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Trade advantages are not based on 'secret' information

08-30-2010 08:59 BJT

The essential price information about securities is available to everybody who is interested in the market. They get the information at the same time, and everybody is able to buy and sell at the same time when the market is open. So where are the market secrets?

People often ask why I give away trading secrets. Is a question I am often asked. It tells me a lot about the way people think about the market. They believe that success comes from knowing something that others do not know. They believe a trading edge comes from early access to information. There is an important trading edge related to information, but it depends on analysis.

Getting early information is not an advantage unless we know what to do with it, and this depends on how we understand and analyze the news. China Daily gives readers an important analysis advantage, which allows readers to make better investment and trading decisions. The trading advantage comes from the analysis of information and not from its early delivery.

When I talk about particular trading techniques, approaches, or indicators the same trading advantage applies. It is incorrect to believe that I have an advantage because I use techniques or indicators that are secret. Some people think I have an advantage because the methods I use have restricted circulation.

This is incorrect thinking. Just because information is widely spread does not mean that it cannot be effectively used by many players in the market. This is the key advantage of the information age. The same information can be used by many people simultaneously and they can all make money.

Let's step aside from the market for a moment and explore a similar situation in a related field. Many readers would like to play golf as well as Tiger Woods. What stops them from achieving this level of performance? Is it information and knowledge, or is it skill?

Golfers can watch Tiger Woods in action on any sports channel. Coaching videos are easily obtained and we can watch his perfect shots in slow motion, analyzing every movement. The tools he uses are not restricted. Golfers can purchase the exact same clubs and use the same golf balls as he does. Tiger Woods is very open about the methods and tools he uses to play his game.

We know thousands of golfers eagerly follow the Tiger Wood's method of golf, but this is no threat to his dominance of the sport. No matter how hard we try to emulate his golf swing, his putting, or his choice of clubs we just do not have the skill required to apply this knowledge in a way that matches his performance.

Giving away this knowledge is no threat to Tiger Woods. Giving away my knowledge of trading tools, techniques and indicators is no threat to my trading, or to your competitive advantage.

Our trading advantage comes from the way we use our selected tools. The advantage does not come from exclusive possession of the tools or of information about the market. There was a time when this was true, but that time has long disappeared with advances in technology. Now we know that the tools, the information, and the selected indicators are widely available to anybody who wants to buy a cheap computer and a cable TV. We do not want to be un-informed, but we must accept that the edge from exclusive information is very small. The more we know, and the better tools we use, the greater the chance that our skills will improve. We give ourselves the opportunity to learn and to learn quickly by building on the experience of others.

Step off the golf course and return to the market. Instead of watching Tiger Woods on video you choose to attend a trading workshop, read a book on trading, or try a new indicator downloaded from the Internet. How is this going to give you an advantage? If you believe you have a 'secret' then prepare to be disappointed. Many other traders and would-be traders are following the same path and using the same information. Most of them will fail and leave the market, just as most golfers never get their handicap below 10.

There is only one advantage or trading edge. It comes from the way you apply this information to your own trading to improve your trading skill. Your success does not take away from the success of the person who wrote the book or delivered the workshop. His skill level is much higher and his success rests on how skillfully he plays the same game that you are also engaged in.

Trading knowledge is not a secret. When I give away or share trading knowledge I do not give away my trading skill.

When you play golf you may aim to match Tiger Woods. When you trade the market you may aim to match the performance of the trading superstars. You are most likely to fail in that achievement of these goals, but in the process you will improve your trading results - and your golf.

The author is a well-known international financial technical analysis expert.

Editor:Xiong Qu |Source: China Daily

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