When you peruse YouTube and listen to master traders talk about the retail trade environment, you are likely to hear them opine on why the vast majority of retail traders fail. Failure to maintain a trade journal; failure to create and follow a plan; failure to properly manage capital risk; and failure to manage emotions are among the top reasons for retail trader failure.
What I do not hear from a historical or legal perspective is how the lack of knowledge of the trader’s role in the circulation of currency may impact their ability to trade effectively and how the lack of knowledge as to their role leads to the most serious impediment upon their ability to trade effectively: their lack of information.
This aspect of trade, the lack of information, is not overlooked per se. The problem I have seen is that the proxies for real information, candlesticks and technical analysis, have obscured the necessity for the real information that retail traders need in order to be relevant in the foreign exchange market.
This particularly came to mind after watching a YouTube video where the instructor criticised the technical analysis/candlestick approach that other instructors parlayed onto their trading students. He shared that the vast majority of students are trained to look at how candles move versus understanding the outflow information contained in those candlesticks.
Of course, he pushed a product and training program that would show retail traders how to obtain and use this information. I can’t challenge the veracity of that claim nor am I here to do so, but the crucial point about the lack of information is the takeaway the trader should have.
But why doesn’t the average retail trader have access to this information? The answer goes to the trader’s role in the currency market. Retail traders fail because the information they lack to be successful is kept within the walls of the interbank market.
Banks, both central and commercial, are responsible for the production and circulation of money including the currency. Government, by law, has outsourced to the responsibility of money creation to the commercial banks with central banks providing liquidity necessary for keeping the monetary system flowing.
The retail trader is not an integral component of this information flow. To the extent that she creates a market for a commodity, currency, that otherwise has no intrinsic value so that the transactions he engages in creates profits for a counterparty bank and taxes for the government is about as far as her relevance goes.
To be more relevant she must take on the mentality and knowledge of the entities responsible for moving money through the system. She must take on the mentality of a banker. She must understand and embrace the political and legal framework that supports currency circulation in the United States and across the globe. This understanding will filter the information she needs to be a trader.
25 July 2022
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