Trading With the Flow of the Market

Trading with the Flow

Last week was a bit of a bumpy ride for me as I was starting to fall ill due to the very hot weather here in Malaysia. Hence, I stayed away from my charts for a few days. While that was only part of the reason I stayed away from the market, the other reason was that, on the currency market, some of the currency pairs were testing some major levels. I was struggling to get excited unless price action gave me more hint as to where it was going. Nonetheless, there were some traders out there (not pointing at anyone in particular) who were ready to get into those markets when I struggled to get clarity and direction.

I suppose every trader has their own edge and everyone trades differently. So instead of talking about them, I thought I’ll share some thoughts of what I think traders should look for and the key to today’s article is trading with the Flow of the market.

Don’t Go Against The Current

If you are a swimmer, a kayaker, a canoeist or even a diver, you would know that any sane person would not want to swim, kayak, canoe or dive against the (water) current. In fact, as a diver myself, it was part of our basic certification training where we were warned not to dive against any form of current.

This does seem like an absolutely logical measure, does it not? In fact, I would expect that to be a common sense approach and it would be somewhat foolish to go against the current.

If that is true, then the same should be applied when trading the financial market. Traders should always see where the market “current” is flowing before having a bias because it’s just foolish to go against the trend, is it not? More than that, I think any trader who looks for reversal trades without any solid methodology or before any confirmation should be called foolish as well, right?

In my humble opinion, unless you have sufficient trading experience and have been trading profitably (with the trend), one should only stick trading with the trend. Just like an inexperience swimmer, kayaker, canoeist or diver, you want to go in the direction of the flow.

We Don’t Have Deep Pockets

Trading-empty-pocketsHere’s another reason why we should trade with the trend. Because the financial market is such a big exchange centre, you rarely find any single financial institution that is able to move the market. This is even more so when trading any liquid products like the futures or currency market. Well, if the financial institutions – and mind you, they have a much deeper pocket than us retail traders – cannot move the market, what are we retail traders compared to them?

The honest truth is that we (retail traders) are only trying to ride the waves that the big boys create. Whenever the Goldman Sachs (or any big financial banks) buys the market, the other traders are watching closely and they join in the bandwagon when ever they get clarity. That’s true even if they enter the market slightly later. That’s because there are enough small institutions who would follow suit, that creates a small little wave. As more and more traders join in, that small wave becomes an bigger wave.

So, if you truly want to become a profitable trader, then you want to learn how to jump onto the bigger waves, you want to learn how to flow with the market current and learn to piggy back on what the big boys are doing. Hence, the skill that you really need is to learn how to flow with them.

Learning to Flow

Now that you are aware why flowing with the market current is important, it is also pretty important to learn how to flow with it. In fact, there are some simple skills that you can acquire to help you achieve that easily.

Understand the Flow

Here’s a simple fact that you need to know, your market views do NOT matter at all. While we are trading the financial market and the markets do not really care what you think. In fact, more often than not, the market has its own agenda and it does its own thing – hence, no one can explain why it did what it did. So, in order to flow with the market, you need to stop trying to be right about your view and learn to understand the flow of the market.

And the best way to learn is to remain objective and actively watch the market while you make notes of any market behaviour that you find. If you need to, trade a demo account or a very small account as you find ways to understand those behaviours. The more you understand the flow, the more you will become able to flow with it.

Emotional Control

Learning to flow with the market is always about learning to listen to the market. Ask yourself, the last time you got angry with someone, where you able to listen to him or her? The chances are, nothing went in because you are at the verge of either walking away or giving that person a taste of own medicine, right?

The same applies when trading the market. If you are in an emotional state, how can you hear, see or feel what the market is doing?  Most of your decisions are clouded by your emotions and, in the end, they become irrational decisions.

Learn to Have An Edge

Lastly, learn to have a trading edge. A trader’s edge is referred to as a unique skill set possessed by the individual trader that gives him/her superiority over the market. And the trader needs to learn to flawlessly execute his/her edge.

It doesn’t matter if you are a technical, fundamental or sentiment trader. Make sure to work hard towards finding that edge and once you find it, work hard to trade is flawlessly.

Conclusion

Trading Along the Current

I believe there are many ways to trade the market. While my personal preference is to trade with the trend, I believe it is far more important to flow with the market because the market can trend, reverse or consolidate. Unless we flow with it with a clear state of mind, we will find it difficult to execute our trading edge.

Anyway, thank you for reading and make sure to post any comments, thoughts or questions that you may have in the box below.

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