“There is a principle which is a bar against all information, which is proof against all argument, and which cannot fail to keep man in everlasting ignorance. That principle is condemnation before investigation”
So as not to liable myself in this article we shall be thinking of the following as a hypothetical situation, however I will leave you the reader to draw your own conclusion.
The Smoke and Mirrors That Surrounds Trading in The Financial Markets
I often get asked by many of my students why is there so much technical analysis conducted in the markets, why is so much emphasis placed upon it, why are there so many ways of analysing the markets?
I’d like to shed some light on the subject and give you my take on it.
For those of you who haven’t read my previous articles, I have been involved in the financial markets since 1994 and have worked for some of the world’s biggest investment banks and institutional brokers, throughout my career I have worked with some of the world’s best traders in their respective markets, and one thing they all had in common was that they couldn’t stand bullshit and I guess you can say that it rubbed off on me which compels me to write the articles that I write today and enjoy doing so.
Analysts Vs Traders – Who influences Who?
Now you have heard me many times saying that chart patterns, trend lines, Elliot waves, Fibonacci are a load of crap and they do not make the markets move.
So why do the Banks themselves release reports that include this type of analysis of the markets?
Human Beings – We want value for money!
When we pay for a service we ALL want to feel like we are getting value for money and the banks and brokers clients are no different to you or I, if your company is paying millions of dollars in commission to trade then you want to feel that the provider of this service is giving you a good deal, that they are working hard on your behalf and not just sitting around waiting for you to call so that you can trade and pay more commission.
So here in lies the rub…
Any trader worth his salt can tell you exactly where he wishes to buy and sell in the market, what’s cheap or expensive, demand or supply, wholesale and retail, it’s all the same thing.
If you were to ask a trader where they want to buy and sell in the market? They will give you two prices and then tell you leave them alone, they’re busy and don’t want to have a long drawn out conversation with an analysist they know is going to write up a report that doesn’t really have anything to do with what the trader has just told them anyway.
So how do we get from two prices to a four-page report?
Sexing Up – Or in Plain English…Made up Bullshit
This is where all the weird and wonderful analysis techniques come into play, it’s the job of the analyst to turn two prices into a document that can be sent to clients so that the client feels that the bank/broker is working hard on their behalf, that there have been hours spent trying to bring the client the best and most relevant information available in the market.
The client then feels that he is getting value for money.
But let’s pause a moment and take a cold hard look, what’s the most important here?
The prices that the trader has indicated or the fluff that the analyst has come up with to dress up the information that the trader has indicated?
Easy answer really, it must be the prices that the trader has indicated, he is a professional that knows his markets inside out, it’s his day job, it’s what he gets paid to do and these are the levels that he has been using for years as he knows that’s where the real value lies in the market.
Most people would assume that it’s the analysts that tell the trader what to do, WRONG!!!
Many traders that I have known over the years would merely laugh their heads off at the stuff the analysts write, but they have a job to do and it’s to jazz things up, it’s to sell you an idea.
Now let’s suppose that a trader has given an analyst these two key prices, what the analyst has to do is make some of the technical analysis techniques fit, if the Fibonacci levels don’t fit, guess what they don’t use them, if an RSI looks good they will use that instead.
Basically, what I’m saying here is that the analysis can be hypothetically manipulated to fit the picture they are trying to paint…Yes, I did just say that and yes you did just read it.
That couldn’t possibly true, could it?
I mean the banks always tell us the truth, right?
They would never try and pull the wool over our eyes, would they?
Financial crisis, PPI the list is as long as your arm.
Looking at the market as a Retail Trader
Now I’ve often talked about why retail traders are taught to trade using these weird and wonderful analysis techniques, and here is what is going on, hypothetically of course!!
The banks reports that are sent to clients are available to people outside of the institutional world you can pay to receive them, obviously after they have been sent to the clients of said bank.
Now if you were an outsider looking at these reports what conclusion would you draw from them?
You would probably look at them literally at face value and think that this must be how the banks and brokers are trading themselves otherwise why would they send these reports out their own clients?
Good question!
If you were to understand why these reports are produced in the first place it would go a long way to explain why you have been taught to look at the markets from a certain stand point, and been taught to use these technical analysis when you are trading yourselves.
Right here I’m going to use a quote from a film called the Big Short, it’s from Ryan Goslings character Jared Vennett. (If you haven’t seen the film I recommend it, it’s a great watch)
” Mortgage backed securities, subprime loans, tranches… Pretty confusing right? Does it make you feel bored? Or stupid? Well, it’s supposed to. Wall Street loves to use confusing terms to make you think only they can do what they do. Or even better, for you to leave them the fuck alone”
Now if we add in Forex, Commodity’s, Stocks and Shares we can see that it doesn’t matter what the market is that you are looking at, there is smoke and mirrors all over the place, what the banks and brokers do is to create the illusion that what they do is only achievable by a select few, well that’s bullshit!
Now I can never imagine in a million years that anyone in the financial sector is ever going to come out and admit that this is what goes on, I mean that would be financial suicide and would open up a can of worms that could never be closed and the house of cards would come tumbling down in one foul swoop.
So, my friends I have a question for you, bearing in mind that the banks have a certain reputation for lying through their teeth to the general public, could I possibly be talking rubbish or could I just be telling you what others never would?
And if you conclude that I might be telling the truth then would you start to question what you have learnt so far on your trading journey?
I mean if you understood how the markets really worked, would you entrust your hard-earned money to somebody else, to let them manage it for you? At the end of the day who has your best interests at heart, is it a money manager or is it you?
If you could manage your own money in an effective way, take your own risks and not have to pay somebody else for the privilege wouldn’t you want to learn how to do this?
Wouldn’t you want to learn how they really do it and to get rid of the smoke and mirrors, to see the markets for what they really are?
Wholesale, Retail, Supply and Demand, Cheap and Expensive, because that’s all it really is, nothing more, nothing less.
“The most difficult subjects can be explained to the most slow witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him”
Leo Tolstoy, 1897
I hope that this article makes you think about how you currently trade, what you have been taught and how you have been manipulated into believing a version of reality that simply isn’t true.