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Continuing Evolution
I've observed that whilst my understanding and ideas regarding trading has seemingly chaotic swings, it is a process of evolution - all be it a messy one. The key really is to stick with that process.
Some of my ideas and beliefs etc have over time turned 180 degrees to their opposite. This morning I was thinking about where I stand right now and what ideas are in the process of being re-evaluated. Here are a few: Indicators: I am currently going through a process of re-evaluating the use of certain indicators (or more accurately their CORRECT use) for the forex market. The reason is that many of them where developed for use in the stock market which behaves quite differently from the Forex market. This is because there are many more reasons for people buying and selling currencies, such as commercial hedging etc - it is a commodity in a way that a stock isn't. So applying stock market indicators to the forex can lead to poor results. Most definitely they are questionable for intraday trading. This doesn't mean I'm becoming a price-action guy with a blank chart - as I said it is more about evaluating the correct use of indicators and also judging their relative importance in a trading decision and on what time frame. Their importance is dwindling down towards a mere supporting role. Like if I knew I was driving to Sydney and I passed a road sign with an arrow on it that said "Sydney" then this would be a confirming indicator that I was heading in the right direction. For me, indicators are falling to around that level of importance. Time Frame: I see myself drifting more and more to larger timeframes and away from the 15 minute chart. The fact is that the intraday moves ARE very random due to the fore-mentioned buying and selling that goes on intraday. You have to think about who is doing what and at what level in these price moves. The trend may be down, but if a large manufacturer decides to hedge 500 million dollars because prices are low and he wishes to lock in a price before shipping a thousand tons of merchandise overseas, then this can happen any time and kill my stops. He may have to buy TODAY due to some deal or what ever, trend or no trend, and these things cannot be predicted or known by little ole me. The trader who's job it is to time this transaction may be thinking the exact opposite to me - whilst I am seeing a great opportunity to sell, he is seeing a great opportunity to buy. So I sell, and then totally out of the blue he buys. Did my indicators warn me of this impending reversal as he buys up all the liquidity? NO. This is the kind of thing that makes the Forex a totally different beast to stocks. The greatest thing I've had explained to me is how the bids and offers are layered in the price range. Money is for sale in "chunks" at different levels (5 million being the smallest I believe)... So imagine you are a large commercial trader and you want to "buy" 50 million british pounds for some business deal and at the moment you are about to execute this order the people selling british pounds have offers layered like this (the current liquidity): 1.9975 - For Sale! - 10 Million Pounds 1.9970 - For Sale! - 15 Million Pounds 1.9965 - For Sale! - 5 Million Pounds 1.9960 - Nothing doing.... 1.9955 - Nothing doing... 1.9950 - For Sale! - 10 Million Pounds 1.9945 - Nothing doing... 1.9940 - CURRENT PRICE (LAST BID) So you, Mr Commercial Trader, decide the time has come to pull the trigger (its getting close to lunch) - and you go "Buy! Buy! Buy! Buy!" and now you have 40 million of your desired 50 million, and there are no more offers so for the moment liquidity has dried up and you have to wait until another seller comes in with an offer you are prepared to pay. What does this move you just caused look like on your chart and to the rest of the world and to all the poor little retail forex traders who just got stopped out? It looks like this:
(Actually regarding the above, I read somewhere a transcript of the actual bank traders talking to each other and it is just like that, except they abbreviate, so they talk like this: "80 for 10?" "No Thks")... The point is, as an individual retail intraday forex trader, you do not get to know any of what happened here - only that the price moved and you got stopped out. You do not see the offers (except for 'rumours' on the orders board, if you bother to read it), and also of course you had no idea that this transaction was about to happen or you would not have sold! Also, its easy to see that these guys moving the market do NOT think like us. What they are doing is a totally different thing. They are not sitting there watching MACD and stochastics rolling over. They may act due to a number of other factors. |
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