide to buy or sell for reasons which you will never know. Maybe they are spreading. Maybe they are buying futures and selling an underlying basket of stocks. Maybe Joe Blow at XYZ Hedge Fund feels like taking a shot here. Who knows? But trying to make a trade based purely on reading a chart is typically a bad idea.

If a technical analysis situation occurs and the market moves in the direction that it’s “supposed” to move according to the technical analysis, it’s not because the chart said so. It’s because more money went that way at that time. It’s always about the most money. New money coming into the market and scared money leaving the market. This is a combination which causes sharp moves. It triggers momentum. And that’s what being a day trader is all about. Riding momentum.

All the professionals I know make their decisions by reading the order book which is also called “reading the tape”. They watch the bids and offers. A person who has never attempted to do this has no idea how much valuable information there is right there on a market depth trader or DOM (depth of market platform).

To consistently make money day trading, you must learn to anticipate. You have to figure out what the big traders and the big money is going to do next. You must become skilled at reading the price action. Spend more time looking at the order book and less time reading charts. Your bottom line should improve substantially as a result.

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