Here are some common questions that traders, as well as the financial media, like to ask.

“Is this a correction or a larger move downward?”

“When will this rally/sell off end?”

“Is the market overreacting?” I.e. is the price action too extreme relative to whatever the market was supposedly reacting to? 

Well, firstly, the market pretty much always overreacts, both to the upside and downside; so yes, the market is overreacting.

Secondly, wanting to only know how to make money now results in asking questions that are at best, superficial, like all the questions listed above.

Consider this for a moment. How sustainable can trading profits be if they are generated from constantly focusing on immediate price moves without understanding how markets really work?

The sheer level of short term volatility in markets will chop up traders who focus too much on these types of moves without some sort of informational edge that brokers or sell side market makers have.

However, these questions aren’t actually the irritating ones referred to in the title of this post. They can be, if posed to a particularly grizzled and grumpy trader, but the truly irritating questions are the ones that spark one into thinking.

Why not try asking these questions instead:

“How should I be thinking about this price move?”

“How am I managing my risk in relation to new developments in markets?”

“Does this market move align with my overall trading strategy?” Obviously if the answer to this question is yes, then enter into a position. Not so obviously, if the answer is no, then do not enter into a position regardless of market chatter – your strategy exists for a reason.

And lastly, if you do not have a strategy, then you should not be trading at all. Shooting from the hip in markets is how people blow up their trading accounts.

“What do I have to learn so that I can answer the common questions myself?”

Because after learning what needs to be learned, one would find that the questions that focus only on what markets are going to do in the future aren’t relevant. Why not?

Because nobody knows.

People can, will, and do guess what markets will do. But nobody can say with any certainty what will happen with regards to a specific price move.

Some statements can be made with certainty about markets, such as “rare events that result in large sell offs will occur”. We know that this statement is true because we live in a Paretian world.

To be concluded…