Trading University, Chicago Blog

Sure there’s the old “watch for support and resistance at levels that end in .00 or .50, and of course there’s the old adage that “markets spend 80% of the time going sideways”, and we all know “lose your opinion not your money” which is my personal favorite. But what do these really mean and how to we implement them to our advantage?

Lets take on the adage than markets spend a much more time going sideways than heading north and south. I have a friend in Australia who trades lower time frames than I do. And he noted that very often we are on opposite sides of the market.  While I’m holding long he may be selling rallies and covering on the dips back to support. Or he may be building a short position while I’m looking at buying dips short-term. We laugh at how we can both be right, doing the opposite of each other.  This epitomizes the observation that markets indeed go sideways quite often. What this also means is that despite what many people believe, markets move slower, not faster, then most people think.

#1 Markets generally move slower than the majority of people think

What this means is just because you have identified a market’s direction does not mean you need to run right in and take a position. If you do take a position understand that price can roll back against you on its slow path and then you need to be patient. It’s more common for the monthly, weekly and daily trends to be in flux than it is for them to be lined up and pulling in one direction. Because slow price movement means lots of back and forth price action it’s very important that you have a reliable, scalable method to measure price direction. If you have that, then it should work on every time frame equally.  This will be helpful in identifying shorter-term shifts in line w/ the higher time frames, which leads us to our second tip.

#2 The short-term trend is more important than the majority of people think

The vast majority of the day-to-day players in the financial markets are short-term traders who make their trading decisions on the shorter-term time frames. You have to be aware of these trends so that you recognize that they are very common and should not alarm you when they take price against your position. As markets start to normalize following the volatility of 2008 and 2009 we are likely to see more and more tempered price movement and more and more back and forth trade i.e. more short-term trend shifts in both directions, which creates tighter trading ranges.  And no matter the size (height) of the trading range it will be built from a succession of short-term trends. You must have a way to measure when trends change.

Our third tip is a fascinating one because it’s such a teaser.

#3) The best trading tactics are generally too simple for the majority to comprehend.

Anyone who has ever seen a long-term trend line break accompanied by a stochastic cross below (or above) it’s overbought (or oversold line) on a weekly or monthly chart knows about this rule. It’s just too simple to fathom that all you have to do it be in the right place at the right time and put a trade, or investment on, and just leave it alone, and you can enjoy success. It goes against everything we’ve been taught since childhood that it could be that easy. I think it may be a law of the universe too, right next to “ask and you shall receive”…seriously.  

I actually teach a very simple tactic to determine when a trend is changing direction which always pleases even the most experienced traders. And not so surprising they always call me back with a “Can you show me that again?”.

In line with my comparison of “ask and you shall receive” I’ll be happy to schedule a complimentary 1/2 hour tutorial to show this tactic to anyone who is both serious about trading and takes the initiative to call or e-mail me.

Jay Norris
800-971-2154
312-896-3986
jnorris@brewerinvestmentgroup.com

DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. Risks include the potential that changing political/economic conditions may substantially affect the price/liquidity of a currency. Investors may lose all or more than their original investments.

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