See beginning of this article under name "Where to look for trends at Forex , or the faultless gaining of profit by a trader. (Part I)"
You try to set up hypotheses of your own. If the market confirms them, you can use such hypotheses as the foundation of your practical work - otherwise, you are not obliged to apply the incorrect theory.
General conclusion
The traditional approach is of no use to traders. It is suitable only for analysts, who try to "scientifically" explain the reasons of traders' losses at Forex post factum .
I hope that now it is evident why Dow's classification of trends is still acknowledged and approved almost by all analysts at Forex . In practice, they do not want to change anything in this classification. In addition, each of such analysts has his own vision of these sorts of trends, which introduces an additional confusion (mishmash).
Trend Classification according MASTERFOREX-V
Let us begin with a platitude. The theory is viable only if it depicts the reality correctly, helps to understand it better and predicts its further development.
Often practice leaves a theory behind. In this case, turning into dogma, the theory hampers the development of practice. As the result of this in the case of Forex , traders will inevitably make mistakes - consequently, they will lose real money.
At Masterforex-V, the trend classification is the following:
1. the intra-session trend;
2. the weekly trend;
3. the trend that lasts several weeks/months
That is, I try to classify trend from the viewpoint of a working trader. I use this very classification by myself, and it does help me in the practical work at Forex . The correlation between the three kinds of trends is clear. One can trace it out at the very beginning of the intra-session movement of ally currency pairs - in contrast to the majority of systems developed by "analysts", where this correlation becomes understandable only post factum .
For instance, two kinds of trends (the intra-session and the weekly ones) coincide at the beginning of the trading session. In this case, it is a wave of the general trend. This wave can be detected even by a beginner at Forex - to say nothing about more experienced traders. If the trends do not coincide, there occurs retracement (correction) of one kind of trends with respect to the others.
A trader can see the area of this movement, clearly distinguishing tactic from strategy of "his" currency pair movement. This is the only way to detect a trend of the duration of several weeks/months. Respectively, from the very beginning the trader can see towards what direction it will be worthwhile to open a deal - but not post factum when the movement is already dieing out. For instance, in for GBP/USD and EUR/USD pairs (see below) the segments of this trend are clearly observable.
a). April 18 - July 20, 2005;
b). July 20 - September 5, 2005;
c). September 5 - November 28, 2005;
d). November 28, 2005
The corresponding charts clearly indicate what a trader had had to do on any of those days. At the same time, one is interested in gaining profit but not just in acquiring materials for the analysis. The work with the intra-session trend permits us to understand the situation at Forex at a given moment (the intra-session trend, the retracement , reversal or the weekly/monthly trend continuance). Naturally, it serves for gaining profit.
The trend of the 1st type is an integral part of a longer trend, its continuance or retracement.
Thus, the principal difference of this classification from other ones consists in the following. The 1st and 2nd positions are introduced as new. The long-term trend lasts several weeks/months. The next (4th) position can be examined as well. However, being a trader but not an investor, I'm not interested in taking it into account in my practical work at Forex .
The intra-session trend at Forex : proofs of its existence and practical application .
The proof #1 . At present the trend classification is of a somewhat dogmatic character. Therefore, let us dwell on practical problems - i.e., the methods of up-to-date traders' work and time intervals during which deals are being kept open. Understanding of these practical aspects will facilitate us the understanding the theoretical problem of the trend classification.
The question is formulated in the following way: "On average, for how long do you keep the position open at Forex ?
a). the intra-session trading during 1 day;
b). several days (up to a weeks);
c). from a week till a month;
d). from a month and longer.
As it turned out, the overwhelming majority of traders work exactly during the intra-day trading session (more than 80%). Just a few traders keep their orders open from a week till a month. The results could shock all those theorists who still consider the intra-day trading to be just "a trading noise".
The proof #2 . Let us compare the charts of GBP/USD and EUR/USD movement with the currency pair spread extent.
Chart 11.1. GBP/USD movement (For view picture see notes in end of article)
Chart 11. 2. EUR/USD movement (For view picture see notes in end of article)
Working with these currency pairs, I always suppose that per session the stock reserves (the stability factors) of GBP/USD and EUR/USD pairs make ~70 and ≥40 points, respectively.
There arises the question: why should not a trader work within the intra-day trading session? Really, the spread makes 2-4 points, while the currency pair stock reserve (the stability factor) more than 15 times exceeds the spread?
I'm wondering do such up-to-date authors-analysts at least sometimes open the point-of-sale terminal when they talk about "the market noise". Why do they vigorously talk traders out of working within the intra-day trading session? - Naturally, here the up-to-date authors are implied but not those who lived decades ago.
The proof #3. Let us examine intra-session tends from the viewpoint of the criteria of the trend itself.
a). According to Ch. Dow, the trend is defined as the price directed movement when each of the next maximums is higher/lower than the previous one. Analogously, each of the next minimums is higher/lower than the previous one. From this very viewpoint, let us examine the charts M15 of GBP/USD movement in the Asian, European and American trading sessions on December 12, 2005. We can clearly see that each of upward fractals is higher than the previous one. Respectively, each of downward fractals is lower than the previous one. Thus, there are precise criteria of the trend type in each of trading sessions.
Chart 11.3. GBP/USD movement (For view picture see notes in end of article)
Chart 11.4. GBP/USD movement . (For view picture see notes in end of article)
Chart 11.5.GBP/USD movement
b). When the trend is over, there starts the natural retracement (correction) towards the direction opposite to the trend movement. The correction is equal to various Fibonacci levels. It is clearly depicted in the given intra-session trend charts.
The proof #4. If during the intra-day trading session the currency pair movement is heavy, then in the end of this trend the natural retracement occurs. It makes at least 23-38% in accordance with Fibonacci levels. That is, the retracement is inevitable and it substantially exceeds the spread in magnitude. Consequently, why should a trader keep on holding the position open further?
Is it because some analysts somewhere and some time denied the intra-session trend existence? Evidently, only unqualified theorists, talking about the "market noise", can recommend issuing from charts D4 to traders in their work.
The proof #5 . You should carefully study where traders of one of the first-rate informational agencies (Dow-Jones agency) place their orders for the buy and sell of currencies.
EURO: orders for buying are at 1.1950/60 (options), 1.1935 and 1.1890; orders for selling are at 1.2000.
YEN: orders for buying are at 116.30/40; orders for selling are at 116.75 (options) and 117.00 (options).
STERLING : orders for buying are at 1.7660; orders for selling are at 1.7700.
The difference in 40-60 points testifies that these orders are intended for the intra-day trading session.
The proof #6 . Let us examine the levels of support and resistance, edited by world-leading banks market-makers. One can see the analogous recommendations - i.e., to work within the trading session (or a day).
As one can see, both Deutsche Bank and Saxo Bank place their orders within the intra-day trading.
There arises the logical question. In the cases of the breakout of the levels of resistance or support, why should not a trader open his order and enter the market? The only reason is that some theorists, pretending to be "classics", refer to this movement as to the "market noise". Probably, such "analysts" must come down to earth and revise their views on Forex after examining the work of real traders.
The proof #7. Let us dwell on the results of real traders' work; the profit gained within an intra-day trading session.
In http://forum.masterforex-v.su, one can find examples how traders from Masterforex-V Trading Academy work at Forex . There is no doubt that the commercial account balance is the principal criterion of the trader's success at Forex . If the positive balance (up to several hundreds of percents per month) is the result of the intra-trading session, it serves as absolute proof that the stable movement of currency pairs does exist within the intra-day session. Skillful traders who have mastered the technique of intra-day trading gain profits by this method.
Conclusion. There is a manifest discrepancy between the theory and practice. As it is evident, the overwhelming majority of traders work in intra-day sessions. The "Maintenance Staff" (banks, Forex Brokers, leading informational agencies) works in the same regime. In fact, the up-to-date market of Forex is formed by such organizations and individuals (the chain "trader - Forex Brokers - informational agency").
At the same time, there are analysts who, not dealing with any link of Forex , claim that intra-session/day trends do not exist. Such theoretical conclusions have turned into dogmatic statements long time ago!
The proof #8. However, it must be mentioned that a series of theorists have already acknowledged the intra-day work existence (so to speak, they "validate" it).
The proof #9. Practice is the criterion of correctness of any theory and technique. Analysts of the "old" traditional school of Forex ignore the intra-session/week trend (or even deny its existence). Confusing real traders, this viewpoint causes irreparable damage to the real trade at Forex .
As an example, let us examine the situation on December 12, 2005 (the charts D1).
The chart 11.6. Movement of GBP/USD pair. (For view picture see notes in end of article)
The chart11.7. Movement of EUR/USD pair. (For view picture see notes in end of article)
The graph clearly indicates that on December 12, 2005 B. Williams's Alligator had not reversed upwards yet (the reversal appeared after the heavy movement on that date). However, on December 12, 2005 there had been the lateral trend (flat) of USD with respect to EURO and GBP. The flat had started on November 28, 2005 and lasted several weeks. About two weeks earlier (December 5-9, 2005) there had been USD "bear" lateral trend (flat) of a week's duration.
The day after December 12, 2005 I received a letter from a skillful trader. He informed me about his enormous losses induced by the currency pair reversal (stop losses worked). Besides, about a dozen of his colleagues were taken in the same trap (captured by the same trick) - notwithstanding the fact that their experience of work at Forex varied from 2 to 8 years. At the end of his letter my colleague wrote that the losses were inevitable because of the absence of any signs of the reversal at all. In its essence, such viewpoint is typical of traders who belong to the old traditional school. This approach logically results in the loss of their deposits by more than 90% of traders. When this happens, the theorists-dogmatists just can say that the market is unpredictable.
However, Forex is perfectly predictable and logical. To confirm this, I want to quote extracts from the closed forum of Masterforex Trading Academy on December 12, 2005 during the on-line trade.
- Vert : "Let's wait and see. In the case of the upward breakout, we'll buy. In the case of the downward breakout, we'll sell. Otherwise, we'll do nothing".
- F. and M.:"The movement is started, the levels are broken. I have been right to buy. Now it is important to get out correctly. Good lack to everybody!"
- I:"I have gained some profit...I want more but I'm afraid of opening in the middle of the channel. As regards EURO and GBP, likely, it would be possible to open at the breakout of Fibonacci 61.8% from D1. Maybe, professionals have done this way. It must be taken into account".
- b: "Not bad! I pocketed 45 points! If I were not afraid of entering as I had written, I would got at least 75 points. That's all right - we are still learning. Long live Profit!"
- I: "First time I have successfully closed the deal according to MasterForex technique. In reserve I have 90 points in GBP and 50 points in EURO. Now I go out, it's enough".
- S: "The trading is successful. Now the retracement is ò=15.24 ( Kiev time). So, Americans, you come!
Masterforex estimated the movement in the European session as classical. Nobody lost! However, issuing from the traders' questions, it would be worthwhile to attract your attention to certain details.
In that session the levels function perfectly. The reason is that all conditions for "playing the trick" on the majority of traders have been prepared. First of all, in England has happened the technogeneous catastrophe - the greatest one to start from the World War II. You guess towards what direction the majority of traders' orders would be opened in accordance with the fundamental analysis canons.
That is, when I keep on writing that you must try to open your deals against the "flock", it means against the canons. However, one can combine different techniques of the analysis in the presence of the necessary prerequisites. More in detail this subject is elucidated in the paid enclosures. Ibidem one can find specificities of trading at the American session, analyzed by the corresponding examples.
Dwelling on problems of logic and intuition .
A series of examples of opening and closing various deals and the corresponding reasoning are in detail examined in the paid enclosures.
To the beginners I recommend to work according to the standards. It is better to take less but for certain.
Those who are confident in themselves can try the technique of getting into the lock. It is just impossible to lose working by this technique (in detail see the paid encloses).
That is, an individual of a certain experience can break rules, clearly being aware of the risk taken deliberately. Respectively, one must realize when (to start from what point) it is necessary to acknowledge the made mistake and to get into lock. After this one must add positions in the opposite direction.
I hope the idea of breaking the reader's own rules is not too perplexing - in case of the possibility of gaining profit more than 70 points, whereas the lock is half the value.
Traders write to me, tell about their experience and ask for advises. Of course, here I cannot go into details of the analysis given to the trend intra-session motion because it is the authors' techniques. However, the principal point is evident. Every participant in Masterforex Trading Academy is horrified when the price is starting to approach his stop-loss against all rules of the "traditional' Forex .
To prove that the above-described situation was not accidental, I cite on-line posts on December 13, 2005 (it was the day that followed the issue of news about the rise in the interest rate; at first this information caused the fall in USD rate; further USD started to slowly rise again).
- A: "Today the scheduled meeting of FOMC of USA Federal redundant system (FRS) took place. The level of basic interest rates was discussed. As the majority of economists had expected, Federal fund rate increased by 0.25% - up to the level 4.25% (December 13, 2005; 19:14 GMT). So many traders were entrapped!"
- Ser and Br: "It is nonsense! USD rate must increase together with Federal fund rate rise!"
- B: "What a trick FRS played by removing the word "soft" from the announcement (statement)!"
- And: "The scheduled meeting of FOMC has heightened the rate. Again the consortium has demonstrated that traders must not believe "the base". What is about the flat? Personally I had time to take 34 pips upward with GBP".
- Several other traders: «The best thing is to close the deal. It is just the beginning!"
A and B: "The direct the rise in the interest rate is already taken into account in the price. However, not the rise itself is important (it was expected for sure by everybody) but the comments about the rate policy in future.
In what way are the interest rates taken into account in the price? If it was done yesterday, it was a kind of fun - i.e., USD in advance had fallen down by ≥200 pips with respect to EURO and GBP. If it was starting to be done last week, then up today USD has fallen down by ~500 pips with respect to GBP. Consequently, "the base" must be considered to be a heavy movement. However, its direction is not prognosticated.
I hope that changes in the traders' approach are evident. Instead of intricate dogmatic theories, traders clearly see what is going on at the market. They can take into account many factors simultaneously. They understand the notion of "trend" anew - as a stable movement, in the course of which one must gain profit.
What is important, many participants of the closed forum at Masterforex Trading Academy are the beginners. Their experience at Forex is just about several months. One should compare their posts with those of "competent analysts" in the same situation!
We now dwell on another specificity of the trend characteristics.
The intra-session trend is the means of gaining profits but not the method of classifying traders according to intra-day or not-intra-day trading. I wonder, at so many forums they try to artificially divide traders into two groups - those who work during a day (intra-day) and all others.
As far as I'm concerned, not traders must be classified but their techniques of gaining profits. Each of such techniques is just one of facilities for gaining profit. The more of such facilities (techniques) a trader possesses, the higher are his chances of gaining profit.
Really, nobody classifies carpenters in accordance with the tools they use (a plane, fret-saw, ax, hammer, hack-saw, etc.). Analogously, in any area a professional must to perfection master all facilities. A professional chooses those ones that are most suitable for given circumstances.
On the contrary, "analysts" of Forex do not notice evident things. They keep on inventing "new" classifications (indicators, techniques, etc.), thus confusing traders and themselves as well.
