How did I survive the intervention of Bank of Japan? (1) for novice traders
I have been writing about my thoughts in Japanese for a while, and this time for a change I’ll try to express myself about markets and tradings in English.(Half of my twitter’s followers is not from Japan)
Do you know the fact that price fluctuations are created by people with speculative ideas not by machines or actual demands? If you don’t I would want you to read papers written by doctors from universities on Google Scholar.
I have been showing me trading on YouTube livestream, because so many thing said about tradings and markets are pretty much wrong, and I think a lot of beginners lose their money in markets with the wrong information. So I want them to know about how they should trade really and also feel realistic about what I talk about by watching me trading in real time.
who are speculators ?
Speculators are those who try to make money by differences in price for now and future. When you buy something, the price gets up and close the trade, you will win profit.
In crude oil markets there are 99 times more of speculators than people from actual demands. I know it’s crazy to believe it, but do you know the oil price plunged in negative in 2020? This illustrates us well about how speculators are concerned with markets.
If you want to buy crude oil you need to contract first and it will take some time for the oil to come to your place. And if the price of crude oil gets high before the arrival, and you sell the contract paper to someone, you will get profit, because the price when you contract is fixed at that time. That’s why there are bunch of people who contract to buy crude oil even though they have no intentions of use.
Price plunge in negative happened just one day before the settlement of the contract which means if they kept the contract further than the day they needed to pay and buy crude oil really. Of course they didn’t want crude oil to come to their houses. So they tried to sell the contract to somebody else but it was in the middle of economy shock, no oil refineries wanted to buy them. So for their final option they asked the exchange to allow the price to go negative so that they could let go of their contract to refineries with paying devastating cost to them. This is one of the facts that there are so many speculators in markets but I want you to read by yourself about it, because it’s very important to know about whom you are fighting against in markets, you can’t fight invisible enemies.
When you understand this, ups and downs in price starts to get natural to you, because when speculators buy something they need to close it by selling. When they sell the price goes down. If there are only people from actual demands, for price fluctuating that way everyday, there must be so many people with reasons to return what they buy. This is unrealistic.
Almost all of the markets are consisted of speculators or traders like you, and then how should we trade in markets? To know the nature of traders is the next thing that you learn about to trade.
To illustrate the nature of traders I created a story called “Trader’s Dilemma”.
There are 2 people and one think the price will go up, because even the recent price dropped a bit, he weighs the long up-trend before the drop, and the other thinks price will drop further because even the long up-trend before the drop, he weighs the drop more.
Which one do you think is right about the future price?
“I need to take a look at different charts” or “I need to know some more news”
I think these are the most common reactions I will get from ordinary traders. And this reaction explains well about how most traders think about future prices.
1: They know well that telling about future price is extremely difficult because they often close their trades in negative.
2: They sometimes think of what other traders are trying to do, but for most of time, they only consider what they believe for their trading, because there are millions of other traders in markets and markets are affecting with each other so they think there are no ways to tell.
3: Even though they say there is no holy grail for trading but have a hope to find one secretly. This tells us the darkness they feel when they trade.
In short, prices are created by a lot of greedy people in fear.
I try to see what those people are trying to do from the chart. Don’t you think it’s not very difficult to tell what a person is trying to do next when this person always behaves instinctively like a child. People with greed and fear are less logical.
I try to know what traders want unconsciously. Traders all over the world are NOT sure of future price and feel difficult when they trade because they are also not sure of their reasons to do it. Think about a person who feels fear doing a gamble. He tries to find a logical reason for his bet but it’s a gamble so there are no logics in it. Some may close their eyes and depend completely on luck. In markets those people can’t make any changes in price because the result of their bets will be 50 to 50.
How about other traders who think they have realistic reasons for their trades.
Well even though they think they do, it’s very difficult to stick to it.
If one gets some information which tells him that price will go down, but he knows the information isn’t always right, he must feel some hesitation for his trade and looks at how the price has floated in the chart many times.
If he has seen this up-trend for more than 5 years then this up-trend imprints well on his mind. This fact affects his decision for the trade even though the producer of information tells him that he’s really sure of it. And at this point, he never thinks about what other traders are trying to do, because he is in middle nowhere about whether to believe the information or to believe what he’s seen for 5 years.
Maybe you think if the person weighs more of the recent drop, he will feel safe about the information. Yes that’s right, but if thousands of other people are in the same situation, which kind of people do you think are the majority? I think the majority feel difficult to sell for this trade, and price actions are created by bunch of other actual people like him. This is how I understand the market. What people has seen and felt are strong factors for their decision making, because they know well there is no 100% sure of what they hear and think about the future.
So the answer for “Trader’s Dilemma” is
“The price will go up even with the recent drop.”
However things are not as simple as this. As you know depending on the time frame, people’s interpretations for markets varies. And this makes predicting the future price complicating, but when you know price fluctuations are created by several different interpretations colliding with each other, you will like not only markets more but also start to have a new point of view about the world.
If you like this article, please hit on the heart, so that I know should continue writing English version.