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Trading is NOT about Direction
One of the most basic mistakes that most people make about trading is that trading is all about picking the right direction. In fact successful speculation has nothing do with being “right” and everything to do with being “right now.”
At its core trading is all about timing. It really doesn’t matter if you are long or short. It only matters when you put on the position. That concept really became crystal clear this week in the melee that followed the ECB announcement as EUR/USD tumbled for more than 100 points as Mario Draghi promised he was going to print another 1 Trillion of QE (he never actually said that, but of course that’s what he meant).
My friend Jamie Saettele who couldn’t trade more differently than I posted a quick Tweet on how he traded the event. The pic below shows that Jamie ( who never, ever listens to fundamentals and spends all this time analysing arcane Elliott Wave patterns ) was bucking the trend -- playing the reversal to perfection.
What was ironic is that I was doing the exact opposite thing, but with similarly positive results. So I tweeted a response just to show everyone that money was made on both sides of the trade.
How were both of us able to bank pips even though he was long and I was short? Because trading has nothing to do with direction and everything to do with levels. I was targeting the 2400 figure because I knew that the shorts were likely going to run stops at that level. Once 2400 was busted, Jamie started to look for a short covering rally and when he got his signal he plowed in.
Notice the discipline on both approaches. Neither one of us was forecasting some long term move. We focused on key level for exits and entries. Notice also that Jamie never held on to his EUR/USD because of some misguided view that it represented “value”. He quickly dumped it as soon as it retraced about 30 pips.
Although on a first glance it may look like both Jamie and I took directional views on the pair, in reality we were very mercenary in our approaches trading price action rather than our opinions. That’s about as ideal a speculation as you can get.