FX TRADING STRATEGY
Ask yourself, is there any statistical basis for saying that recency of the movement in terms of time will increase or decrease the probability that the price will break out and continue to the upside next?
Learn to challenge obvious conclusions to come up with your original edge. Seek to fully understand the logic behind your forex trading strategy. Why does it have an edge and why does it make sense? Trough full understanding you can go some way towards overcoming the challenge of doubt when it strikes you.
Challenge Common Views About Price
Image 1
If you get on board a move earlier there’s more of it to take before a reversal. If you trade based on indicators, for example a cross of moving averages – you get in the same move later, most of it has already transpired, and you risk coming late to the party. Early entries lend themselves more to the likelihood that you can get a higher risk multiple per average profitable trade, as there’s a larger move available to take. With a higher sized average winner it allows you to be wrong more oſten and still be profitable.
As an example, if your average winner is three times the average loss, you only need to have more than 25% winners to be profitable. Compare this with an average win of 1.5 times the average loss, where you need to have more than 40% winners to be profitable. Strategies based on price are a lot more responsive than other technical indicators that lag somewhat.
68 FX TRADER MAGAZINE July - September 2013
Japanese Candlesticks Are Price Marked By Time
Japanese candlesticks are valuable in that they have a clear focus on price action. But I challenge you not to get caught up with the structure of what each candlestick pattern is named or what the textbooks tell you they mean. Tink for yourself and ask yourself what they say about price and how it moved from “a” to “z”.
Just look at the sequence of patterns themselves and in layman terms consider, how did price move and what’s that saying about what’s more likely to happen next.
Let’s look at an example: On the face of it the candle patterns look a lot different because of their body sizes. In this case the price may have moved exactly the same although the time period close off has put an arbitrary division across the price movement to form a much different pictorial look on the candles. (Image 2)
Forex trading allows for innovation and fresh thinking. It’s no good trading identically to a mass of other traders, at the exact prices in the exact same trade directions, if you’ve got serious volume to transact. Buyers must meet a seller at an exact price and vice versa. If it’s heavily weighted to one side there may be excessive slippage in the scramble to transact at the same place.
Image 2
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