If I ask "what moves price?", I am sure a lot of answers will be buyers and sellers; but what makes buyers and sellers buy or sell? The answer is
Conviction.
All price movement results from an imbalance in the degree of conviction between the traders who believe the price is going up and those who believe the price is going down.
Retail traders are classified as
passive traders and the only way we find ourselves in winning trades is by the actions of the big movers in the market who are willing to bid the market up or offer them lower.
This simply means that we are trading other people's perceptions of what is high and what is considered low. So in short, you are simply depending on the dynamic traders to make you a winner or a loser.
The big movers in the market are referred to as dynamic traders. The
dynamic traders represent those with a large chunk of money enough to move the market.
Now let's get technical and relate this with the charts. Imagine an uptrend, for example, price surely gets to a level where it reverses; this level is marked as a level of resistance.
What really happened at that level of the market is that
there wasn't one person in the whole world that was willing to bid the market higher; no one was convinced as to why price should go higher.
There are a whole number of traders out there with the psychological and financial resources to bid the market higher or lower and
there is no way any technical methodology will know where the price is moving to except you get into the mind of the dynamic traders who are willing to move the market.
What technical analysis does is that it gets into the collective mind of the market but it can't get into the mind of the individual trader traders that drives the price up or down.
We as technical traders, always come up with a reason as to why the market went up or down (for example, trendlines, support or resistance, fibs etc.) but the truth is that
there is no reason you will come up with as to why the market went up or down other than the fact that there is an imbalance (conviction).
No technical methodology is designed to tell you what will happen on a trade by trade basis. This is why we make mistakes because we are expecting something from our methodologies that don't exist!.
This is also the reason why a trading strategy/methodology wouldn't tell you what will happen on a trade-by-trade basis but on a series of trades by a percentage % basis.
Your consistency as a trader is based on what happens on a series of trades. This is also why it is not reasonable to expect a strategy with a mathematical method to work consistently in a changing market.In conclusion, what technical analysis does is finding a pattern amidst the imbalance/conviction of the market,
it measures the probability of one thing happening over another. As a result of the fact that patterns (edges) show up from this imbalance, it turns technical analysis into an unending stream of opportunities to enrich oneself.
The effect of the dynamic traders in the market doesn't mean you can't make consistent income with technical methodology; all you need is to trade with an edge/strategy that works and follow a trading plan.Understanding the dynamics of price movement will help you trade your plan without expectations or putting emphasis on things that doesn't matter.
I hope you see the market differently now.