What is Trading?
Trading is simply the buying and selling (or if you?re shorting, the selling and then
buying) of various securities and financial instruments. The old adage buy low, sell high, pretty
much sums up the basic idea behind trading.
However, one of the most poorly understood things about trading is that we dont
actually trade stocks as much as we trade people and psychology. By definition, there is
always someone on the other side of every trade you do. When you buy, someone is
selling. When you sell, someone is buying. Thus, your goal is to find two people (one
who will sell to you when it?s best for you and another who will buy from you when it?s
also best for you) who are either wrong about why they?re doing their trade or at least
have a reason for doing it that is not in conflict with yours.
To that end, we use technical analysis techniques to help provide an anticipatory edge on
the market AND market psychology. Many people think of technical analysis as voodoo.
In reality, most people have a poor understanding of why technical analysis works . not
merely how to operate the mechanics of technical analysis, but WHY it is usually
effective.
To be sure, technical analysis provides a valuable tool for tracking and understanding the
money flow behind the price action . but more importantly, technical analysis is even
more effective because so many people subscribe to its tenets. The majority of traders
use technical analysis in one form or another, luckily for all of us most do so poorly.
Professional traders also trade based upon technical analysis and you can see their impact
on the price action and take advantage of it (especially if you have the same kind of
information they have).