Understanding Of How Over The Why In Trading

Understanding Of How Over The Why In Trading – Introduction

When faced with market conditions we have not fully expected, we tend to question the logic of the movement by trying to understand why certain markets moved the way they did. In many instances, this is actually a behavior that does not prove to be very beneficial to your trading. What can be beneficial is the understanding of the “How”. “How” might give us much better insights into what might happen next and can lead to the creation of the “If->Then” scenario aka Clue, which can lead to a potential trade signal. For example, “If these sellers stop passively reloading the offer at this price and buyers are still willing to lift the offer, then we might break higher”. Let’s have a look at a couple of questions that can lead to better insights of “How” over the “Why” in realtime.

A good place of inspiration for questions about the market structure and the “How” can be also found in our older post regarding the market prep.

This article is based on the video below.

Gold Trading Questions Example

Before we start with the Gold example down below, imagine a situation when two markets produce a breakout of the level. From a directional perspective, both markets can do it in the same way, but the way “How” they did it will be different. One can be initiative and the other breakout can have this grindy, drift structure. Rather than asking “Why”, asking “How” can lead to a better understanding of what the market is doing.

Looking at the example of Gold above, in no way we could predict the size of the move down. What we could predict was that there was a potential chance for a breakout. Why? Gold has been on the way up, but the move up was very slow, without any significant momentum. Even though buyers were still buying, sellers were very happy to sell into the move up. This created a grindy, sticky type of a move on the way up. Buyers were getting nowhere and they might start to unwind their positions because their positions were really getting nowhere. Understanding “Why” they are buying is not really important in this moment. What is important are these type of questions, the “How”:

• What is happening?
  • The direction of the market?       
  • How is it doing the move?
  • What does the recent action mean?
  • How can it change?

By answering these questions you could have identified the weakness of the structure in Gold and get yourself positioned for the potential sell.

Staying away from questions like “why would you buy/sell up/down here” can actually make your more objective in the process of assessing market generated information.

If you liked this type of content, you might check these videos as well:

• 10 Highly Effective Habits of Successful Traders
• Trading Psychology: How To Develop the Skill of Consistency
• 5 Principles To Identify Auction And Absorption – Footprint Chart Trading

In case you are interested in finding out more about trader training to learn how to trade and explore other great trading strategies, check out our futures trading course that teaches you exactly that and more. Or if you want to really maximize your ladder execution, check out our price ladder trading course.

Thanks for reading and until next time, trade well.

JK