Trading Tip: Who’s the patsy?

As a beginner trader, I’ve spent over $20,000 on trading seminars, videos, books and courses. On top of that, I would also spend hours each day scouring though a variety of trading websites and discussion forums. Despite all this however, I struggled to turn a profit for years.

However, all that effort did not go to waste. For one thing, I got to examine and test a large variety of trading systems… and I can save you years of time and effort right now: the vast majority of trading “systems” out there can be summed up by one or more of the following points:

  • Buy when technical indicator does A, sell when technical indicator does B
  • Buy when you see X chart pattern, sell when you see Y chart pattern
  • Buy at support, sell at resistance
  • Buy upon break of resistance, sell upon break of support

This is the same mantra that gets repeated ad nauseam by the trading education industry. Pick up any “trading strategy” book or visit any trading website, and you’re likely to find some variation of the above four points. I’ve seen these “strategies” being mindlessly regurgitated for a decade now.

So… what’s the problem?

In a game of poker, the cards in your hand are not the sole determinant of whether you’ll win. You’d also have to be able to guess if your opponent is bluffing, and whether you can get away with some bluffing of your own. Ultimately, you’ll have to estimate your opponents’ cards and intentions.

In other words, the game of poker isn’t just about knowing the statistics of the game. It’s also (and I would argue, largely) about understanding how the guy sitting across the table from you, thinks.

Now consider that trading is essentially a global game of poker between traders. If you know that the majority of traders are looking to buy the EUR/USD, what should you do?

Well, for one thing, you should buy before they do! This way, your trade will be pushed into profit by their buying action.

This, is the nature of trading profits. You can only make money if you can predict in advance, the actions of other traders.

Now if you put two and two together, the logical conclusion is that you don’t want to be trading in a predictable way. Because if you do, it’ll be easy for other traders to predict your actions in advance, and make a profit at your expense.

So if you’ve learned to trade like this:

  • Buy when technical indicator does A, sell when technical indicator does B
  • Buy when you see X chart pattern, sell when you see Y chart pattern
  • Buy at support, sell at resistance
  • Buy upon break of resistance, sell upon break of support

… then you might want to re-evaluate your approach.

Why?

Because this is how most retail traders have learned to trade. It’s entirely predictable.

Think about this. If everyone has learned to trade in similar ways, who would they be making money off of? If everyone is “buying at support”, who is selling to them?

Even if you don’t question the validity of common technical indicators and chart patterns, the fact that the majority of retail traders use them is a big warning sign in itself.

As Warren Buffett said, “If you don’t know who the patsy is, you’re the patsy.”

By |2019-04-19T07:13:23+00:00April 19th, 2019|Philosophy|9 Comments

9 Comments

  1. cheryl May 13, 2015 at 9:15 am - Reply

    hi Chris,

    Your article quite true. I kind of giving up trading, its been years but I still can’t earn money out of it. It is always loss more than win. Do you think I should really give up or hanging to it?
    Is my method just like you said above where everyone is using them?
    I am really desperate. Please advise
    Thks

    • Chris Lee May 13, 2015 at 10:38 am - Reply

      Hi Cheryl, it’s tough to point out what the major issues are, because I don’t fully understand your trading approach.

      I think the question to ask is, “how badly do you want it?”

      Because if you don’t want it badly enough, you’d probably be better of spending your time on something else. This is just my opinion…

      • Gary May 13, 2015 at 2:51 pm - Reply

        I have to agree 100% Chris,

        Like Les Brown say’s… “You gotta be hungryyyy!”

        Or I like to refer to the story of Socrates & the student….
        http://www.snlabetterway.com/socrates-secret-to-success/#.VVNilk3bI1I

        Apply that story to your trading, &…When you want to be profitable in trading as much as you want air, that is when the light will come on & you will be successful. There are no short cuts.

        Like Chris said…”how badly do you want it?”

        G

        • Chris Lee May 13, 2015 at 5:50 pm - Reply

          Yes, exactly.

      • cheryl May 15, 2015 at 2:33 am - Reply

        I am using Bollinger band, RSI n Stochastic.
        I don’t set SL cause is always hit before it goes to my direction.
        So now instead of SL I will hedge it
        How do you think of hedging method?
        Any opinion please…
        Thks

        • Chris Lee May 15, 2015 at 4:19 pm - Reply

          Hi Cheryl, my opinion is: on what basis do you think those combination of technical indicators will work?

          I’m not trying to be difficult, just trying to get you thinking about your approach.

    • Okeke May 13, 2015 at 8:16 pm - Reply

      Cheryl don’t give up. If you do, you will miss a wonderful opportunity to be financially free and independent. Have you ever traded on the daily timeframes? The candlestick patterns that form on them are much more reliable. Plus, you only have to check the charts only once in a day. You never miss a candlestick.

      • cheryl May 15, 2015 at 2:38 am - Reply

        Okeke, thank you.
        I trade on H1 might try on your suggestion.
        Maybe for time being should take a break

  2. Okeke May 13, 2015 at 8:11 pm - Reply

    They say 95% of forex traders lose to the 5% savvy. In other words 95% forex traders are patsies. Chris I’m on my way to see a witch doctor who will use his mystical powers to help me predict which way the market goes. LOL! Just joking. But seriously predicting which direction the market will go isn’t easy for a novice trader. Technical indicators, support and resistance zones while not as useful as candlestick patterns are also important. I think it’s good for a novice trader to acquire the knowledge on his way to becoming a profitable trader.

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