My take on trading

As a trader I have evolved and I changed my strategy many a time before coming to a style of trading i feel comfortable with. I am not posting this thread to feel better or tell you that my way is better than yours.
What I am here to do is to, tell you what has and hasn't worked for me and why.

In the beginning i thought that there must be a way, to predict the prices, and to profit on this prediction. Surely it cannot be random and there must be a way to find out the exact entry and exit point.

i went about reading online and found many people and so called experts sharing their strategies either free or for profit.
MACD diversion, Slow stochastis settings, awesome oscillators, bollinger band bounce strategies, candle stick patterns and formations, trend lines, support and resistance and so forth. The way to attempt to PREDICT is limitless.

i came up with complicated calculations, and custom fitting the indicators, the more i tried the more complicated the puzzle became. i wanted to predict the low price of the day and wanted to find ways to attempt at the prediction of price. "to a complicated problem there must be a complicated solution" i thought.
yet........................it didn't work, or it worked until it stopped working
i came to think that the market was messing with me, if i went bull the prices dropped if i went bear the prices rose, prices would hit my stop loss right before reversing to my original hypothesis, then i moved my stop loss but it wasn't effective as it exceeded my threshold of pain.

I remember posting at the EUR/USD thread and i didnt know where price would go, so i being the person that 1 is very bright and 2 does not give up.
i needed to find a solution, and to find a solution i had to start from scratch.

thanks to FTI "technical analysis fallacy" Jacko "house of pain" james 16, and crucial point, to name a few, i began to re think my strategy. and especially jesse livermore. They all had one thing in common. which brings me to my point.


The moment i STOPPED predicting price, i became a better trader. No set of rules or mathematic algorithms can Predict price. The reason being that price movement is affected by market participants. Many participants have many different reasons for doing what their doing. Forex is fundamentally different than stocks but the market structure is similar. Understanding the market and who are the players helped me a lot.

Central Banks and the government of each country: are the biggest most important players in this market. I see a lot of posts about the "big boys" manipulating price, and I am not disputing that. However the fact that people think this is a supply and demand market sounds a little silly to me.

i believe supply and demand form a big role on the movement of price, but this is true about the central banks. FOREX CANNOT be solely influenced by traders, or speculators. The government would not allow that. Government intervention is key, and they make announcements and hint at it. Think of this : Do you really think the United States of America, the richest most powerful nation in the world, allow us speculators to ruin their economy and decimate their industries by letting the dollar float in a "lassez faire" manner?
if the FED wants to boost exports: they devalue the dollar
if inflation is a concern: Dont they appreciate the dollar? through various mechanisms?
then why do we think that this is a pure supply and demand market?

the moment i began to see this, and keep up with news, announcements, interest rates, yields, bank reserves, and how the Central banks minimize their exposure, the better off i became at trading.

it became obvious to me that the movement of the dollar dictates the market. The world doesn't run on money per say it is oil that gives the dollar is value, and worth. The reserve currency is also used to price commodities, and in international transactions. so it is important that we stay informed with the movement of these commodities, to gauge the value of the USD.


EVERY ONE wants to protect their earnings or achieve higher earnings, if you are aware of the economic cycles, fundamentals behind the movement of price and specially MARKET SENTIMENT, this will give you an edge on your trading.


why am i putting so much emphasis on fundamentals? because we all want to trade off of the chart and make assumptions on what the next tick or candle will bring and the fact is that without being aware of the fundamental factors driving price movement we always run the risk of "predicting the next move"


fundamentals gives us the direction/ trend of price
technical analysis should be used to give us timing of entrance

I used to trade in this way:

i looked at my chart, studied the patterned and according to whatever mechanical strategy i was using at the time.

i would enter the market with with a stop loss of X pips and a take profit target of X pips. this way of trading is encouraged and it is celebrated to be the WAY OF TRADING. with a risk reward ratio in mind.

very mechanical very methodical, but if it is THE WAY why is it that most traders fail? i believe is because this WAY of trading doesnt work.

FTI says that rigidity kills and that is really true.

why do we make mental assumptions and believe the market/price will respect our assumptions? why do we gamble our money on every trade by predicting the direction beforehand and protecting from crippling loss by putting a stop loss that
1 will be taken out by volatility
2 will allow us to take a loss
3 if put away from volatility the loss will be bigger

The one thing i have learned is that the market is really not complicated but our systems are to rigid and to predictive to be effective.
can you agree with me that the market.

1- has trends
2- acts in waves
3- has 4 basic market structures (bull, bear, topping and consolidating, and ranging)

why go all in at once? Jessie Livermore used to scale in, FTI snowballs in,
and that is the best way.

this is the way i trade and hope you find some usefulness and adapt it change it or do as you please with it but the one thing you should take into consideration is that RIGIDITY DOES KILL. a system should be flexible.

1- I determine market structure mixing fundamental analysis and technical analysis. ALWAYS determine where the USD is moving and move with it, it makes it hard to be on the wrong side

2- i dont try to catch every fluctuation as this is dangerous (if in a bull market why go bear to catch the correction when the bull might charge at any moment) i try to catch the MOVEMENT of the price. using a higher time frame to give me a bigger picture and a smaller time frame that allows me to feel the wave, the rhythm and movement of price.

3- i snow ball my way in, one initial small lot if i am correct it will be in the green right away, and i can press the attack by fib ratio skews 1,2,3,5,8 etc
if i am correct in the direction but ill timed i will go in the red and simply wait for the market to come back and prove me right, or wait for the market to prove me wrong with minimal losses. or i can attempt to rescue by averaging down, or hedging it really depends on your psych and risk apettite. the market will not always go your way right away sometimes it goes 60 pips the other way just to resume its trend, hold on and know when to press the attack.
this makes you very profitable when youre right by snowballing and minimizes your losses when wrong by not risking but ur initial small position.

no physical stop losses, if you believe i will blow my account and i am dumb for no stop losses, i can hear you say the draw down is unlimited and all that croak of s=-t. i have used them and they dont work.

4- i use a set amount of risk capital and bank all profits above that target.

i minimize my overnight exposure by scaling down my attack but maintaing my initial entry or if i believe i should leave more troops on the ground i do. but no the whole army if you are not watching it.

i didnt read your whole thing, but i read something interesting..

IT IS BASED ON SUPPLY and demand which can be broken down into a bajillion different factors,

think of it this way.. if the price is to high export suffers, importers are like yay, traders use supply and demand.. forex is a collection of other financial intruments also which the traders use supply and demand e.g. index, futures, bonds, etc.

theres alot more but more than what i could write here. hope this creates an image to you

jessie livermore didnt trade. he used to bet.. and he got bankrupt twice and committed suicide

it does, and you are completely right.

this is exactly what i was trying to convey. it is not just some traders, trading the spot price manipulating and finding ways to fake you out. as i have read countless times

forex is a combination of many factors, with many traders

jesse had many emotional issues and he himself said that when following his own rules he would win when not he would lose

i agree, but i read awhile back that when he lost he used to blame the speed of the ticker (which is what most people try not to do.. blame their losses on something else). he had balls though hands down.

i dont think i will ever get the chance to meet someone that managed to get up to 100m after being bankrupt (and losing is money many times).. which back then 100m mustve had the equal value to 1billion. i think people should use his example that you should follow what is comfortable for you and never give up.

i still wonder what went on in his head after he got bankrupt the second time

awesome post, reflects my thoughts exactly!

"This sucks!"

Redlion, in your first post you wrote of stopping predicting the market through TA. You then wrote in your next post that the fundamentals are what is important and you follow them closely in order to predict what the market will do. You also said to follow the dollar, which is in a way removing predicting.

I get the sense though that you really are predicting and that your philosophy is really just FA rather than TA.

I'm genuinely curious and I'm not trying to bust your balls.

I think this is the best piece I've ever read about the futility and pitfalls of predicting the market.

http://www.forexfactory.com/showthre...00#post1822100

identifying what he USD is doing i find it very useful to keep in track

knowing how the correlating pairs move and what causes them to appreciate which in itself is the same concept as USD movement for example

aud cad nzd are all comodity currencies and in turn high comodities is sign of US weakness.

i dont try to anticipate the market if that is what youre saying, i dont think, i has to correct or i needs to appreciate. i let TA and PA guide me.

i mostly look at the 5 minute chart and FEEL the rhythm of the market and the general direction.

1 is identify market structure, ie what is the USD doing and is the currency being traded acting appropriately, what is the trend? is the most important question, and usually the trend comes along with Fundamentals

Like i said in my post fundamentals give you the direction and technical analysis gives you the timing of your move. work that with a sound flexible snowballing strategy, and learn how to troubleshoot when in trouble and you find your holy grail

I will give you an example

ever since the begining of the year what has been the market sentiment.
dollar weakness

how is this reflected in the markets. looking at the majors

aud gbp euro have all had bullish trends in turn the inverse correlating pairs
cad chf jpy had all bearish movement jpy afte the intervention started acting weird and the g7 gave a statement 2 days before that they would depreciate the yen. and woola the yen depreciated.

technical analysis is very important, reading the chart and being able to indentify what price is doing now is absolutely necessary. identifying diminishing buying pressure, selling pressure, trends, key prices and movenment of price is 50 percent of the trade
knowing what is making these price moving the way its moving and identifying changing market sentiment is the oher50 percent

by pure TA you could short the Euro or the AUD because youre expecting the correction, or you could exit early in your trades or trade the wrong direction

but knowing that dollar weakness and whats driving the dollar down, puts you in the right side of the trade, as the dollar goes down the eur and aud go up.

when people stop trying to get rid off dollars as quickly as they get them. you will find

the reason reflected in the movement of price
fundamentals (direction)+ technical analysis (timing)+ sound flexible trading plan with trouble shooting+ psycology+ knowing yourself and what lot sizes, how to use your funds to trade your plan= success

this is an art, that requires experience, not a sience that requires mathematical precision.

if rigid methodical plans worked then Automated Robots would be the holy grail. they dont need psychology, they can be programed with money management and they execute plan to perfection.

so why do they fail?
RIGIDITY and the failure to adapt and intuition to know when something is not moving the way it should

Excellent thread. I have a coupple of points, hopefully you are still around!

I see it as supply and demand. The goverment does not determine the price, it manipulates the supply and demand, either directly (e.g. printing money, easing credit) or indirectly (e.g. interest rates,. etc). But the effect is not certain.

This is the one I'm interested in. Can you give me some idea why you don't dispute it? I can't get my head round it. I can understand how "big boys" can still manipulating price of stocks to a certain extent but forex is too big, too liquid and too decentralized to control.

Maybe I am missing part of the picture, and I'm hoping perhaps you can point me to some facts that support that view. Otherwise it looks to me like some myth surviving from times when it was possible.

have you never heard of central bank interventions? that is big boys manipulatig price.

To expand on this a bit, price can be manipulated in the short term by players with deep pockets. The reason they don't impact long term trends is because. . .

1) Profit motivated manipulations require large amounts of exposure therefore players looking to manipulate price are also looking to quickly exit positions. Once they have exited they no longer have an impact on price. Leaving the market to go about business as usual.

2) Even if you have the deepest pockets in the game if you are going against the prevailing flow of money as soon as you stop placing orders price will move against you.

There things what conflict me you trading a 5 min chart and using fundamentals. hhhmmm.


The other thing is why you dont ask yourself the question why do i wanna exchange euros for dollars what are the benefits or the negatives (just a example)

Then do you research on that if you wanna trade fundies (macro and sentiment)

Or are you trading then news? there is a huge difference in between those 2

I dont see it as manipulating the central bank want to push price more to true valua the free market (speculators who drive the price down for example in some chf currencies or yen that hurt there economy.

your statement in itself is so illogical.

you say a central bank wants to push price more to the true value of the "free" market. Who is the free market? every market participant, thus also speculators who drive price down. Is it not every market participant who determines the true value?

So, in a sense you are saying that the central bank knows the true value better, than market participants. Right? Only because central banks don't like where their currencies are going, doesn't mean that they have to be right about the true value of their currency.

You are probably one of those guys who think that when a government or institution sets prices, they are always right. And when the market does it by itself, then these prices are wrong.

no one seems to understand me, maybe im just a weird trader but i dont see time frames.
its all the same, up is up no matter what time you look at it. if the euro hits 1.4300 it will hit it on the tick the hour the month the week the daiy the 4 hrs.

to my brain, TF is just a measurement, price has direction and usually has to do with fundamentals, but every direction has its up and downs, nothing goes one way in a straight line.

i use the 5 min to position my self for the daily,so in fact i measure price by hour, then go in by 5 minutes, according to what the daily is doing.

hope it makes sense if not i will try to clarify, no one seems to understand me