This post is oriented for:

- people that cannot make money consistently using their current strategies

- people that trade indicators signals and are struggling or

- people that can barely make any profit or make it even  - especially using indicators

- people that use indicators and can make some profits but dont feel sure/secure enough using it or feel its too random and unpredictable

If you are perfectly profitable using indicators or trendlines or pattern trading and feel consistent and secure, skip this post.

First example:

Imagine your strategy involve 2 indicators: RSI 14 and SMA 50. Rules are to go long if price close above MA while RSI is not OB and short if price close under MA while RSI is not OS. You may add some candlestick price action to increase probability.

So we assume you got over any psychological problems and can open position at will. You get long signal, you open position and price reverse against all your indicators badly - hitting your SL.

Second example:

Now say u trade trendlines and channels. Price just went to your bottom channel line so u opened long, but price break though trendline back against u. No worry - u say to yourself, this is channel breakout so u now expect change of trend, you open second position in its direction... only to see price reversing again and break through all your past and new trendlines.

Third example:

You trade patterns. You see what looks like a good triangle, it break to the upside so you go long, only to see it reversing and break all way down. What looked like a triangle before is now double top. Ok, you go short, but price reverse again and it form "W". Of course, you lost all positions.

Fourth example:

Say u trade liquidity - supply and demand. Using horizontal lines to identify levels/areas of course. You have just identified possible liquidity area so u place pending order at its beginning and SL just above. U come later and see your SL have been hit, price action shows that there was some pullback, or struggling there but eventually price did break through without giving you reasonable RR to close your position. 

So... aside of any of above strategies not being 100% successful , do u see any other difference? Because there is one and its very, very important.

Difference is that in first 3 examples you were right but your strategies were wrong, but in last one your strategy was right but you was wrong!

You see, in first 3 examples, you would trade on signals provided, either a signal from your indicators, pattern breakout, or trendlines bounce/breakout. You were always right here because you just traded those signals, if your RSI and MA is giving you signal and u trade it then u`re right because signal is correct and u just take it. But its that strategy that failed because it gave u false signal. There is not much u can do here to improve this strategy as it is based on clear fixed rules. Adding more stuff doesnt really help because it will still remain fixed rule strategy. In fact, it can make things even worse. And since no any of them are 100%, lost trade with such strategy means it gave u false signal.

But example 4 is different. In 4, it was *you* who made mistake because u identified wrong level - it simply wasnt that important liquidity area u thought it to be. If it were, then there is no other way that that price would react sufficiently. And for this reason, this strategy cannot never be wrong only you, because on important liquidity it CANNOT not to react. This is also the only kind of strategy that force u to think(at all) same way as big institutions - "What would I do if I were them, where would I offload my orders? Is this area here good or not?". Its really like serious work, not just some simple signals take. 

So now we have interesting divergence here, we have a strategies that can go wrong and we have a strategy that cannot go wrong but its trader can. You cannot improve first 3 strategies to *never* give u false signal, u may somehow reduce them but they will still remain strongly market dependent and give u bad periods. But u can improve yourself as a trader over time, so maybe u would prefer to have a strategy that can never fail and let all outcome be dependent purely on your skill?

Market is about buying and selling, price can only go up or down, it can only move on liquidity - supply and demand. Preferably then, u *may* want to ride it with such kind of strategy that is MOST NATIVE TO ITS NATURE. What would be most native, most natural strategy to ride markets that are based on supply and demand? Why, strategy that is based on supply and demand itself of course!

I hope u all enjoyed it and... Peter, please dont... ;)))))))))))

Views: 178

Comment by Romano on February 1, 2013 at 11:38am

Me too Grigore, wish I didnt wasted whole year with useless "research" finding holy grail and all that stuff and just jumped on this ASAP, but I guess its part of journey everybody must go through.

Best regards to you man.


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