An email I received from David H., one of our Bootcamp members, and thought it was worth sharing:
“I just wanted to drop you an email regarding our bootcamp meeting yesterday. There was an interaction which I really believe is worthy of talking about. It arose when someone said the way forward is to really understand ‘why’ things occur in the market. In short – you need to understand what is happening.
I completely disagree with this. In fact after thinking overnight about this discussion (and great discussion it was) – it’s prompted me to craft this email, as I think it is un-necessary and potentially damaging to newbies (and traders in general) to think you have to ‘understand why’ price action is doing what it does.
It is near impossible to understand ‘why’. And you will go completely mad, not to mention lose all your money trying to find out. If you read Mark Douglas’ book, he basically states the same thing.
Why do instruments go down on good news? Why do things go up on bad news? You will never know. Could it be Warren Buffett unwinding his position, a big hedger, a commercial…Who knows why? And what does it matter? Wow, it could even be that guy from San Fran, you know, that guy called Rich Friesen who has been told to create massive volatility, and made 400k that month – But I’m never going to know that! Sooooo, why bother to understand why?
Imo all you need to know is that price action is the result of human beings reacting to the ongoing supply demand relationship. Opportunites present themselves when this simple relationship is out of balance. Prices move cos they have to!
Rich – I have the following on my wall;
Self Conscious traders
– need a view to predict the future
– need to be smart – smarter than the market
– exert prejudices that remove them from the market moment
– allow biases of what price should be doing to distort market reality information
– outsource personal responsibility into rigid mechanical / technical systems
– are motivated by their fantasies of success and fear of failure
– trade what might happen rather than what is actually happening
– are focused on NOT losing
– are often stressed and anxious especially when the time comes to execute
It would appear that the self conscious traders are the ones who want to know ‘why’.
Market Conscious Traders
– accept the market as the only reality
– are present and alert to detect key changes in the market
– are detatched; agree with the market whatever it does
– flexible and relinquish their own expectations of what the market should do
– are patient to wait for the very high probability entries
– are open minded; the next entry has never existed before
– willing to learn and adapt
– while insignificant in the market, can achieve benchmarked goals
– trade what is and not what might be
– focus on winning and know by agreeing with the market they will win
– calm, centred, relaxed and trust their ability
It would appear that the market conscious traders exhibit qualities that don’t really know ‘why’, but it’s not going to stop them making a living.
Rather than attempt to understand why – let’s leave that to the cnbc puppets to make something up for the general public as to why something happened. Our success is thinking in probabilities – right? So we don’t really need to understand why – right?
Or do you not agree?”