Why do many trading systems not mention the entire...

picture?


So you go to the commercial section/trading system even this section. You will see threads started on this or that trading method but i would guess most of them deal with technicals rather than fundamentals.

Ok follow the trend, use this/that indicator, draw this or that line etc etc that's fine.

The problem is the fx market doesn't work like this does it? It's pretty easy to follow a trendline/ draw a fib retracement/ read the various types of candles but the markets don't truly work like that.

Although this doesn't occur that frequently what you will see is suddenly the price just blasts either upwards or downwards going totally against the rules of the indicators. So all the fib lvls are totally broken, the upwards/downwards trend is suddenly broken unless you really put a large SL or TP from your entry anyway the point is all of a sudden the rules of the technicals are broken.

Then you will read some posters in the thread go oh it's due to this or that event occuring like say the FOMC or the speech by some big wig like draghi etc. This then becomes confusing because this trading system doesn't involve any fundamentals at all. I even asked the instructor of demand and supply lvl trading and he mentioned he doesn't look at news so yeah i followed his method and just traded like any other normal day unaware it was some big news event.

Anyway i started a thread on it and got told off by some members like oh you don't know that you should follow the news? How would i know? There are literally thousands of trading systems here, possibly millions of opinions i read about the news before but then again how are you even going to use it?

Let me give an example. Say the fed cuts interest rates i don't think any system in here teaches you that cutting interest rates for example will do this or that. Anyway you will read a member that will mention that the cutting of those rates resulted in price moving either up or down and then you are stunned because you didn't know about this. Where do you get to learn that from? Investopedia?

Later another person will say oh the event is already priced in so that means the event won't affect price much. DUH! They typically say that AFTER the event has occured not before.

I suppose where do you learn about all this interest rates cuts etc etc which seems to be beyond the scope of fx teaching but obviously affects fx yet you don't really see anyone teaching them but some random member just blurting them out.

Anyway i joined some skype group from one of the trading systems and the members started talking about trading methods and news events etc that were not from the trading system at all. Nothing wrong in doing that BUT by doing that seems to compromise the system.

Perhaps it can be compared to say learning a martial art. There are like 100s of different martial arts out there. I would say most people learn one art say karate for example for self defense. Then later the dojo he trains at has people training in another martial art say muay thai or boxing for example. Then it totally defeats the purpose of training in karate. Or let's say this person got defeated despite learning karate and then gets told oh you need to train in wrestling or that ju jitsu ground work etc that MMA/UFC seems to promote so much then the karate exponent would be like WTF?

That above example is how it is like in some of these threads.

I know you're venting and this may not be the reply you want to read, but I'm a good honest guy so I will give you the best and most honest reply, and you can do what you want with it.

Starting with this question, two reason why most systems here don't mention the entire picture:

1) This forum attracts a lot of people who have no idea how financial markets work, yet they think they'll go from a triple or quadruple digit account to a millionaire in a month. We know how that ends. The small percentage of professional and consistently profitable traders are extremely outnumbered by the sheer number of losers here. It's essentially the blind leading the blind and that obviously leads to a dead end. (An interesting point to consider, most FX dealers can't trade any better than your average losing retail trader. Although they have more knowledge about markets, retail trading and making markets are very different and usually only long term dealers have learned or experienced enough of market structure to build an edge).

2) A trading system is only a way to take a piece of the markets. A trading system does not include teaching you about markets and how they operate. This is knowledge you need to seek for yourself, and once you do, you will realize how these systems are, or once were profitable and why. Think of it this way. If I google how to perform open heart surgery and find an article, does that qualify me to perform the procedure? Here's what happens during the procedure from healthline.com:
The patient is given general anesthesia. This ensures the patient will be asleep and pain-free through the whole surgery.
The surgeon makes an eight to 10-inch cut in the chest.
The surgeon cuts through all or part of the patients breastbone to expose the heart.
Once the heart is visible, the patient may be connected to a heart-lung bypass machine. The machine moves blood away from the heart so that the surgeon can operate. Some newer procedures do not use this machine.
The surgeon uses a healthy vein or artery to make a new path around the blocked artery.
The surgeon closes the breastbone with wire, leaving the wire inside the body.
The original cut is stitched up. (NIH)
Now following the above instructions, am I ready to perform the surgery successfully without any prior experience in the medical field? You would be stupid to think so. The above instructions are like the trading system, telling you what to do. The technical indicators and fundamentals prints and reactions to both are your tools just as a surgeon may use a knife or scissors or whatever as his or her tools. So what's missing? The correct knowledge and experience! This should be differentiated from the trading system and is up to the user of such systems to learn for themselves.

Price doesn't move solely due to technicals. There are other major order flow catalysts and therefore it shouldn't come as a surprise if your stop loss is hit even though you followed the technical rules to a T.

Some strategies can be traded technically successfully without worrying about fundamentals. Think high time frame with low risk. Sure you'll have more losers than if you paid attention to fundamentals, but the trade off is that you don't need to learn the fundamentals. Some strategies are traded technically, but avoid trading during news time. If that's your style, so be it. You need to figure out your own style with how much time, effort, and commitment you're willing to put in. No one else can answer that one for you. You can also traded fully fundamentally or combine the two like I do.

Sure, Investopedia is a reliable source. Or read it in a book. Or google it. We live in a digital age and information is a plenty. It's up to you to filter out the bullshit from what works.
If you're complaining about how hard it is now when back in the day People drew out charts by hand or used other methods to trade successfully like Jesse Livermore and the tape reading method (which took a lot of time to learn and develop), then you deserve to have your ass handed to you in the markets. You're up against the best in this game, you're either on their side or the chump getting eaten up. That's the reality of it.

It's easier to say what happened AFTER THE FACT. However, there is value in this. You can use the reaction you saw to put on a trade with better probabilities next time the same or similar scenario plays out. Hmm, what are we doing here? Gaining experience and building intuition and that is KEY!!

No it doesn't.

That example started out so well then turned into complete bullshit. There are tons of styles out there in martial art just as there are tons of styles in trading. But why does a karate fighter have to go up against an MMA fighter. Why not another karate fighter? For example, a technical trader could make plenty of money during technical conditions, but turn his system off during a key fundamental event. A fundamental trader may only trade key events and therefore both have the potential to be profitable, why compare their success together. They follow completely different rules and may never trade together and both still be making money. Sure, we can compare who makes better returns, but that doesn't necessarily mean one style is better than the other. It's whatever suits your lifestyle. They both have pros and cons. Maybe the MMA fighter can kick the karate fighters ass like a fundamental trader doing better than a technical trader, but the karate kid could probably beat some dudes ass who doesn't know how to fight, meaning the technical trader can still make money. There is no one size fits all in trading or martial arts. There is no best. It all depends on you, your style, and your own goals/time constraints/commitments/etc.

Now for some friendly advice. There is no if X happens, then Y happens in trading. X could cause Y. Or Y could cause X. Or some third variable Z could cause both X and Y. Or many other combinations could result in what occurred. It's not easy to teach, trust me I tried. There's just so much different information and you need to be analytical and quick, deciding the different scenarios that could occur in an instant. So where does that leave you? My best advice is for you to do two things. 1) Gain the right knowledge. Learn market microstructure. Larry Harris's trading and exchanges is a good one for that, although there are other sources. Darkstar's book /course/free course are amazing, but may require reading them a couple of times and even revisiting it as you progress in your trading career to make use of the info. Also read carefully and comprehensively the market microstructure academic papers on FX by Osler, Lyons, etc. Learn about liquidity and order flow. Learn how and why price changes. Revisit trading concepts and look at them again in a market structure way. Always keep learning. There's just so much information to learn and bullshit to discount. 2) Gain the right experience. After developing market structure skills, watch what happens in markets in real-time. Ask yourself why that happened on a microstructure scale. Watch how the market is positioned, where the stops lay, what event happens and what kind of reaction occurs. There are plenty of different scenarios, but after gaining the right knowledge and experience, your intuition allows you to place bets with high probability and ideal risk management. Although not 100% winning, that's the best you can hope for and like achieving enlightenment for a monk. It's a probabilities game after all and if high probabilities and ideal risk management are in your favor, the money will come rolling in. And when things don't make sense, remember the market reflects a collective of all market participants thinking and action. Although it's not always a rational reaction, there was a reason for why price did something. If you can't find an answer, just let it go and move on to the next one. After seeing things happen enough times, you can start building multiple edges that are profitable. It does require a brain that can think for itself though.

Oh, and get off this forum. This place was a big jump starter for me in trading, however it required digging through the crap and finding the nuggets. And even after finding the nuggets, you'll need to get off of here and start searching for the right information through various sources, including just a few on here. You're lucky I was able to tell you what you need to do to become profitable, but it's up to you to put the time, effort, and work in to reach that stage. And boy is it a lot of work. Most people are too lazy and get too bored with this part and continue following their self perpetuating losing cycle, it's no wonder 95% of traders are failures. Whatever you choose to do, good luck.

I know it sounds like a critical reply, but I was trying to get you to see things from different perspectives, something you need to be able to do in trading and especially trading around news. Oh and while I'm being honest, you need to be both mentally and emotionally strong, confident in yourself and your abilities, and to not be a crybaby (not that you were) to be able to succeed in markets. There's a lot of times you will feel down after something rough happens, but those who can accept it and pick themselves up, learn from their mistakes, and fight back better and harder than ever before have a much better chance at success. Such is life. Don't think of failures as failures. Think of them as learning experiences. It's only a failure if you accept it as such.

After a year or so of following and trying forex, I have come to realize that pretty much every system/indicators work to an extent and are profitable. The "fine-tuning" of any system in my opinion relies on what you stated, fundamentals, and this is ultimately what separates profitable traders from losing ones.

Looking back at my bad trades, knowing what I know now it's very easy to see why the trade failed. Things such as day of the week, time of day, news event for the day, etc, all play a huge role in whether or not a system works. The problem with a lot of systems on here is that there is no preface to the system. Nobody says, "oh yeah, pay attention to strong trend lines, weekly S/R, news events, day of the week, etc." These are all things that are kind of assumed you already know, however a common thread among unsuccessful traders is that they solely rely on a system and not the above fundamentals.

As of recently I have found success in planning my trades before I even look at the indicators for my system. Keeping note of major support and resistance lines, the news, the time of day, or day of week, are all important before you even try to use any system. More of my time is spent looking back at old charts to see when certain news events caused the market to consolidate rather than looking at my system.

For example: A system I had been using for a week had been giving me pretty good results, then one day it hit a major loss. I wondered what was different on this day and sure enough it was the day new bank rates for GBP came out and the market had consolidated. Although obvious, these are the sort of things that can keep traders frustrated when they could easily be avoided.

The most successful traders in my opinion don't use incredibly fancy/complex systems but rather know when to trade, or when the market is most predictable. Nowadays I focus less on how many pips I can make in a day, but rather choosing maybe 1 or 2 days out of the week that are clear of any news that might interfere with my system. Bagging a decent amount of pips trading only 1 or 2 days is much better than making a ton of pips one day only to get slaughtered the next day when I shouldn't even be trading.

People use technical trading systems because they're too lazy and/or stupid to take the time to learn basic economics and market structure. If a person hasn't taken even a basic econ class, he /she has no business trading. Period.

Your first step is to understand that indicators do not move price and are pretty much useless. Doesnt mean you cant use them but trading based solely on them is crazy. You may see price turning or stalling at important levels, lines, fibs, whatever, but that is only because of order flow. The level/line itself does not magically stop and reverse the price. Orders placed there by market participants make price react the way it does. So how do you how price will react when it reaches a trendline for example? The answer is you will never know. No one knows anything for sure. There are no certainties in the market, which means there are only probabilities, which means risk management is essential.

There are plenty of people promoting pure technical systems and they tell you to avoid the news. In my opinion it is because they think news are hard to understand and decipher, and that trading is as simple as doing this or that when indicators or price action tell you so. That is not trading.

I suggest you start with the basics. Dont know what inflation is? Central banks and their roles? Google it. No one is going to present it nicely in a thread and tell you how to trade when such and such happens.

It is not as simple as finding out what to do when interest rates are cut or when some event happens. What is important is understanding the expectations behind the move. For example this month the ECB further employed fundamentally bearish measures but the euro still shot up. Why? The answer is simple and is based on expectations. For months, Draghi, the head of the ECB, raised expectations that the ECB will do such and such. You can find all this information online for free. Read the articles on Bloomberg and Reuters for example. Pretty much everyone was expecting some significant changes. As a result, the euro kept dropping and dropping. You can see this on the charts. You can easily see how the market was pricing this in. In the end, Draghi disappointed the market's expectations and that is why the euro went up. Just think about it. The majority of the market was short, and then news disappointed them. Obviously they then need to readjust their expectations and positions so the obvious direction for the euro was up. Why would it go lower immediately after such news? This is the sort of analysis you need to do when trading. What you can do is apply this way of thinking to future events/sessions. You need to think how the market is thinking. Trading based on just technical indicators is just stupid. In fact I think close to 100% of the threads in the Trading System forum are part of the 95% of consistent losers.

Again, you need to keep to up date with the news and THINK. Analysing what happened in hindsight is good. It teaches you how the market is likely to react in the future. It teaches you how to think in terms of expectations and what happens when those expectations are/are not met. In my opinion if you want to be successful you need to stop taking the easy route of blindly following technical rules. Learn to think.

The market moves based on orders placed by participants. The participants place orders based on what they expect. You can find out what they expect based on current sentiment and clear fundamentals. You can follow sentiment by reading and analysing the news. You can follow the fundamentals by understanding the central banks and their motives. Another quick example is the GBP/JPY. This is in a long term trend. Find out why GBP is so strong relative to JPY. Then you will know this pair will hardly ever drop too much as there will be strong buying interest as long as the fundamental expectations are still valid.

Yep - This post above

People who ignore the fundamentals will do so to their detriment. Think about the big players who move the price and WHY they might be interested in buying currency 'x' and selling currency 'y'. Also you can't treat and use the fundamentals as a rigid, rules based system that if 'a' happens then 'b' must follow. Use the fundies to gauge the likely strength and direction a currency is likely to travel, match the weak with the strong THEN open a chart and take a looksy at reasonable places you could enter.

The fundamentals provide the reason you want to trade a particular currency pair in a particular direction and the technicals are then used to determine a location to best enter (if you decide to employ the technical approach which most do).

Reading your post reminds me of the agony that I went through for the past 6 years, trying to find a trading method, spending several thousand dollars with an Online Trading outfit....not to mention the complete name, and still losing big sums, turning to this guru and that, this methodology and another and still no reliable results. The more money spent on training outfits, the greater the losses. Your observation is correct. Just when you think that you have gotten good advice, a spike takes you out and the price then goes in your formerly anticipated direction. So I share with you my current opinion. I finally structured whatever knowledge I have accumulated into a methodology that works for me consistently and give only detached attention to gurus and know-it alls. I listen to the news only so that I can stay out of the market, if I think that it will affect my positions, or in order to take smaller calculated losses if I am unable to hold on. But I have found that, if I have entered correctly with the longer trend, and according to my own rules of engagement, I can hold on even when price goes against me for a while and eventually be rewarded with a profit. The key is to not over trade, so that your margin is not eaten up by an adverse movement, thereby forcing you to take a big loss, or to lock you out of other more profitable trades. But you must develop your own strategy, back test it, and once it has proven itself correct, trust it and obey your rules with tenacity. Don't listen to braggarts, and those who offer to teach you a "guaranteed knock out" strategy for a modest price of a few thousand dollars.

Let me suggest that you break up your capital into four accounts and trade each independently. Monitor all the major currency pairs to find the one(s) that is ripe for harvest. Never encumber more than 50% of your margin in any account. Set your default order size to 0.15 of available margin and your take-profit to 25 pips. Be thankful for the 25 pips that you garner over and over again and don't mind the occasional money that you left on the table. Most moves are in increments of 25 to 45 pips before a pullback. Don't enter a trade unless the trend is confluent in M5 through H1, and you are entering on a good pullback, which might be determined through Fibonacci or not. And develop your confidence by doing this over and over again in your practice account. By keeping a history of what happened to each trade you will eventually correct your errors and eliminate weaknesses.

Thanks for this advice great write up

I always laugh at people who say, "I've never met a rich technician." I love that! It is such an arrogant, nonsensical response. I used fundamentals for nine years and got rich as a technician.

Mr Schwartz :-)

Any attempt at trying to understand why the price moved in some direction is usually followed by a burned account. (Ahh yes, the price moved cuz' FED said this and that, and oops next time when FED said the same thing price moved in other direction, wtf??? - do you see how futile that is and it leads to more analysis and then the next step is to learn all possible technical indicators which will finally bury your account in no time.

So many people trying to understand if the price movement was due to FED release, or any other "news" regarding macroeconomic indicators of the current market affected by them. It's absolutely pointless - yes, it can be done (finish macroeconomics faculty and have trading experience for years with all financial derivatives - no time for that), but I don't think it has more merit than let's say finding as simplest as possible trading strategy (system) that works good in more than 60% of cases.
I smirk at people drawing trendlines, fibs, macds, and sometimes even moving averages (no dissrespect, we're here to learn in probably the hardest line of work) - they're all indicators that are usually behind price for more than few days (depending on the time frame) - and for what? - so they can justify their entry point which is based solely on a few stupid indicators.
Once I got away from "technical" indicators, I became consistently profitable (before that I was consistently burning accounts). All I needed is a daily chart, candlestick patterns, and sometimes 100-200-50 MA - I usually use MA's when I trade less reliable candlestick patterns...
One little thing about trendlines - we draw them for what? To see if we can connect more than 2 price extremes in order to wait till the price reaches the next extreme that is on that trendline for our entry point - it's horrible and it's 50-50. If you like those odds then you wont be here for long.
I guess our egos are satiated more when digging ourselves in tons of math rather than taking a careful look at candle patterns which emerge and tell us the current psychology in the market...

Long story short - when entering a position, do not try to find a reason why you should enter it - and furthermore, do not think about what is the current fundamental situation of the current asset your'e trading - that's all noise - instead, look at candle's which tell you almost everything.

p.s. this thing doesn't allow .bmp images grrr

Hey dkrock, you are not alone. Me too!

HAIL YES, masterpiece

You should avoid entering around news releases. The reasons are: Banks increase spreads, making trading riskier by increasing the spread. By doing so, they are essentially saying, "these times are too risky for us to trade". And while price can move faster than during normal times to cover the spread, you are also facing a massive amount of liquidity risk. In other words, even if you manage to trade during fundamental news, you will have trouble scaling your strategy without major slippage.

Many times however there are excellent counter-trend trading opportunities that reveal themselves afterward. I will be describing some of these on my thread:
http://www.forexfactory.com/showthread.php?p=8653654

Q

The truth of the matter is that no one really understands how markets "work". Markets are very inefficient, and FX being the most inefficient of them all-most excess alpha leftover in price. Markets are so complex that 99.9% of investors just can't get the picture right in terms of the ability to digest price action in relation of fundamental catalysts. This is why most traders use technicals-and, any type of fundamental analysis is only used to rationalize a position(regardless of whether they are right or wrong in their views). Markets are always pricing, and people simply can't keep up. This is why I went purely systematic on a daily chart after about 6 years of trying everything from technicals, fundamentals and algorithmic. I found what works for me, and when you do-stick with it and don't deviate your process, only with the market.

You Sir, are like me!

- it took me 4,5 years to to go systematic, using daily chart only
- be careful when saying no one really understands how markets work, I saw many wisdom-sellers here that go crazy when they hear that

You can dissect the issue in any way you want, however there is only one principle to understand.
The market moves in the direction that will cause the most financial damage to the most accounts.

The market moves in the direction that will cause the most financial benefit to the most accounts.

I see a lot of people here have developed their "tools" to make those millions. And after all, they are still taking hours of their time to write nonsense. Poor efficient forex, she doesnt't even know that so many people are taking her hard-earned money