Poor knowledge mean bad results

We've all heard that knowledge is power, but it must be proper knowledge if you want to get the results you are seeking, says Gabe Velazquez, a longtime market analyst at Wall Street.

Trading is like no other profession in many ways. This is true because of the many who try to practice this profession, very few ever reach the results they seek. One aspect of this lack of success can be directly related to the acquisition of the wrong kind of knowledge. The fact is that most people who study trading in a conventional way, trading with high risk and low probability of development. This is because the technical models and indicators used in the trade in all the books that are written are left behind. Since they are estimates of price and volume, by definition they will lag behind price, thus they will not provide the trader with the lowest points of the risk of entry. This does not mean that all indicators are completely useless. In fact, some of them can be very useful if used in the correct context.

Recently, a prospective student enthusiastically told me that he had just bought yen. The first thought that came to mind was that it would probably become a good student, as the yen has dropped steadily and he bought low. Never mind that the trend is down and the yen rally must be sold, the fact that he bought me intrigued. It was not until I said where it was bought, and more importantly his reason.

The reason he bought the yen is because just closed above its 50-day moving average. As can be seen from the chart below, it really is. There is only one problem: he bought it after the yen has already made to the rally area in which we see evidence of previous sales. We can see that the deal is very risky, and there is very little probability of making money because of all the factors that we have just mentioned, and unfortunately the result was not very surprising. There is nothing wrong with buying when the trend is down, but it must be done when the trend is extended, and more importantly, in or near the area of ​​search quality. In this case, none of these factors is not available.

Similarly, in another case, another prospective student express a bearish position in the E-mini S & P 500, because of the trend line break. In the table below, we can see what he looked, and you guessed it: he also produced the same result. He made the same mistake of another trader who achieve it in the yen, but the sword hand. He sold after a sizable drop in the price level at which we see evidence of buyers.

In addressing these two examples, it was clear that the trend is important, and that the use of demand to enter the uptrend and vice versa using supply to enter the downtrend would work better. Note that even if these levels have not worked, the risk is tiny compared with the risk borne by those traders. This error is not very unusual among traders who do not know how the markets really work.

We've all heard that knowledge is power, with which I fully agree, but it must be proper knowledge. This means knowing who produces, if applied with consistency and discipline, low risk and regular profits. If you do not get the desired results, then you need to do something different. It just makes common sense, would not you agree?

Gabe Velasquez