Jemook wrote:CJ I think it's time for me to start learning this method and ideas. I'm getting more and more disheartened from indicator + money management trading and I'd like to try something different.
Kwanaan's Naked Trading 101 thread looks like a good place to get the basics cause it's not 300+ pages long and then I'll get stuck into this thread from page 1. Is there any other essential reading to help solidify the basics?
If I do this I'll have to switch off any other strategies and focus solely on naked trading so a big jump from what I'm used to but it needs to happen.
Cheers,
J
I think that once you start exploring some of the concepts in the thread, you will begin to see things that have always been there from the time you began trading, but you never really saw them, due to the distraction of indicators and window dressings. You've probably looked at a chart in the past and thought something looked familiar but then just moved past it, not realizing what you had just seen. I know I have.
What I've tried to put forth here are things that I have picked up from many places and many people. Several "guru's" out there all trade similar strategies but, like me, they have their own "template" if you will that they follow. It is how they have learned to apply a lot of these principles, and it is unique to them. Some use "indicators" when teaching seminars with their methods, but I think it is more for the benefit of their students than themselves.
Lance Beggs - Your Trading Coach has a nice free newsletter that deals with price action and patterns. Steve Mauro and Martin Cole have also been mentioned here and I have seen some of their work. I had a long history of trading equities, which move at a much slower pace, and learned a lot about chart patterns while doing so. Jim Bulkowski's Encylopedia of Chart Patterns is a great book. Al Brooks work is probably as detailed as it gets on price action itself, however his books tend to be a hard read. You have a great understanding of probably just about every indicator and system that is out there now, from past experience and your coding work with EA's. That's good because you understand the ratios, moving average and and all the numbers behind them. Once you realize that every indicator is controlled by price action and that price is not random, but piloted, then you will also realize that those who control price also control every indicator in use today. The indicator action you see is what they want you to see. That's why, indicators will work to a point and then fail just when they seem like they should work the best. Indicators always lag price, which means, you and everybody else place your orders, relying on a lagging indicator that is painted by a brush that they control. Price.
Normal accepted forms of money management are part of the problem as well. You are taught to trade based on risk, which is an expectation of loss. What you are really doing is trading a small lot size, with a large SL. The larger or safer the SL, the smaller the gain when you are right. They will allow many small wins, knowing that when they lock you into a poor trade, human nature and greed will prevent most people from taking a small loss, leading to busted accounts and major losses. All because the trade was based on indicators and money management rules that they create and teach. Peoples greed keep them locked in, they know this worked before, many times, so they double up or triple up because their indicators say price should be going the other way. Think about it. You are also taught to spread your orders across multiple trades and currency pairs. What's better, to place 40-1 lot trades across 40 pair or multiple trades, totaling 40 lots on one pair that you have nailed price and direction on?
People use EA's that work for awhile...when they quit working, they blame it on overuse, broken ea's or blame the brokers, which is true to a point. But what really happens is that any ea or system will work as long as the conditions exist to make it profitable. Once those conditions change, the EA's bust the accounts because the conditions that they were programed for no longer exist.
The best investment you can make is in chart time. Look back through the charts on your platform. switch between the different time frames and look at the patterns that present themselves. Do not put anything on the charts other than price. I use candle charts as it is easier for me to see what I look for. Spend the time you put in with indicators in the past, on chart time going forward.
Look for some basic patterns like the "M" and "W"'s. the candle wicks or pins as I call them and "railroad tracks". Learn these, understand when, where and why they print and that alone will make you a lot of money. One indicator I feel has potential is the currency slope strength as it can be used to show the weak or strong currency in the pair. ADR can also be of use because market makers do have limits as to how far they can move price. Learn to adapt and trade both ways, taking what is given to you. I used to trade almost exclusively on the D1 and H4 time frames, but now I tend to trade the 15M, sometimes the 5M or 1H. I have learned to trade large lot sizes, with small stops, taking what is given and reducing my capital exposure to the market. Most of my trades are self managed. I very seldom rely on hard stops as once they turn price, they very seldom go back because they have locked people into bad trades and will not allow them to exit. As market makers, they must make the market, selling to buyers and buying from sellers. This means when the market is moving higher, they are selling. When the market is moving lower, they are the buyers. They book their profit when they turn price and reverse it back above or below their aggregate price, as a buyer or seller. This behavior results in the cycles and steps. On the 15M time frame, they like to change direction every 3-5 days. They will use "news" events to swing price much farther than they normally could and this is the profit booking. It takes a large amount of money to do what they do but they do have limited funds to work with. It has to be turned over at some point. Have you ever heard of "sell it up" and "buy it down"? It's what they do. The public buys it up and sells it down, and they lock them into those positions when they turn and run. Learn how candles form on the chart you are watching. How is the picture being created that you are watching? Think about it.
Over time, you will develop a feel for the market. It's when that primal sixth sense kicks in, the one that makes the hair stand up on the back of your neck, the one that gives you the feeling that you are being watched. It's there and you will feel it. Your confidence and conviction in your trades will increase 10 fold or more. You will take a small loss because you know you are wrong and you also know the next trade is just minutes away. It's uncanny at times. When in doubt, trust your gut feel. It's usually right.
If you were to go to a foreign land, where you did not understand the language, you wouldn't be able to read the street signs or find your way around. Once you begin to read the sign of the Fox, you will understand when and where his next move will be and you can tag along. You will also learn the methods they use to hide their signs or tracks. Try as they might, they can't hide them once printed.
There are some good traders here in the thread and they can help. The chart examples are the best though. I can''t say enough about just looking through the charts and the patterns that form. They repeat over and over, sometimes with slight variations thrown in for distortion. In time, you will see past this distortion and recognize for what it is, noise to confuse traders.
I've probably thrown a lot there to start but there is no shortcut to trading this way. If you have any questions, post them up and I'm sure a discussion will follow. Like I say, there are some great traders in the making here and they are willing to help when I go AWOL.
So fire up a demo account and have at it. Welcome aboard, mate!
CJ
