Here is the one question you need to ask before you push the trade button -- Is there anything going on that will make other people trade? If the answer is no, then the result for you will almost always be negative.
Like little children whose sense of narcissism is absolute we as traders always think that markets are about us. What can I do in the market today? How many pips can I bank?
The answer very often is nothing and none.
That’s because the markets are not about you, but about others. And if there is little reason for other people to trade price action will be nonexistent and so will most profit opportunities.
We think that the market is like a 24 hour -- 5-day week machine. But it’s not. It’s a social construct. It’s much more like a bar or a nightclub rather than the factory floor robot and if it’s 10 o’clock on a Monday morning you can be pretty sure that the bar or nightclub will be barren.
We are of course in the middle of our “Monday morning” moment in FX. Every summer, in July and August, most the people that matter to the market are off to St. Tropez or the Hamptons or Jackson Hole. The summer doldrums can be a maddening time for the retail trader, but they can also be the best time to learn what not to do -- namely force trades into the black holes of low volatility. This is a time when market makers love nothing more than to create false breakouts and breakdowns, sucker retail in and then flip the market on them.
With no major institutional order flow around, market makers can pretty much do as they please and that creates sinkhole sized traps for retail who are fooled into chasing price.
This week, I started my live day trading feed and one of the best decisions I made was to choose only one or two setups each day. Keeping it rare and keeping it tight by laying off risk as quickly as possible allowed me to surf the dangerous waters of the market without getting run over by market maker action.
The last trade of the week was particularly telling. All the funda data at the end of the week was pointing to a strong USDJPY tilt. CPI, PPI and even Fed talk by the end of the week was sounding more hawkish than dovish yet USDJPY could not push past 108.50. After the hotter PPI print, the pair just lay there unable to muster even a ten pip rally. One of my cardinal rules is that when the funda is positive but the price action is negative always go with the price because you are not seeing something critical in the market. What was it? I still don’t know. It could have just been market maker games at the end of the week. It could have been some large counterparty laying on massive risk-off positions because EURCHF was down by more than 2 standard deviations as well. Whatever it was, drove prices lower and I, fortunately, followed the flow to the downside -- because in trading it’s never about you -- it’s about what others are doing.