What’s the weather like tomorrow?
When a F1 team goes to a track for racing, the have a whole team of weather guys with them. Why? So that they can choose what kind of tyres the cars should be fitted with. Rain tyres, slicks, semi slicks. How the car should be setup and a lot of trimming in the engine depending on humidity.
Is the track full of long straights or is there a lot of slow corners. Should the car be setup for fast speed or good traction?
After qualifiyng, depending on start position, the team decides how many pit stops is optimal. Should we make a long first stint and fill the car with heavy fuel load, because it´s likely to start raining after 45 minutes and we´re starting in third row on the grid?
All these questions and more, the race hasn´t even started.
When the race starts, the racing driver is driving as fast as he can with his competitors all around him, trying to get passed.
The team in the pit looks at lap times and what the competition is doing, maybe they have to change strategy during the race because of a crash in the field or because of a bad start that makes them lose time on each lap. The car might be setup for fast cornering, but isn´t able to pass the other cars on the straights.
The driver gives feedback all the time on how the car feels and if there´s something that should be fixed in the next pit stop, he also get information from the pit of what is happening on the track.
What if the team didn´t have any weather information?
What if the team didn´t have any information of which track they were suppose to race on tomorrow.
The driver is a world class driver and he can go extremely fast in both wet and dry conditions, but not without proper tyres and an optimal race setup and a very good strategy from the team, he doesn´t stand a chance. It doesn´t matter how good he is as a driver. Everything has to be perfect if he´s about to win.
So, what does all this has anything to do with trading? Well, it´s not that different, except for us without a team, we have to be the weather guy, team manager and a racing driver.
Before our trading day starts, we have to check loads of things, and it´s not just the levels like yesterdays high/low etc. We have to watch out for news during the day. Is it news later in the week? What happened yesterday, was it a big trend day with lots of new money the came in? Was it a low volume day?
We have to try to predict who our competitors are likely to be today, is it going to be professional day traders, institutional guys with loads of money, small guys without any power to move a market. Is it likely that the liquidity providers (market makers) going to be there and stop retailers out on breakout and fakeouts?
As for the racing team, we also have to be flexible enough to change strategy during our race.
If we are not prepared and have some kind of feel for who´s going to be on track today, we´re just like a racing driver, driving on slicks when it´s raining. Doesn´t really matter how good we are…..
My days has been both good and bad, and I realize now that I´ve had the same strategy regardless of the weather. The levels has been there and preparation has been done, but there has been something missing all the time. The tape reading itself isn´t that bad either. The problem has been that, you can´t look for spoofing market makers when there´s new institutional money coming in big time, you´re gonna get run over all the time.
So, depending on day type, you have to look at different things on the tape.
Next challenge for me, is to have a feel of what kind of day it´s likely to be, and have the right tyres when the race is on.