Sunday, August 02, 2015

More on trading in the moment of now

"Trade in the moment of now" we are told. But what does this mean?

Well, there are only three phases in time - the past, the present and the future.

The past is history - you cannot change it, even if you wanted too.

The future hasn't happened yet - it doesn't exist. And as soon it does exist, it becomes the past. No-one can predict what may or may not happen. How many times have you made a trading decision, trying to be 'smart', based on a belief about something which may or may not happen in the future?

All you can focus on is the present - what is happening NOW. You can only react and make an informed, rational decision based on the information in front of you at that time.

Even when trend following, you can only act in the moment of now. Here is a basic definition of a price trend:

"A general drift or tendency in a historic set of price data. To identify a trend, comparison is made between the current price and a historic price level. If the current reading is higher than the historical reading, we have an uptrend. If lower, we have a downtrend. Traders often look at a series of highs and lows attained over a period of time to determine the trend. A series of higher highs and higher lows signify an uptrend, while a downtrend is identified by a pattern of lower highs and lower lows."

So, while you are referring to past price action, you are basing your answer to the question "What is price doing?" or, put another way, what it is doing NOW. And, depending on your chosen timeframe, the answer may change when you ask yourself the same question in a hour, a day, a week, a month or a year. Trends are always changing.

Based on my parameters, I may be able to identify an uptrend in a particular stock or instrument. Someone else, who may trade shorter-term or longer-term than me, might say that price is currently in a downtrend, or is in a non-trending phase. It is possible that none of the answers are wrong. Your interpretation of price action may be the polar opposite to someone else, yet you may both be right. This is what helps create a market of buyers and sellers.

Therefore, you first need to clarify what is your timeframe, before you can answer the question "What is price doing?". And remember - the answer will be right one for you, but not necessarily for everyone else.

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