This is obvious when you think about it if you’re trading differently to how the market moves in real life; you are bound to have problems.
The market moves in waves retracing back to support and resistance and then carrying on.
So it makes sense to wait for these waves and retracements and then trade these. This is why Fibonacci is such a powerful tool because it gets you in on the retracement and if you pick the right level, it usually gets you in at the top or bottom of that retracement.
This is also why fractals make superb trailing stop losses….because they allow for the price to move in its natural way whilst still providing you with protection in case the trade goes bad.
All of the tools that we use on this site work in line with how the market actually moves; this is why they are so powerful. So it makes sense to study the methodology and incorporate these tools into your own trading.
As mentioned previously the main way people try and trade away from the true market dynamics is by employing some-kind of robot or automated trading system.
This is usually fine for the first few months or so but these systems only know how to trade via a specific rule system which has absolutely no discretion. So there will be a time when it’s best to avoid taking even the very best set ups maybe due to periods of volatility during economic issues or it could be a string of news releases or even just market indecision during that period. Whatever it may be a human trader would decide not to take the trade whereas a robot would make no such decision and continue trading through these times.
This usually ends up in your account getting obliterated.
When considering buying one of these systems, just consider this fact for a moment:
Banks have unlimited resources and trade billions on a daily basis and more importantly they pay millions every year employing Human traders all over the world to trade these funds.
If there was a robot that could actually trade as good as or even better than a human surely the banks would save the millions they spend on salaries and bonuses each year and just get the robots to do it?
Another way that traders trade away from market dynamics is by using ineffective tools such as moving averages and other lagging indicators as their main tools for entering and exiting the market.
These tools can have some limited use in your trading but we are of the opinion that most if not all of these are completely unnecessary when trading the Forex markets.
That is why we base everything around pure levels of Support and Resistance.
Many people that I teach come to me after using momentum indicators and are used to looking for entries in line with price action so for example if price is going up their indicator will then tell them to buy and they will go long.
When they are suddenly told that they should be looking to go short even though the price is racing UP they are confused and sceptical to say the least! But the only way to prove these methods is to ask yourself, “how effective are my current momentum indicators?”
And, after watching price react to confluences of support and resistance for a few weeks, “do I see that these levels are effective?”
I don’t need to prove to you the concepts that I teach because if you learn how to see them the price charts will do that for me on a daily basis!
So how can you make sure that you trade in line with market dynamics?
The best advice is to simply identify a set up that you will look for, as long as it is in line with my ethos, and then just watch these levels, and see how price reacts to them every single day.
After a few weeks you should have enough confidence in this way of trading to be able to start trading in this manner yourself.
Next: Summary