It doesn't matter what you're trading - stocks, futures, currencies, commodities, etc. - the markets can only move in one of three ways:
1. TREND (price move in the same general direction - up or down - over a period of time)
2. COUNTER-TREND ("sideways market" - prices change little & move in a range)
3. BREAKOUT (occurs when prices 'break-thru' to a new high or to a new low)
Either we are day-trading, swing trading or making more long-term play, the market can only do one of those three things at a time.
It was first talked about by French mathematician Louis Jean-Baptiste Alphonse Bachelier in his 1900 PhD thesis, the Theory of Speculation in which he said:
"Random noise (ie. counter-trending) is what defines the NORMAL market behaviour. There are only two other types of market movement that are outside of the zone of random noise: market spikes (ie. breakouts) and trends."
In other words - in plain English - MOST of the time the markets bounce around in a counter-trend (ie. sideways) mode, and OCCASIONALLY it will move into a trending mode or breakout (ie. spikes).
IT CONTINUES TO HOLD TRUE TODAY IN EVERY MARKET, EVERY INSTRUMENT, AND EVERY TIMEFRAME!
If we are intimately aware of the three market conditions (and which condition the market is currently trading in), it offers us a massive ADVANTAGE over all other traders.
Most traders ONLY trade one or most two market conditions: trends and breakouts. Unfortunately, trends and breakouts ONLY occur about 40% of the time, which means 60% of the time they are just sitting on the sidelines, or..
.. they are trading the markets as if they were behaving differently than they actually are, which is the MAJOR reason why they are losing on so many trades!
In other words, it would be like going to work on a construction site with the wrong tools 60% of the time - they are not going to do a very good job, and eventually they would get fired!
Trading like that is going to slowly drain all of their resources until they bring their account to ZERO.
Their current approach..
is why they are wrong more times than they are right..
is why they are still nervous when it comes time to pull the trigger..
is why they are not profitting CONSISTENTLY and are still looking for something to help them get there..
Therefore, we need to examine HOW THEY OCCUR and HOW WE CAN USE this powerful yet little known phenomenon to increase our accuracy, confidence, and PROFITS trading in Forex.
On average, the markets are in a trending mode only about 30% of the time, breakout mode only about 10% of the time and in a counter-trend (ranging) mode about 60% of the time.
This "60:30:10 Rule" exits across ALL MARKETS and ALL TIMEFRAMES!
TREND: 30%
BREAKOUT 10%
COUNTER-TREND 60%
Whether we realize it or not, it's that 60% column (the counter-trend mode) that is the reason we are not as profitable as we should be!
Empirical data based on the 240 trading days in a full year for 4 Majors (GU, EU, UC, UJ) on average (researched by Jason Fielder, Sharptrade Partners LLC):
Trend 34.2%
Breakout 10.8%
Counter-Trend 55.0%
Finally, how does the 60:30:10 Rule affect our trading strategy?
In two ways:
1. If we want to maximize our profits, we need to learn to trade in ALL market conditions (including Counter-Trending markets), and..
2. We can now capitalize on known "predictable moments of opportunity" (ie. times when we can determine that the market is trading in one of the three market conditions) to "stack the deck" in our favour.
FACT 1: We have to be in the market if we want to make money.
FACT 2: Counter-Trend trading allows us to pick the "low-hanging fruit" while we wait for the big moves to occur.
FACT 3: We need to precisely tailor & implement the right trading strategy, methods and techniques to suit the identified each and every market conditions in order to capitalize the moments of opportunity arise.
FACT 4: Failing to respect to any of the above-mentioned Factuals will dramatically lessen the profit margin, or deny the profitable trade opportunity, or in worst case scenario is welcoming the Medical Certificate, MC (Margin Call!).
--------
(c)Extracted partly & edited accordingly from The Triad Trading Report by Jason Fielder.
Makluman Penting:
Justifikasi dan rasionaliti pembaca adalah diperlukan untuk menggunapakai maklumat di atas. Sistem, kaedah & teknik yang berbeza & bersesuaian adalah ditekankan untuk fasa-fasa pasaran yang berbeza.
0 Response to "Forex 101: L2 - Understanding The Three Market Conditions"
Post a Comment