Money is an idea backed with confidence. Trading Forex currency pairs is the idea. The confidence part is the standard following of the conditions and combinations in actually trading. All the knowingness you will ever have is already there, and it is summed up in be. (BE a highly successful trader. That’s unfortunately the entire secret to trading successfully.)

The Foundation: The Trading Rules, and Risk and Money Management

While following the four trading rules and proper money management techniques, we cannot ever lose money in the long run. The foundation of everything we do is tied to the four trading rules, and risk and money management. Everything else is built around that super strong foundation that is on super strong land. Everything else adds certainty or much higher probabilities on market movement direction.

Strength or Weakness Divergeneces are There or Not There

Signals are either there or not there. It’s not ever “close”. It’s not ever “almost there”. It’s not ever “forming”. There is no such thing as “maybe”. It is either there, or it is not there. If it is not clearly there, you’re on the wrong chart. There are no shades of grey. It’s yes, or it’s no. (I’m not always all “Aristotelian” in my logic, but it’s necessary here.)

We find that by locating specific patterns of discrepancies in waves in time, starting with future strength on a bigger chart, combined with agreement in past weakness on charts below the future strength, all agreeing on which way the market will move, we can accurately predict market direction, at least for a while.

We continually combine conditions and patterns of strength and weakness in temporal agreement on direction. In other words, for example, if we have strength to move up, we want to see weakness in downward motion on smaller charts. Strength on bigger charts combined with counter-directional weakness on smaller charts is what we want. We trade strength. We trade “Strengthenings”.

Every signal, every motion on the indicators and market, every wave have their respective aspects of strength and weakness. Combining these aspects in real time to get agreement on direction is what we do in predicting market action. It’s all about discrepancies in comparable waves in time.

Higher probabilities are still less certain than certainties. Thus, if we are trading the higher probabilities, we must be tighter on our stops. When we are trading our certainties, we can be looser on our stops. The certainties are the line-ups from a next chart in time that can push the market farther in a direction. The higher probability trades are given to us solely in the form of weakness with no larger chart future strength.

The answer to the question, “Is the market done moving in the direction it is currently moving (at least for now)?” is the exact same answer as the question, “Do we have a line-up from a next chart that can push the market right now?” Line-ups show our future strength(s) and our past weakness(es) to give us certainty that the market will move in the direction we say it will move.

We only ever work from the last larger line-up (and determine where we are in that line-up, as given by time) and now. We project into the future by determining what must happen to give us the conditions we must have to have a trade, or to continue in a trade.

When to ignore signals and/or line-ups is equally as important as when to heed them. The answer of when to ignore is found in TIME.

Time is nothing more than advanced wave theory (not ever to be covered on this blog, but in the coming membership site here (with a free option, too), and properly read, time has no more meaning than waves.

There is no such thing as the market behaving improperly. There is only reading the charts properly or improperly. The market is never wrong in what it is doing because it is doing it and you agree to it.

If you have any comments or questions, please ask or leave them. I’ll get to you as soon as I possibly can. Stay great and trade your favorite currency pair well!

Before the Forex markets opened up today, I did a quick (and incomplete) run-through of more indicators than just the MACD. Included was also the ADX (Average Directional Index) and the ATR (Average True Range) and they were sort of covered a little quickly and with some wave stuff in there, too. Here’s the video (it’s about 9 minutes 29 seconds)…

So some quick stuff that was gone over in the video, however incomplete it is in the vid…

I’m changing gears here on this training. The Forex Challenge on Facebook, which ends October 31, 2008 for this match, and me being challenged, and starting off over $85K behind the leader, calls for a time efficiency step. Hence, this change.

What I’ll be doing is going over charts at least 3X per week for you. Maybe not in the same currency pair, but with the same indicators: MACD, ADX and ATR.

The MACD is there for spotting divergence patterns. The ADX is another strength/weakness tool, though not used like the MACD because it’s not an oscillating indicator. The ATR, which I’ll have to cover separately down the line, is not used at all in reading the charts, but for trade sizing.

The odd thing is here I won’t be using much trade sizing until I overtake the leader, assuming that I can.

ADX Basics

The Average Directional Index, ADX, shows strength in a move or trend, or weakness in the move or trend. When the market makes a move and the ADX decreases, that’s a weak move in that market on that chart.

When the market makes a move and ADX increases, that’s a strong move in that market on that chart. It’s a sign of strength on that chart only, and is basically useless unless accompanied by other signals.

It gets better later down the line, but really start understanding that little bit now. Ask your questions and I’ll answer those questions, or respond to comments, as I can.

ATR Basics

The Average True Range, or ATR, is only used by me to determine trade size. In other words, I divide my account, under actual trading circumstances with real money, into “units”. The “unit” represents, say, 1% of my trading account.

In the EUR/USD or the GBP/USD one pip is $10, so that makes it pretty easy. The ATR acts as a “volatility normalization” tool. The more volatile a market is, or the bigger the chart is, the higher the ATR will be. The smaller the volatility in the market, or the smaller the chart, the lower will be the ATR, developed by Wells Wilder, by the way.

So I basically divide my max risk for the trade by 10 and that gives me how many pips I can risk. I MUST risk that number of pips or less to be able to enter. There’s a lot more to it, but that’s the basics.

AND of course, the MACD (and histogram) give me divergence patterns that I want to see so I know the market is talking to me.

In Summary…

So, quickly here, we have the GBP/USD appearing before the markets opened for the night (yes, this is Sunday) as if there was still strength in upward moves. While there was one divergence pattern saying the market could come down, that one pattern was poisoned by a very strong ADX (the double-high, to be covered another time) in the wrong place.

A little bit was covered on the waves, but those will really have to be covered over the course of a week or two down the road. The ATR did not show that the market wanted to relax much because the volatility was decreasing, rather than increasing on the chart discussed. And I’ve got to get this posted…

If you have any questions or comments or criticisms, I’m open. I’ll answer, respond, or belittle you as required. LOL

And don’t try using this stuff in your own forex trading until you have successfully managed a paper trading account with it over sufficient time to know if you CAN use it profitably. Got it? If you try, and you have not successfully managed your own paper trading account with the info on this site, guess what? Yep, I guarantee that you will lose money. (Okay, I could make that guarantee and be right for like 97% of Forex traders, right?)

Anyway, have a phenomenally fantastic week in trading. More tomorrow! See you then.

There seems to be an agreement by the neophytes and intermediate traders that there is some “holy grail” system of reading charts that will allow them to trade with 100% accuracy. There ain’t such a creature short of a time sight that will allow you to see what happened before it happens. And there isn’t one of those in existence on this planet yet.

While the chart reading system to be revealed down the road is as close as I’ve ever seen to such a “holy grail”, the sad truth of the matter is that we still have to read the charts. Anyone who has ever seen me call the market before it happens can tell you that I’m the best they’ve ever seen. Anyone who has seen me call a market extreme within moments of it actually occurring will tell you it’s just plain unreal.

BUT I have been unable to actually teach anyone to do what I can do in calling the market. The WHY behind that lies in people’s laziness: People in general will not do what I say has to be done to get as good as I am in calling the market. I’m just persistent and very disciplined. The truth of the matter is that you can be better than me if you’ll just work at it harder than me over time.

What is it that I say to do? Well, the first thing is to really learn the basics of risk and money management. Then really learn and understand the basic risk and money management system and how it operates in real time. Then really learn the basics behind chart reading. Then really learn each indicator, what it means, how it operates, how to read its signals, and how it fits into the basic risk and money management model.

Every piece of the chart reading system plays its part in the risk and money management system, basic through the advanced.

Then write a book every day on the sequences of charts and on the reverse of them covering how you should have looked at the market at the time if you were wrong at all, or how you saw the market as it was happening if you were right. And write that book every trading day for at least 6 months. It’s time consuming and it becomes quite boring after a while, but you will start to really “get it” and be able to think with it all quickly. You will acquire a sort of “feel” for the market you choose to do this with. Pick one market.

In fact, the complete system was directly enhanced in relation to, and around the more advanced risk and money management system. It was developed according the basic risk and money management model. I’m not aware of any system that has been directly created with the foundation of risk and money management to the degree that this complete system has been created.

We’ll get to a lot of that down the road, but I just wanted to give you an idea of where I am headed.

Have a fantastic Father’s Day! I will.