SFL Trader's blog

Why Technical Analysis Doesn't Work

If you've ever contemplated day trading, there is something of which you need to be aware.

All the day trading systems suck. They don't work. No day trading system works. Technical analysis doesn't work. The reason is very simple.

A chart is nothing more than a graphical representation of what happened in the past. It means nothing. Support and resistance levels only hold up if someone with A LOT of money is willing to buy or sell at those levels. And traders who have access to a lot of money don't decide to buy or sell based on charts. They decide to buy or sell for reasons which you will never know. Maybe they are spreading. Maybe they are buying futures and selling an underlying basket of stocks. Maybe Joe Blow at XYZ Hedge Fund feels like taking a shot here. Who knows? But trying to make a trade based on reading charts is ridiculous.

Numbers do not move markets. Computers crunching code do not move markets. People move markets. The people who buy and sell. People with access to large sums of money. One person can move the market over a short period of time and one person can start a chain reaction which will lead to big moves.

If you want to make money day trading, you have to learn how to anticipate what the big players are going to do next. You have to learn how to read the price action in the order book. You have to learn how to decipher the information in the bids and offers. The biggest traders in the world trade on this information. So should you.

Take a minute to check out my website if you would like more information on how real professional day traders make their trading decisions.




John Grady has been profitably trading futures and stocks for over twelve years. He has documented proof of his track record and has written "No B.S. Trading", a book which explains, in detail, how real professional day traders make their decisions.

"Leaning"...How Pros Trade

Here is an excerpt from my book. This is one of the setups which professional day traders look for. In this particular example, I'm using 10 as price which is a level. Not a level on a chart but a level where someone is offering a large amount of contracts and it appears as though he really wants to sell at that price. ..as opposed to just showing size without the intention of selling.

Leaning
There is a term used by traders called “leaning”. This refers to leaning on a bid or offer. In other words, in the above scenario, traders who are short at 08 and 09 are leaning on the 10s. They are hoping that offer will hold. If it looks like it's going to go, they will try to buy 10s as they are leaving. Other traders are also looking to buy 10s because they know shorts are “leaning” on them. This means 10 will probably be a good spot to get the edge. However, this is also a spot where traders like the Flipper make moves. The Flipper might be long 8s and be the offer at 10. When it gets heavy bid at 9, he lifts his offer at 10, bids 10 and buys everything at 11. Virtually no contracts trade at 10. In this situation, the shorts are up the creek. They were looking to risk 1 or 2 ticks and now they are forced to cover for a 4 or 5 tick loss. Other people who had no shot at 10s are going to buy 12s and 13s. This is why you must anticipate. If you think it's going to go, just buy the 10s. If you don't get them, you don't want to be buying 14s. If you miss it, you miss it.

By the way, most of the time these spots are not support or resistance levels on a chart. There is no technical reason for someone to buy or sell there. You would never know traders are leaning on the price unless you know how to read the order flow. And if you don't know traders are leaning on a price, you cannot take advantage of that setup.