Why traders trade and why you need to take ownership of your future
Why do traders trade?
- To make a profit
Why do traders analyse markets?
- To help them find profitable trades
Wanting to make a profit is understandable, but such a simple answer doesn’t explain why analysis per se is important.
Let’s start with a thought on the difference between a trader and a gambler.
Traders often describe themselves as being more technical or scientific than gamblers and unlike gamblers, traders don’t put themselves into 'all or nothing' positions. They manage portfolios and have in place risk management techniques that reduces the gamble from their positions.
If you have an interest in the techniques used by traders to make sense of the markets, Coracle will be launching a Guide to Market Analysis later this month which will cover Fundamental and Technical analysis (keep your eyes on shop.mycoracle.com for special launch price offer!)
For the purposes of this post we want to ask a simple question. What do you think drives markets?
People or Information?
Information is important and is used by people to make decisions, but their conclusions are also driven by two primary drivers: Fear and Greed. Understanding that psychology is just as important in markets as the reality of underlying conditions is an important asset. Today’s trading environment may be a screen based activity, but watching people and understanding their motivations, trying to understand what they’re thinking and feeling is as important as it ever was.
Traders take actions based on information. They buy and sell. Those actions lead to other traders taking a view and a consensus view will often take hold, causing the price to rise or fall in a self-fulfilling manner.
Technical analysis of markets isn’t an exact science and as such it can be useful to create support and resistance zones. A zone is a form of congestion area that we see when prices move sideways, fluctuating up and down within a defined range for a considerable time period
An aside: A support level is a price level where there is substantial buying pressure to keep prices from falling further. A resistance level is a price level where there is substantial selling pressure to keep prices from rising further.
Identifying key support and resistance levels is an essential ingredient to technical analysis. If a support or resistance level is broken, it signals that the relationship between supply and demand has changed. A resistance breakout signals that demand (the ‘bulls’) has gained the upper hand and a support break signals that supply (the ‘bears’) has won the battle.
It is a fundamental assumption in technical analysis that prices trend and this helps explain the common trading strategy of identifying a price trend and then following the trend. “The trend is your friend”
How does this relate to taking ownership of your future?
Does your life represent that of a trader or a gambler? How much ownership do you have over your future?
If we do a brief analysis on the world in which we live and work then we can see that, irrespective of advances in many areas, some things stay the same. The world keeps on spinning regardless of the release of a new smart phone or political problems leading to war.
In life we can identify lines of support and resistance in the form of personal targets and the challenges faced on route to meeting those goals. Often we find ourselves moving through life seemingly stuck in a groove, unable to get that next promotion or pay rise.
Understanding that these zones exist is a critical part in taking ownership of your future.
The graph at the top of the page shows the Gartner Hype Cycle and represents an interesting view of the concept of zones. Applying this logic to our personal selves is about taking ownership.
So, what will your life look like in, say, 2020?
Will you have a new job, new career, have landed that big promotion? What do you need to do to get that break? Analysing the requirement helps remove some of the elements of risk and chance.
One area that consistently helps with ‘breaking out’ is that of improving your skills and knowledge base.
Here at Coracle we have a mission: to help you be as productive as possible. Our platform, the Learning Line works on any device, but what about those time when you’re offline. Really, really offline. Like at sea? We have a beautiful Learning Line app that will allow you to keep in sync where ever you are: available on Android, iPhone and iPad devices.
The Learning Line is browser-based so your courses are always available. Discover, learn, remember, share. Available on Windows, Mac and Linux devices (and anything else that has a browser)