My Market Beliefs and How I use them

Hello All...this is my first thread...please don't beat up on me too much!!

I have been trading for many years and have only recently "discovered" FF since I started trading retail FX. I thought that this market might provide a good way to increase my savings (apart from my regular "job"-trading eminis). I have come to enjoy many of the threads here on FF but see that many are searching for the latest and greatest method to help improve or even jumpstart their trading.

If you are struggling to become consistently profitable, or if you think you are only minimally profitable and would like to be better, I hope this thread may provide some insight. My mentor always told me, "...the market is a mirror..." In that he meant to say that when you look at the markets, whether via a price chart or some other form of analysis, you will only see yourself. That is to say you will only see a reflection of your particular beliefs about the market.

As an example: If I am a trend trader, I will look for and engage with trends (however I define them). So when I look at the market I only "see" trends. Even if the market is NOT currently trending, I will see it as a "pause" in the trend. So when I engage with the market I do so from that point of view, and with every expectation that this current trend will continue until infinity.

I'm sure many of you can see how that particular point of view might lead to problems, especially (like right now), when the market is mostly ranging or consolidating and has been for most of this year. As a trend trader, my belief is clear enough..."markets trend"...but that isn't always the reality. But even that might not be so bad IF (and this is a big IF), I only engaged with the markets when clear trending conditions exist...but you see, because I BELIEVE the markets trend, ALL I see are trends...so in this sense, the market is reflecting what I believe and thus it is a mirror to my beliefs.

Is my belief wrong? No of course not...markets do trend but because my belief lacks definition or clarity...by proxy, so do the markets. Thus I may engage in a trending move only to be frustrated by a seemingly never ending consolidation, or worse, a retracement that was in effect a reversal but my "trending" point of view couldn't see it. Does this sound like you? It was the way I thought for many years. I can't begin to express how frustrating it was!!

So I would like to offer this thread to perhaps get you to think about and refine your market beliefs and literally change how you think about the markets and trading so that when you look at the market you are seeing what it truly is, and not necessarily what you "believe". I invite your participation. Share you beliefs as well. I will not try to "change your mind", your belief is your belief, but I may ask how it is working for you and perhaps offer some humble suggestions to provoke you to question your belief and perhaps redefine it.

I know this kind of thread may seem boring and UNsexy, but (and here comes one of my beliefs), I BELIEVE that the more self aware you are of your core beliefs, the more clarity you will see in the markets, and this clarity will allow you to engage with a higher probability of success.

I will also post charts of trades I take as they occur in real time, so as to show how my beliefs effect my actions.

So let me just jump in here and share with you my four main market beliefs. I'm sure these will all seem self evident, but if you have a question or wish to challenge one of my beliefs, please feel free to do so. I enjoy thinking about and refining my beliefs and as always if I begin to question those beliefs, I will engage in a research project to either confirm or redefine my belief. So lets get started:

1. I believe that the movement of prices in any market is the direct result of participant's buy and sell orders as they enter and exit the market.
2. I believe that this resulting flow of orders can be seen and analyzed from and overall and detailed point of view by evaluating the resulting price formations as graphically represented on a price chart.
3. I believe the market has only two native states: Balanced order flow and unbalanced order flow. And that these two states are very distinct from one another and can be readily identified on a price chart in real time.
4. I believe that price movements become exaggerated as more and more participants evaluate their own price charts and participate, thereby creating opportunities for me to engage with and profit from relatively small price movements in the overall markets.

There you go...my core market beliefs. Notice that none of these beliefs speaks to HOW I will engage with the market, only that when I look at the markets this is what will be reflected back to me so that I can clearly see what is going on currently and compare that to what happened in the near and distant past.

Here comes yet another belief...I BELIEVE...that before one can concern him or her self with the HOW of something, one must first understand the WHY of something.

So here are some humble suggestions, that I think one must consider before deciding to adapt any core market belief. (1) Each belief MUST be based on a fundamental "truth" about the market. (2) Each belief must be "reconcilable" to any other belief about the market. In other words to say the market trends ignores the fact that markets consolidate...thus this belief is irreconcilable to a fundamental reality.

So what are your core beliefs? What is it YOU see when you look at the markets?

I thought I might start with this trade...you can see that price has been ranging for the past two months but recently is starting to look like it wants to initiate a bearish trend. This is evident by three lower highs accompanied by two lower lows. However, even at the most recent lower low, price was contained within an established area where buyers take over and drive prices higher. The most recent time this happened was mid September. Now price is in an area where the buyers have (three times previously) lost momentum and the sellers have established a ceiling (resistance). I have entered a short position and have two more pending positions at higher levels.

My beliefs are guiding these entries...(1) selling order flow has consistently dominated this area all year. (2) Over the past two months the selling and produced lower lows indicating less buying interest at the floor (support), and consequently the probability of even less buying at the ceiling (resistance), reducing the odds of a break out...

Don't know what will happen but we'll just have to wait an see

Very similar story playing out here on an intraday chart of USD/MXN. This pair is at all time highs and appears to want to move back to the 19.00 level before resuming a very buoyant bullish trend. You can clearly see the ranging that took affect at the highs, which is a big clue for me. After breaking to form a new lower low, price produced a lower high right at the area where sellers overwhelmed the buyers, giving me a very low risk entry. I was expecting a deeper retest of the highs, but looks like I will not get it.

I am astonished!! Several days have gone by and not one response. I guess my message is too boring. I will continue to post for awhile longer to see if I can generate any discussion.

If you do happen to read this I hope you will consider a dialog and discussion over your market beliefs. I think this is at the core of what makes a consistently profitable trader. Indeed the market is actually people acting on their beliefs about the near and distant future. Thus if YOUR belief about the market does not stay in "synch" with how it actually works and functions...you will be very disappointed in your results.

Update on USD/MXN short. As you may have noticed it is a counter trend trade and I am looking to take profit around th3 19.00 area. Intraday charts have produced a new bearish trending pattern, while the daily chart simultaneously shows a pull back, with interested buying occurring around the 19.24 area. I am anticipating this buying is still weak and will continue to hold into my target.

According to my market beliefs, I see that the previous buying that sent this pair to all time highs, has "pooped out" and this current pull back (while not yet a definable "retrace") is causing many of the late buyers to stop out, thus pushing price lower. While I do see some buying interest coming into the market, I do not see that it has enough volume (at this point) to push prices back to the most recent high.

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subscribed.....

look forward how the trade goes. Subscribed

carbonado and dragonexpert...thank you for responding. I hope you will find the time to contribute as you see fit. Tell me, what are YOUR core market beliefs?

I too following your thread. Subscribed/ Put pending sell in Au.

Dont be too astonished. Who was your mentor?

"market is a mirror"

Can you explain this further and perhaps offer some suggestions as to how this is an advantage/disadvantage

and any remedies/ cures one could proceed with


thanks so much for your time


https://m.youtube.com/watch?v=BjvfIJstWeg

mpradeep...thanks friend, perhaps you can share YOUR beliefs if you feel so inclined.

I had two mentors that both told me the same thing...that is when I sat up and paid attention to it. The first was Jason Alan Jankowsky. He is a published author and even better a truly nice guy. The second was a guy who used to post here but I haven't seen him around...he goes by the handle, gspajon.

Both of these people impressed on me the idea that when I look at the market I am only really seeing a reflection of what i believe the market to be. Thus, if I truly examine what I "believe" about the market and where those beliefs come from, I will be able to see more clearly what the market has to offer.

This was not an easy task I must say. It took several months of introspection AND market study, beyond the normal "price vs time vs indicators" technical analysis garbage. It was looking at HOW the market works on a structural level, where it counts...at the exchanges. It was understanding how MY belief what what I thought was supposed to happen effected what I saw when I looked at the market. Finally, and most difficult, was to change my beliefs, in a way that I could articulate clearly and then put into action when I looked for opportunities in the market.

With out knowing it...I literally changed the way I think about the market. As I stated above, my beliefs are all based on a fundamental TRUTH about the market, which I can now clearly see when I open my charts. I still trading using very simple technical analysis techniques, but now I "see" more clearly where opportunities are...and more importantly...where they are NOT.

This one breakthrough for me has solved all the other issues that I see many of my fellow traders struggle with. As well I have read many here talking about the same issues. Discipline, patience, faith in your system or ability. All these issues have dropped away one by one because I can now see clearly what the market is doing in REAL TIME...not in the future, or worry about the past, but RIGHT NOW. The author Mark Douglas (may he rest in peace), called it, the "Now moment". This clarity allows me to set reasonable limits and stops on my trades and also allows me to cleanly and unemotionally exit a trade (at profit or loss) when I don't think something is working out. I don't regret the decision, I don't lament if I exited and then saw that the trade would've gone on to make a bizzilion dollars, I just got out because of what I saw in the moment, and realize I can't see into the future.

I don't consider this a "method" or "system" by which you, me or anyone else can create wining trades. It is simply (well not so simply) a change in what I think, and therefore what I see when I look for opportunities. Your ability to be conscience of your beliefs as the market unfolds, candle by candle, allows you to see what is happening because what you "see" is a reflection of what you believe...thus "the market is a mirror."

How does one know if your beliefs need adjusting? Well, what do you see when you look at the market? Do you see only one or two things? ie, trends vs ranges? If this is true, what "fundamental truth" about the market does that belief reflect? There is no right or wrong about this business, only clarity and probability. If you think your beliefs are solid, then ask yourself, "can I see my opportunities clearly each and every time?" "Do I hesitate or doubt to execute on my edge?" "Do I execute too early or late?" "Do I hold losers longer than I hold winners?" The answers to these questions all refer back to your core belief about the markets and what you truly "see" when you look at the charts.

Does any of this make sense to you?

Update on AUD/USD short...

There is a lot of back and forth price action at the current level, indicating the buyers and sellers are really fighting for dominance. My second position came within a fraction of a pip for triggering, but was left by the wayside, due to the spread...thank you FXDD for your manipulation!!

Patience with this trade is going to be the key...I see that the order flow is contested, or balanced between the two forces (buying and selling) and neither one has given up yet. However, I suspect that if price gets into the .7580 area there it will trigger a block of buy stops and send price down quickly...likewise, if price drifts into the 0.7760 area, there may be several sell stops that trigger (including mine) that will push price higher...just have to wait and see. For now, what I see is a "dog-fight" with no real clear or even suspected winner.

Hi Don,

I, simply believe which ever side of the Market has least Inefficiencies wins out in the end.

The Market is Fractal by Nature so the PA we see on MN or D1 is also present on M5.

A Break of Structure can lead to Gaps being filled on any TF.

I would rather Trade to fill the Gaps on M5 than wait to Trade them on D1.

These are the beliefs that Influence my Trading the most at this time.

Hello Steve and thank you for contributing. I think I understand most of what you said here, but am having difficulty with two concepts. That of inefficiencies and that of "gaps". On the chart you included I didn't see any gaps. But from looking at it a while, I think you reference to "inefficiency" and "gaps" looks like the vertical price movements noted on your chart...is that correct?

If so may I ask what fundamental truth you base your belief on? Again, I have no desire to belittle or disparage your belief, only to understand how your formed that belief.

What I see here in those areas, are order flow imbalances where one side of the order flow overwhelms the other causing price to go vertical. I also note...as I do in all charts, that this vertical movement is where many (if not most) traders would place their stops. Thus when price moves into that area a rush of orders in the opposing direction are filled, and price moves quickly. As soon as those orders are filled, and no one else seems to want to participate, price resumes its more moderated rate of movement, and within a day or so returns to a more balanced structure. I also note that you (like me) like to place a well defined limit on your day trades so as to be in and out in a reasonable amount of time with a reasonable profit for the risk. Well Done!!

So what is an inefficiency and how do you define it? As well a gap?

Update on USD/MXN trade. The intraday chart is looking like its starting to stall a bit as the order flow tries to balance. As I can see this bearish trend the clearest on the intraday chart I have decided to manage from that time frame. I reduced my stop to lock in 200 pips, and have placed a limit out ahead of the trade which will render 700 (+) pips if price gets that far.

As this is a counter trend trade (when viewed from a larger perspective) I will most like try to keep the stop as tight as possible and be ready for a buy signal on the day chart when it generates.

My fundamental belief is that markets is inclined to overprice or underprice itself sometimes. When it does that price tends to reverse strongly. This happens in all timeframes. So I daytrade the shortest timeframe scanning for this over/underpriced setups. That's it.

Yes I can see that. What do you use to define "overpriced or underpriced"? Not looking for your system here, just wondering how you determine those conditions, as price is very dynamic and value (ie under or over priced) seems to be relative in the FX market. Not like a commodity such as gold or oil.

I do believe it is a fundamental truth of the market that its participants become greedy and push prices to extremes. However, my understanding is that this is accomplished by the placement of orders in the market which will tend to balance themselves as price reaches into areas that are over or under valued. But again as I cannot say with any intelligence what over or under valued is, I look for the resulting order flow to change and THAT tells me what everyone else is thinking.

Hi Don,

It's good to see someone else using Jason's teachings.

It was watching his videos that enlightened me to how the Markets really work.

Once I understood what it truly meant that "For Every Buyer there has to be an equal and willing Seller" my Trading moved on a at deal.

I haven't used his paid for service just the videos that I accessed for free.

I hope the chart, below, explains what you want to know.