I guess everyone goes through it, but some never seem to learn it so I’m putting this blog post out there to remind those that are convinced that if they just find the right system trading will be easy. Trading is a skill like any other and it requires lots and lots of practice. But, beyond the practice you’ve got to practice the same thing over and over. You can’t continually change the overall structure of your training and expect to make progress. The initial step is finding the right method to practice and then from there you tweak along the way, but to consistently change the overal method puts you back at square one over and over and over. It’s no wonder the vast majority of people fail at trading. Most people just won’t stick with it.
I’m biased, yes, toward the method’s presented here at forex4noobs.com, but that is because I’ve been out there and I’ve seen what’s available to traders. There are many people that will teach you a system, but very few that will teach you how to trade based on real market principles. When I started trading I wanted to know the “why” behind it all. Why did the price move? I was shown many good systems, but still, for me, it was a question that had to be answered because the knowledge gap about real price movement drove me nuts every time I opened my charts. Sure, there were tons of technical analysis tips and tricks at my finger tips, but I was hard pressed to find anyone that would explain to me price movement theory and concepts.
The market is built on real economic principles and the price is moved by supply and demand. This is the fundamental reality for all markets. It’s a game that involves people, and since people are involved then you HAVE to believe in some certain fundamental principles behind what you see.
1. Any financial market naturally gravitates toward chaos. In order for humans to buy and sell in the chaos they MUST “control” the price by setting ranges of value (supprt and resistance) in order to provide themselves with safe and reasonable places to enter and exit. The less you pay attention to the price setting in the market the more you move toward taking arbitrary positions. This is the one thing that traders have in common. They are all attempting to work together in order to bring order and consistency to price levels.
2. The price in the market is manipulated and you should welcome this. What I mean by this is that in order for people to control the incredible amount of information the price is pushed to certain points where supply and demand is shifting in order to facilitate the entry and exiting of positions. We welcome this manipulation because it gives us consistent entry and exit points.
3. The market defaults to patterns because this is preferred by traders since it provides consistency and a “known”. For example, when examining trends we look for parallel channels over other patterns since a parallel channel is more predictable and more consistent for entry and exit. Thus, traders would prefer that pattern and push to maintain it if possible.
4. There are two skills you will need to perfect before anything else. The first skill is to be able to identify where the buyers and sellers will be in the future according to your analysis of past market price setting (support and resistance areas where supply and demand are shifting). The second skill is to classify your entry as a high probability, medium probability, or low probability trade. Being able to do those two things well will save you A LOT of grief even before you apply any other trading techniques.
5. Price is best evaluated over time. The more time involved in evaluating price the better chance we have in being correct. This is why higher time frames are so useful and safer to trade than lower time frames. Since higher time frames provide us with price evaluation over a longer period of time we can identify the most important price setting points in the market. Lower time frames, while not necessarily less reliable, do not provide us with the same amount of time span, so that price evaluated on lower time frames such as M1 and M5 give us price setting in a short range thus making us more cautious of supply and demand shifts originating on these frames as oppossed to supply and demand shifts originating on higher frames such as H1 and higher.
The above are just some fundamental mental process we should be going through every time we trade. Though not exhuastive, they are things to keep in mind and to excerice each day because they are a part of “seeing” price movement and evaluating future trading opportunities.
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