Modus Operandi: Price
In an increasingly uncertain and, these days, downright unfriendly world, it is extremely efficient and effective if our decision making is based on this single, simple, reliable truth. The constant barrage of fundamental data, such as price-earnings ratios, crop reports, and economic studies, plays into traders’ tendencies to make trading more complicated than it needs to be. Yet, factoring in every possible fundamental still does not tell a trader how much and when to buy, or how much and when to sell. The truth of “price” always seems to win out over all of these other analytical methods.
But even if you digest price as the key trading variable, it is not unusual for many traders to become familiar with and focus on only one market (usually stocks in their home countries) to the exclusion of all other global opportunities. Seeking to maintain a maximum degree of comfort, they follow this one familiar market’s movements faithfully. If they specialize in stocks, they wouldn’t dream of branching out into currencies or futures. How can a stock trader know anything about currencies? That’s the fear. The idea that you could know enough about Cisco and soybeans to trade them both seems unfathomable to many. But think about what cotton, crude oil, Cisco, GE, the U.S. dollar, the Australian dollar, wheat, Apple, Google, and Berkshire Hathaway all have in common. The answer? Price.
Market prices are the objective data. Accepting that truth allows you to compare and study prices and measure their movements, even if you know nothing about those markets themselves. You can look at individual price histories and charts without knowing which market is which and trade them successfully. Think about that. That is not what they teach at Wharton, but it is the foundation of making millions.