An End to the Bull: Cut Through the Noise to Develop a Sustainable Trading Career

Chapter 8 Pricing In

In this chapter …

I explain in depth the concept of pricing in that I have alluded to earlier. To many readers this may be a controversial topic but I can assure you that every market professional that I have worked with agrees with this concept. Most of us find it hard to comprehend why the topic of pricing in is either misunderstood or completely ignored by many in the retail side of the industry.

I have a confession to make: in chapter 1 I omit one of the most widespread myths in the industry. It’s an assumption that underpins many forms of analysis and forms the foundations of the majority of trading systems and techniques that are taught to private traders. The myth is that the market is ahead.

The idea that the market is ahead is a fundamental principle of technical analysis — if you don’t believe it’s valid, then you simply should not use technical indicators and patterns. But many ‘fundamental’-type traders also believe in this theory, and even many fundamental analysts incorporate key aspects of the theory to their analysis.

By believing that the market is ahead we are making the assumption that the market (or at least most of its participants) ‘knows’ the outcome. Often this is explained to retail traders through the idea that insider trading is commonplace and we should follow what everyone else is doing. So following the herd or trend has become possibly the most accepted trading technique; if everyone else is buying, then we should do so ...