I Broke Every Trading Rule There is – Here is What Happened Next…
Traders who come into the BK trading room are initially astounded by the unconventional way we trade the markets. We couldn’t care less about trend, average true range, long or short term moving averages, the macro state of the economy, overbought or oversold oscillators, Fibonacci, Gann, Elliott Wave, Bollinger Bands, RSI the price of tea in China or a million other useless things that have never a pip for anybody over the long run.
Don’t get me wrong. We are not a bunch of Luddites. We follow the market like a hawk. We know all the news the moment it comes out. We follow all the stories from the FOMC presser to the New Zealand milk auction. We watch the charts, we know what moving and what’s lagging and we know when volatility will spike and when it will recede. In short, we are very well plugged into the world at large and the forex market in particular.
But that’s not what makes us money. What makes us money is our underlying thesis that on an intraday basis the markets will mean revert as profit taking always kicks in. We trade short term extremes over and over and over again. What’s worse is that we do it on a highly negative risk reward skew. What’s even worse than that is that we bet on conditional probability and increase our size (but never martingale) as our trades take on more and more heat.
In short we break every rule you’ve ever been taught about trading and yet continue to bank pips on a daily basis. Not just me -- but almost every trader in room who follows our method seriously walks away each day with positive P/L.
Why does this happen? Because clearly markets are not predictable. Because speculation has nothing to do with investing. And because the basis of trading is not logical but psychological. When you finally start to appreciate this reality, you begin to master the market, instead of letting the market master you.