An Insight to forex

[Rob Greggson]

Hi

 

[nine]

I hope that this is not the lead in for an advert for some "pay me now" system.

So far the OP seems to be demonstrating that they don't understand the use of technical analysis to extract money from markets. The argument about currencies not being suited to TA because they reflect the relationship of two entities seems to demonstrate a lack of knowledge of stock market trading strategies. TA is used in the stock and futures markets to trade spreads and also in market neutral strategies - both involve 2 or more stocks or futures contracts. So, having two entities doesn't make TA invalid.

Currencies have great trends so TA techniques to extract money from currency pair trading work well. Similarly currencies exhibit tests and retests of support and resistance so both breakout and fading strategies can be used.

I'll be interested to see where the OP takes his "most of conventional technical analysis is no good for trading forex" assertion from here.

 

[oiltanker]

forex market wizards use ta? interest rate differentials seem to set the trend. if i had a sure fire system i sure wouldn't tell anyone about it until i had the motor crusier and the bikini girls?

 

[trendie]

Rob,

a very good article to start the week with - a bit of controversy!

looking forward to your (non-TA) method of trading.
hope you dont get scared off by the other posters, and let your method prove itself in real-time.
the only word of caution I would offer is that TA can be back-tested off-line. If you are offering news-analysis type of methods or analtsing key eco-figures, it may be difficult to prove retrospectively.
(also, for some of us maths-oriented types, we like the reasonably objective clarity of TA number-crunching.)

 

[Compounding]

Hi

When I first started trading forex, I was told that 90% of all retail forex traders lose money in this business. After several years of trading forex, after associating with many brokers, and after receiving tens of thousands of emails from forex traders, I realized that 90% is wrong statistical number. It’s actually more like 98.8% of all retail forex traders eventually leave this business having less money than what they initially started with. Yes, in my experience, about 12 out of every 1,000 people that open an account with a forex broker will actually eventually leave that broker with a profit. And 12 out of 1,000 is probably still on the best case scenario side.

I am one of the lucky few that have been able to consistently extract money from the forex market, and I strongly believe that the biggest reason people are not successful in making money in forex is of course like in any business, it’s lack of persistency, but more than anything it’s because most forex traders focus on the wrong methods to be a profitable forex trader. If you are unlucky enough to focus on the wrong thing in forex, you will never be successful, period.

My mission with this article is to do these two things:

First of all, I want to briefly cover and explain the very core of how the forex market works, and what forces are behind its movement. Wouldn’t you think that before being able to profit from forex market movements, you better first know what moves it?

Second of all, I want to provide you with a very core and solid foundation of how you should think in order to be able to consistently profit from this market, and provide you with a forex trading system that you can use to consistently profit from this market, and I hope that you will be willing to stick to the trading system that I will share with you, in order to become proficient with it, and in order to be able to consistently make money in this crazy forex world.

Section 1
What really moves the forex market?

First thing that’s very important to realize in my opinion is that forex is not like a stock market. It’s not like options. It’s not like commodities. All those other markets have only one component. Let’s say you have a powerful stock trading system, and you think that Microsoft stock will go up, and you buy that stock, and it does go up, so you made some money, that’s great. Now, let’s say you think that Great British Pound will go up in forex, and you buy GBP/USD. Does that mean that you will make money? Not necessarily! You may actually have a large loss, instead of having a profit! How could that be you may ask? Very important thing to remember that forex is traded in pairs, so even if you are right that the pound is going to be strong, but what if U.S. dollar is stronger? GBP/USD will actually go down! This is a very simple principle, and I think most people know this principle, but very few actually think about it. This realization is crucial, in order to have a powerful forex trading system. Just imagine that you feel that Microsoft stock will go up, and you call your stock broker, and you ask them to buy you 1,000 shares, and your stock broker will ask you: “Well, sir, in order to buy Microsoft stock, you must first go short on some other stock…” It would be a bit more difficult to make money in the stock market if with buying a stock, you had to short another stock, wouldn’t it? You may be very right about the direction of a particular stock, but if the other stock that you shorted actually performed better than your original pick, you would pretty much be screwed.

You may wonder about why I started talking about the stock market here, while I am supposed to talk about forex. After all, I am supposed to teach you how to build a profitable forex trading system, not stock trading system. Well…just hold on. Stock market is actually a very important subject here.

When people think in terms of building powerful trading systems, they tend to think first about something called technical analysis, which basically means making trading decisions, based on charts and price action. The question is whether technical analysis is a good avenue to focus on, in order to build a forex trading system. First of all, technical analysis is a very broad term, and making a statement whether technical analysis is good or bad for trading forex would be too much of a generalization. But before we get too deep into it, let’s first analyze the nature of technical analysis, how it was born et cetera.

I think most people know that most techniques with technical analysis were born in order to trade the stock market. After all, the stock market is singular, meaning that you just have to worry about one instrument at a time, and since it’s mostly moved by people’s greed and fear, and most people that trade stocks professionally know technical patterns very well, it’s obvious that a lot of technical setups work in the stock market. Just imagine that there is something that’s called, “head and shoulders” pattern forming, and you have all these traders who see this pattern, so they decide to either take profits, or take speculative positions based on that pattern, so of course by the law of supply & demand, the pattern may actually move a particular stock. So basically, let’s move away a little bit from the stock market. I just wanted to mention it, because I wanted you to understand that stock market is a singular, full speculative market, where speculative greed and fear moves the price, so most of technical analysis tools known today were born to analyze speculative greed and fear in a market with singular instruments. I would like to emphasize some keywords in what I just said. The keywords are speculative and singular.

Let’s now talk about the forex market. The forex market is also being moved by supply and demand, like the stock market, but the very big distinction here is that a lot of forex volume is not speculative, and forex is not a singular market. Let’s together take a look at these distinctions, and try to understand fully what they mean, and how will they affect not only technical analysis trading, but trading the forex market in general.

Let’s first talk about the first concept here, the concept that a lot of volume in the forex market is not speculative. Remember, pretty much everybody buys a specific stock, because they want to sell it when it goes up, and make a profit, based on that transaction. Because of that, there is a human psychological pattern of speculative buying and speculative selling, and since human mind is relatively systematic, it makes some sense to have a technical trading system, based on some behavioral patterns, in order to trade the stock market, but what about forex? Let’s say you are a multi-national corporation, such as BMW, and you keep most of your money in Euros, but you must make a payroll to some employees in the United States, and you don’t have enough dollars for that. Let’s say you need to transfer 1 billion Euros into Dollars, so you hire Credit Suisse to do it. Since forex market is moved by supply and demand, do you think the price of EUR/USD may get affected as 1 billion Euros is being sold, and 1 billion dollars being bought? Of course it would, not on a large scale, but on an intraday scale. Do you think Credit Suisse is going to care much about technical levels when selling those Euros and buying US dollars? I don’t think so…

Or let’s say you are a big firm in Holland, and you manufacture cheese. You own a bunch of cows, equipment, you have employees in Holland, and you have to pay all your expenses in Euros. Let’s say, you sell 50% of your cheese to other Euro Zone countries, and you sell the other 50% of your cheese to the United States. So you pay your expenses in Euros, and you take 50% of your revenues in U.S. dollars, which you later have to exchange into Euros again. Let’s say over one year period, the U.S. dollar decreased 20% against the Euro, so in comparison, because you had to pay your expenses in Euros, and sell half of your cheese in dollars, and you couldn’t raise the price, because you wanted to stay competitive with the U.S. cheese manufacturers, but you just lost 10% of your profits, because of that exchange rate… So next year, you get smarter, you decide to hedge against a possible decrease of the US dollar, so you hedge by buying EUR/USD. Do you really care much about whether EUR/USD is going to go up or down? No, you don’t. You simply protect your business, in case the dollar plummets further, you will make money on your exchange, and that way will protect your business from losing a lot, in case the exchange rate of Euro versus Dollar go up.

Or how about a large corporation in the United States, buying another large corporation in Europe? They are going to have to sell their U.S. dollars, in order to buy Euros, so that they could buy that corporation. Do you think that will affect the price of the EUR/USD intraday? Sure it will, because it moves by supply and demand. But how are you going to predict such activities via a pattern of technical analysis, while the currencies are being sold sporadically, with almost no speculative interest? All of a sudden a large chunk of technical analysis that’s used in the stock market, stops making sense, if you think about it deep enough. So if somebody is trying to buy or sell currencies, based on chart patterns such as head and shoulders, they are basically doomed, because such trading method has no more logical merit, like it used to have in the stock market. So the person, can study for years these patterns, and spend tens of thousands of hours trading, and he’ll probably never get anywhere, he won’t have a reliable forex trading system, the only thing that will keep his hope is the wonderful 50/50 probability that exists in any market, which gets to more like 48/52, with the brokers spread and commission. So that person might as well go to Las Vegas and use his chart patterns to play blackjack. At least he’ll get free room and food if he gambles enough J

Let’s now cover another very important subject that pertains to forex trading, and especially pertains to anybody, trying to build a profitable forex trading system. The subject that I would like to discuss here is lack of singularity in the forex market. Remember, we talked about the stock market being singular, and we discussed that theoretically it makes some sense to predict human behavior technically and systematically when they are buying and selling one stock with speculative interest behind their purchases? Well…remember, the forex market is not singular, it’s traded in pairs, which complicates the whole situation a lot more, and therefore makes it a lot more difficult to approach it systematically. In fact it’s even a lot more complicated than having two pairs. Let’s say you are a stock trader, you did some analysis, and it looks like the company is doing very well, you looked at some charts, and you see that the stock is at a major support level technically, so you think that nobody in their right mind is going to short this stock when the stock market opens tomorrow, so you wake up tomorrow, you buy that stock, you put your stop/loss below that support level, and indeed the stock goes up, and you make money.

Let’s now say you are a very smart and advanced forex trader, you do your analysis, you see that the UK economy has been doing well, and the U.S. economy has been doing poorly. You see that the GBP/USD is relatively low and it is at a major support level, and you feel that nobody in their right mind will short the GBP/USD now. So you go long on GBP/USD, you put your stop/loss below the support level, and you think you have a sound trade. After all, this is very strong support, and nobody in their right mind will short the GBP/USD right now. So a couple of hours go by, and all of a sudden you see that the GBP/USD went down below the support level, took your stop/loss out, and you lost money. You scratch your head, and you are wondering what happened. Well…what happened was Retail Sales came out very weak out of Australia, so bank traders and other speculative traders in the Australia, decided to sell some Australian dollars, but of course because they sold Australian dollars, they had to buy something else, so they bought U.S. dollars, they bought some Japanese Yen, and they bought some Euros, and because forex market is moved by supply and demand, since the U.S. dollars were being bought, GBP/USD went down in exchange, towards US dollar strength. So you think that support level should’ve held, while in reality those Aussie traders weren’t even looking at the GBP/USD, they just did what they had to do, and the price reacted, without paying any respect to the UK versus US fundamentals, and especially some technical levels. Remember, nobody cares about technical levels, but people, and with such complicated interrelation in the forex market, most technical patterns have either absolutely no merit, or very little merit.

So you have been reading all these very nice theoretical things in this article, and it all sounds good, but you think you just want to learn how to make money in forex, you just want me to teach you a forex trading system that will allow you to consistently make a profit. Please have a little bit of patience. We are going to get there. I was trying to make a very important point first, and that point is to please forget whatever strategies you learned in other markets, and please forget about conventional technical analysis when it comes to forex, because these tools were simply never designed for this market. That doesn’t mean that they are bad tools, they are just bad tools for the forex market. A hammer is a very good tool, especially when it comes to nailing stuff, but a hammer is a bad tool for washing windows.

I could’ve just simply said that most of conventional technical analysis is no good for trading forex, and it would sound simply as an opinion, which you may have accepted or rejected, but I really hope that because I spent so much time explaining how the forex market works in general, that helped you understand where I was coming from, and it can help you make a better decision of what tools to use in your trading, and what tools not to use. Let’s continue. But for now, I suggest you reject every single technical analysis tool you ever learned about, reassess the logic of what happens in forex, and deeply reevaluate the formulas behind each technical indicator, in order to see whether there is a logical merit to them that applies to the forex market.

Okay, let’s now get to the fun stuff. Let’s get to the part of a powerful forex trading system.

Rob

This has got to be the most backwards and incorrect post i've read on the subject of technical analysis and how it pertains to the FX Market. This erroneous view is so flawed and corrupted that the very paradigm from which it stands should be shattered into oblivion!

Do you understand the mass liquidity that the FX Market has? Technical's far outweigh fundamental's in this business. You should know what your talking about before you say it. I take it you don't understand price behavior too much, because if you did you would know that what you have just posted is completly fabricated. This view is so corrupted that it frustrates me on where I should begin dissecting this "piece of work".

Your foundation is wrong. You could probably fool a young, wet behind the ear trader with this rubbish, but anyone who has 1/4 of a brain knows that this is a load of horse s**t.

 

[counter_violent]

This has got to be the most backwards and incorrect post i've read on the subject of technical analysis and how it pertains to the FX Market. This erroneous view is so flawed and corrupted that the very paradigm from which it stands should be shattered into oblivion!

Do you understand the mass liquidity that the FX Market has? Technical's far outweigh fundamental's in this business. You should know what your talking about before you say it. I take it you don't understand price behavior too much, because if you did you would know that what you have just posted is completly fabricated. This view is so corrupted that it frustrates me on where I should begin dissecting this "piece of work".

Your foundation is wrong. You could probably fool a young, wet behind the ear trader with this rubbish, but anyone who has 1/4 of a brain knows that this is a load of horse s**t.

Ah I might have known, you again...well for your information , some of this article is very good indeed, but until Rob moves on to part Two Three etc I suggest you get back to Asia session EUR trading....there must be ooooooo 5 pips needing a home tonight

 

[nine]

Yes, the flaw in the article is the (stupid really) attack on TA when most half reasonable TA traders know that TA works well on major currencies. That doesn't say that the markets don't ultimately move for primarily "fundamental" reasons, just that the attack on TA was foolish as TA is a good way of reading the markets response to the fundamentals and taking advantage of the resulting movement.

Give up the attack and show us what you think is clever ... but please, don't be here just to sell a course or something.

 

[zagreb]

Interesting article but I think Rob is on the wrong lane. Me and some of my colleagues are perfectly happy with results of implementing TA in FX, year after year. And I have tried it all in my 12 years of trading FX.

 

[trendie]

Interesting article but I think Rob is on the wrong lane. Me and some of my colleagues are perfectly happy with results of implementing TA in FX, year after year. And I have tried it all in my 12 years of trading FX.

I think most here use TA in one form or another.

but isnt there any curiosity to find out something new?

what I have found out so far from trading, is that you never get everything in one go.
the system I use is a hotch-potch from many different places.

maybe, I will reject the majority of what is said, as I am reasonably comfortable with my rules. but I MAY find a really useful non-TA nugget that helps me to exit better. or to get in earlier.

dont want to throw the baby out with the bathwater.
so, I am still curious to learn more.

 

[timm]

I don't know what article you guys were reading but I can't see where Rob was saying don't use TA for forex.

He has simply pointed out the obvious problem with S/R levels in a pair price. i.e. they can't be relied upon because people moving the market may not be trading the same pair or may not even be interested in the price. Nothing contentious there.

He has also suggested you examine your TA toolbox to make sure that the tools you do use are appropriate to forex. That doesn't sound like an attack on TA to me. It sounds like reasonable advice. I think a lot of traders do forget that a pair is made up of two independently moving currencies and don't understand the implications that has on the chart they are looking at.

 

[kako]

I don't know what article you guys were reading but I can't see where Rob was saying don't use TA for forex.

He has simply pointed out the obvious problem with S/R levels in a pair price. i.e. they can't be relied upon because people moving the market may not be trading the same pair or may not even be interested in the price. Nothing contentious there.

He has also suggested you examine your TA toolbox to make sure that the tools you do use are appropriate to forex. That doesn't sound like an attack on TA to me. It sounds like reasonable advice. I think a lot of traders do forget that a pair is made up of two independently moving currencies and don't understand the implications that has on the chart they are looking at.

Hi

I tried to PM rob but it's not possible to send PM or eMail to him as he disabled this, Hence I'm writing this post:

It is obvious from Rob's first post that this thread is going to be an introducion to what he believes will help ppl to develop a proper thinking about fx market, Some of his points are ofcourse controversary, but not necessarilly wrong, there are many approaches in the market which can be opposing to each other and each one of them could have merits atleast in certain periods of time.

I'd like to invite Rob to continue his methodology as it is also seems elegant by some members(like me). It's an Insight and It's rather a new look to a market which always been supposed to be exactly as stock market, I believe he has a point in saying they are different fundamentaly and I'd like to hear(/read) the followings.

.............................
Kako

PS. I agree with timm, it surprised me when ppl showed such an emotional response to this thread. I like the first post as a good opening, and a good opening has to have controversy to some extents atleast

 

[trendie]

thanks for that lovely box of chocolates, Rob.
(why do I always end up with the strawberry fondant?)

 

[Priceman]

Coincidence?

Hi Rob,

A very interesting article, and yes I have donated regularly 10% and more.... back to my brokers Seriously though I do donate to charities so my conscience is clear.

Anyway are you this guy? Or is It just a coincidence that you both scalp news? The names are quite similar too.

http://www.kingforexsignals.com/home

I will continue to read your posts should you come back, you seem to have a good sound approach. Well done for your successes, I wish you all the best. Let's hope that you become a regular contributor on here to help others.

(PS are you going to get a vendors tag? You do state that your signals are free in your post so technically you aren't I suppose)

 

[Trader333]

Anyway are you this guy? Or is It just a coincidence that you both scalp news? The names are quite similar too.

I doubt it, if you read the "About Rob" section of the link you posted the backgrounds, histories and ages are totally different.


Paul

 

[Trader333]

Rob,

Having read your post can you say any more about how you enter a market at time of news ? I know that you look over a 90 min time frame and I would like to know if you wait a few minutes after news is released to enter or are you in the market already or whatever ?

The reason I ask is that as soon as news is released the market often jumps up to 30 pips in a few seconds and getting filled at a reasonable price becomes difficult.

I would welcome your comments on this


Paul

 

[zagreb]

Rob, with respect

I see your intention is to be 100% right in your predictions. May I suggest that maybe you are on the wrong course. I admire your present success but since you don't trade on probabilities you may have hard time during your FX career.

warm regards

 

[Trader333]

Rob, with respect

I see your intention is to be 100% right in your predictions. May I suggest that maybe you are on the wrong course. I admire your present success but since you don't trade on probabilities you may have hard time during your FX career.

warm regards

In my view probabilities are more relevant to trading based on TA and are much less so based on fundamentals which news trading is more aligned to.


Paul

 

[jacinto]

In my view probabilities are more relevant to trading based on TA and are much less so based on fundamentals which news trading is more aligned to.


Paul

that is very true Paul. I, however, think there are times where both are aligned. That is where you make a killing. Doesn't happen very often, but happens.

What I mean is that price forms a particular continuation pattern or a reversal pattern that is simply triggered by the news. Question is if the news triggered it, or the market was simply expecting "no surprise" and numbers where digested before hand. Another interpretation could be that the info "leaked".

In any case, it is worthwile to always keep an eye on price patterns prior to the news.

The best example I can remeber is the "surprise" rate rise by the BOE in January (cant remember if 6,7 or 8th of Jan). Look at the 10 or 15 min time frame, you will see a clear bull flag forming 2 hours before the announcement. price shot up to meet 161% expansion almost to the pip (if my memory serves me right, low of pole was 1.9320, high 1.9410, low of flag 1.9370, so move up is 100% of 90 pips + 60% of 90 pips for an aprox of 150 pip move....quite amazing if you ask me and how sad I still remember it )

all the best

j

Edit: I knew I had kept that setup in my journal. here you go.

 

[Priceman]

I doubt it, if you read the "About Rob" section of the link you posted the backgrounds, histories and ages are totally different.


Paul

Aha, just found this.... I knew there was something fishy, it all just looked so familiar... so it's Felix! OR could Rob be Felix or who knows!?

http://www.forexb**t**ds.com/public/free_forex_trading_system

PS this isn't free so maybe the person who's posting on here will need the vendors tag afterall. I still find reading it interesting though so keep the posts coming Rob, Felix, whoever, would the real Slim poster please stand up!

 

[Trader333]

Hi Priceman,

Your link does not appear to work


Paul