Two weeks I was on CNBC and he predicted that he will rule the market of foreign currency for the foreseeable future. The price of the EURUSD at the time of issuance? 1.2630.? The price of the EURUSD at close of trading today? 1.2590 Therefore range reigns in the foreign exchange market as it fails every meeting and every fall it is false to break the hearts of bulls and bears and that dynamic will probably last for the rest of this year. Therefore with little new to say and holiday week shortened ahead of us, I thought that it would change the format of this week and omits the price action review focus instead understand the basic elements of the successful negotiation.
This past week in Kuwait gave a presentation titled "3 M that drive the Forex market". He showed a simple analytical framework created by k and explain most of the movements of prices on coins. The 3 M stand for Macro - major economic issues and political, Micro - economic releases from day to day and monetary - currency policy of the Nations of the G-10. 3 M model, while relatively simple, makes a very good job of encapsulating almost all catalysts in the FX market.
As I was flying towards us, my thoughts drifted to the idea of 3 M and I realized has own trade can also be summarized in a model 3 - a model variable ask the three simple rules of winning traders.
Rule 1: develop an opinion.
When I hear traders say, "I have no opinion, only the trade price action". Always smile sadly and I think to myself that the merchant is an idiot and a liar. The fact is that every time they enter the market implicitly is representing an opinion on the future price movement. The difference between traders which do so implicitly front who introduced an explicit reason for their trade is that the former have no clue of what are doing, while the later ones at least try to find out the history behind the trade.
Strike saying that little respect by traders that mechanically follow price action as mindless robots. In the trade get paid you not for what is happening now, but what will happen in the future and if you don't know what it is likely that the price of unity to his destination is only a lemming in the market. Correct or incorrect, it is the cornerstone of a winning strategy to develop an opinion.
Rule 2 - price allow to confirm the thesis
Politely paraphrasing a very crude Wall Street saying, opinions are like faces - everyone has one. Develop an opinion even one which is ultimately correct is totally useless if the market goes to disagree with your assessment. History if the trade is full of bright analysts that were absolutely correct in their calls and led to the still were bankrupt by the vagaries of the price action before were never tested rights. Your opinion may be dead, but as traders is the movement of prices, not the opinion that we are commercial. Until and unless the price confirmed his opinion has no signal input to the trade.
Rule 3: manage your trade
More than anything else of great traders are money managers. I have always believed that you can put two great traders on the opposite side of a position and both are often end up making money. On the other hand put two rookies in the same place and more than likely that both will lose. Trade on the art of the administration of the unknown. Let's have a sandwich shop in a center Strip in Nebraska. It is very likely that they know within 10 or 20 sandwiches how many clients will have all the days of the year. Now imagine that sandwiches was the FX market. Day to day variation may boost the most insane sandwich shop owners. Some days you can sell 500 sandwiches, other days you'll have to get rid of all the food supplies in the trash as no company came through his door. Why trading at its core is always on risk management. The functioning of the trade is increasingly beginning - hope for the best prepare for the worst.
The only way that we have been able to control the risk and at the same time participate in the market is always cutting our position in the half after a compliance with an objective of short benefit. No matter what someone said, there is no simply way to know a priori if any given trade will be successful. At Tech, we really believe that half a loaf is better than none. Success in the trade is contingent not only on his analysis, but in his capacity to properly manage its position. For this reason the game is difficult. To be a winning operator must be both - a good analyst and an excellent risk manager...
Now here's video of this week to show what I mean
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