One of the key behaviours traders should get into is revising their past trades to see what lessons can be taken from them. These lessons should be viewed through the lens of a simple question – are you listening to the market or are you in some way attempting to impose your opinion on it?
Consider the chart below of Natural Gas which has been trending sideways after a nearly 80% drop in price.
The congestion zone is clearly apparent yet interestingly volume indicates that traders are still taking positions. Many will argue that they are attempting to trade the range which I have always considered to be optimistic at best. In narrow ranges such as these, my observation has been that traders simply end up buying and selling at around the same price whilst chewing up their accounts with fees. Some traders might argue that they are going long or short in anticipation of a breakout. However, this is not listening to the market – it is preempting what you think the market might do. Price could go sideways for months.
We can get a narrow sense of what traders are thinking by looking at a metric such as IG Markets Client Sentiment which is shown below.
Not surprisingly the vast majority of traders are long – I say not surprisingly because most of the time traders seem to have a unique ability to be both profoundly optimistic and on the wrong side of the market. However, those with short positions are equally optimistic in their assessment. My view is that both are wrong because the market gives no justification for either position – price is going sideways within a constrained band. The smarting to do would be to simply wait.
Whenever I see a situation such as the one above I am reminded that the majority of market participants do not listen to the market. Thier ego gets in the way and they attempt to tell the market what to do.