When did the penny drop for you

All of us who have flirted with the forex market have at some time or other been disgusted at the market always going in the opposite direction to our desire.
There comes a day when you begin to realise that all the beautiful colourful lines and systems on the chart look impressive, but dont assist one iota to understand the market, on the contrary, some are in fact hinderences to sucess.
I am sure that those of us who understand that price itself is the ultimate indicator are by and large profitable traders.

There was the time when I was convinced I would make it as I had yet again bought one or other fantastic - and expensive - system.

Now to answer my own question - the day my penny dropped and my profit reign began was the day that I realised that - I did not know that I dont know! -
This realisation made me search anew for the real essentials I needed to make me sucessful. No rocket science required.
I discovered that this market is like any other market , regulated by supply and demand. All I needed to understand is that traders working the market create action, or if they stay out of the market, a lack thereof, this action drives the price - can only go one of two ways - aha! this gives me a 50 - 50 chance.
I needed to find a way to turn the advantage in my favour - perhaps 70 -30 - if I could establish the potential direction.
I wrote my own system and ever since I have been succesfull.
When did your penny drop?

nice post, i just hope this is not a sales pitch to a super sytem we can all buy from you so our penny can drop......

time will tell.

Never paid for any system or EA or any signal service, did get burned once or twice, once also by accident by wrecking my margin with too big of a lot size for silver and getting margin called after 10 pips. Instead of .2 it was 2 so what can you do, live and learn, could've went the other way too...

They can certainly be beautiful to look at. As to giving an understanding of the market, they can do that as well. It should be noted that understanding and predicting are not the same thing.

While understanding is vital, predicting is not necessary.

Too many traders believe that if they go long, they are going long because they believe or want or predict that prices will rise. This is a mistake.

A trader goes long because his method of analysis has told him of the three options: 1. Long 2. Short 3. Out. the best option at the moment is Long.

Going long because price IS rising is more advantageous than going short
because price MIGHT fall.

While ultimately the market is driven by supply and demand, there are other ways to understand the market's dynamic. One such way does use indicators to help identify the only two phases or cycles that a market can be in: a BUYING CYCLE or a SELLING CYCLE. Even range bound markets are oscillating between these two cycles. Each cycle is just capped at a resistance level or a support level respectively.

One of the most important things to understand about the markets is that they follow the irrefutable laws of physics. In particular, they follow Einstein's laziness principle. Now there are certainly many here who are smarter than I and know the correct theory, but I will put it this way: "A body at rest tends to stay at rest." and it's corollary: " A body in motion tends to stay in motion".

This leads us to an understanding of momentum. And momentum is an ideally seen through the use of (some) indicators.

I have to digress here for a moment. I am a big fan of Volume Spread Analysis. But I was having problems with my data (I know a better data source my be the answer). Many times my volume would change after the fact. So I might go short on a No Demand (volume less than the previous two bars) in the right place and make money. Only to later find that the bar did not actually have volume less than the previous two, but the price stayed the same. But here's the rub: the trade still worked out. Therefore the reason it worked out must be because of the underlying trend, the momentum or luck. The fourth option, that VSA is a crock is not a real option in my opinion. Nevertheless, the options of trend and momentum must be seen as being more valid in such a case. And as for luck, well, if it wasn't for bad luck I would not have any at all.

Okay, back to the point. Indicators used to identify the momentum of a BUYING and SELLING cycle and not predict can be a valid way to trade the markets when combined with certain principles of price action itself.

Take a look at the chart below. This is not a cherry-picked example. This is from the last trading day (Friday) in the ES. I will certainly and emphatically stipulate that it does not always work out like this. But in the end, trading is about probabilities and not certainties.

Take a look at the chart on the left. This is a 9 minute chart. I should also add that this is NOT a Kwik*POP chart. Note that prices were falling and the candles were red. When the candles are red we are in a SELLING cycle of some degree or another. But look what happens. Price does not make a lower pivot low. It makes a failure swing. A down trend is defined by Lower Pivot Highs and Lower Pivot Lows. Here price is failing to make a Lower Pivot low. Instead it makes a Higher Pivot low. An up trend is defined by Higher Pivot Highs and Higher Pivot Lows. While we don't have an up trend yet, we can see that something may be changing as the market has failed to make a lower pivot low. If prices can't go lower, they are probably going higher. Once we see a yellow up candle (close>Open) that closes above the blue-red line, we know a new BUYING cycle is likely. The time of this candle is 13:12.

Now take a look at the chart on the right. This is a 3 minute chart. First note the two yellow candles that close above the blue-red line. Both have a blue dot underneath them. 90% of the time a yellow up candle that closes above the blue-red line with a blue dot underneath will be followed by a blue candle in the next 1-3 intervals. Interesting but not really tradable.

But let's back up at this point. Back up to the Lower Pivot Low. At this point the trend is down. We are making Lower Pivot Highs and Lower Pivot Lows. The market then transitions into a BUYING cycle and makes another Lower Pivot High. Again confirming that the trend is down. But then things change. The market makes a Higher Pivot Low with a Yellow candle that closes below the blue-red line. At this point, there is not enough selling momentum to turn the candle red. In fact the next candle is a yellow candle that closes back above the blue-red line. So we now have a Higher Pivot Low in place. Take a look at the next yellow candle. Note that its high is higher than the most recent high pivot. Well if we are making higher highs and not lower lows, the trend must by definition be up. The time on this second yellow candle is 13:12.

At 13:15, we have our first blue candle confirming that a BUYING cycle has started (our entry signal). While the 9 minute is not in an up trend, we know that there was a failure swing. We also know that the flow of upside momentum is rising (see MEX below). Back on the 3, all the momentum indicators are blue and the trend is up. We have already established that markets in motion tend to stay in motion until enough force is exuded on them in the opposite direction. At this point that motion is up and the odds favor trading with that motion as opposed to trading against it.

By definition, there was somebody (actually a few some bodies) that bought the low. And there will be a few some bodies that sell the high. Yet, in truth few of those some bodies turn out to be the same people. That is to say, not every low that is bought and every high that is sold is done so by the same traders. Picking tops and bottoms consistently is not easy to do. Thankfully, nor is it necessary.

Lastly, note that both the 9 and 3 minute charts actually form a Lazy 'W' pattern. I price pattern known to many price action traders. Many trade such patterns on naked charts, but indicators can bring the pattern to life visually.