The Three Golden Rules for Trading Forex - Finally, the Holy Grail
I personally do not think I have ever written about the Three Golden Rules. These Golden Rules are the only Holy Grail that you will find, which can help you trade any market any instrument starting from Forex to even Complex Derivatives. I have only shared these rules with two individuals in my entire life. And I have seen those individuals growing and showing an immense understanding about the markets, all within a short period time. Do remember, these rules are worded differently for different individuals, yet they mean the same.
Randomness, that's your third rule and the most important one. There have been debates discussion and studies around this subject. There are some scholars who say markets are predictable using an x or y model, which I have always seen to fail after a point of time. Whereas there are others out there who say markets are Random and just to let you know I am with this group of thinkers. Until recently I was amazed by the humbleness with which one Australian trader taught a group of people about Randomness and how the Forex Markets are slave to it. Randomness is defined as anything that CANNOT be predicted with a certain level of accuracy to move in a specific direction. Next time when you place a trade always think if it goes south, this is what I will do and it goes north this is what my strategy would be. This approach will allow you plan all possible scenarios and thus prepare you to handle 'The Randomness' which you will experience post entering your trade.
Crowd Management, that's your first rule. You should always consider the market as a large group of people. Markets are noting but collective perspectives of millions of individuals, some who plan to short it and others who plan to go long on it. At any given point of time you should be able to identify which side are majority of the people on - short or long. This will help you trade profitably just by being on the right side. So from next time onwards if you are thinking that you should not look at the 50MA or the 200MA, consider doing so because majority of the Big Banks, key market participants all look at these values. If you can picture out what the majority of the group is looking at and the action they would take based on that. Bam you are in the game.
Every time you make an entry or place a stop loss or decide where to exit. Always look at the market and calculate the odds in your favour and against you. If the odds against you are more exit ASAP. Eg. You are in a trade - a perfect pin bar reversal from a retouch of the 200MA and you take that trade. Sometime later you see that trade is slowly starting to move against you and has signalled a huge bearish engulfing with the MACD showing a divergence. You would not think twice but you would exit because the odds which were in your favour are now against you. Probability, that's your second rule. Today probability is one of the most fundamental factors in the way we drive, think, calculate and even weigh our options. It is so integrated in our daily lives that we even forget the impact it can have on our forex trading decisions. I had written an article long time back regarding Probability and how we should look at it to make our trading decision. This rule will just reinforce the same set of principles that I have covered in that article.
Always remember, the three principles - Crowd Management, Probability and Randomness. Use them, believe in them and practice them in your daily trades. After a point of time, you will start noticing that your trading is improving gradually.
These rules will not only help you to trade in the markets, but will also help you to understand the financial markets and how they operate in the broader scope of things. If you understand these rules the way I am trying to explain them, you will have a solid foundation and you would just need to build your skill set around these rules.
Randomness, that's your third rule and the most important one. There have been debates discussion and studies around this subject. There are some scholars who say markets are predictable using an x or y model, which I have always seen to fail after a point of time. Whereas there are others out there who say markets are Random and just to let you know I am with this group of thinkers. Until recently I was amazed by the humbleness with which one Australian trader taught a group of people about Randomness and how the Forex Markets are slave to it. Randomness is defined as anything that CANNOT be predicted with a certain level of accuracy to move in a specific direction. Next time when you place a trade always think if it goes south, this is what I will do and it goes north this is what my strategy would be. This approach will allow you plan all possible scenarios and thus prepare you to handle 'The Randomness' which you will experience post entering your trade.
Crowd Management, that's your first rule. You should always consider the market as a large group of people. Markets are noting but collective perspectives of millions of individuals, some who plan to short it and others who plan to go long on it. At any given point of time you should be able to identify which side are majority of the people on - short or long. This will help you trade profitably just by being on the right side. So from next time onwards if you are thinking that you should not look at the 50MA or the 200MA, consider doing so because majority of the Big Banks, key market participants all look at these values. If you can picture out what the majority of the group is looking at and the action they would take based on that. Bam you are in the game.
Every time you make an entry or place a stop loss or decide where to exit. Always look at the market and calculate the odds in your favour and against you. If the odds against you are more exit ASAP. Eg. You are in a trade - a perfect pin bar reversal from a retouch of the 200MA and you take that trade. Sometime later you see that trade is slowly starting to move against you and has signalled a huge bearish engulfing with the MACD showing a divergence. You would not think twice but you would exit because the odds which were in your favour are now against you. Probability, that's your second rule. Today probability is one of the most fundamental factors in the way we drive, think, calculate and even weigh our options. It is so integrated in our daily lives that we even forget the impact it can have on our forex trading decisions. I had written an article long time back regarding Probability and how we should look at it to make our trading decision. This rule will just reinforce the same set of principles that I have covered in that article.
Always remember, the three principles - Crowd Management, Probability and Randomness. Use them, believe in them and practice them in your daily trades. After a point of time, you will start noticing that your trading is improving gradually.
These rules will not only help you to trade in the markets, but will also help you to understand the financial markets and how they operate in the broader scope of things. If you understand these rules the way I am trying to explain them, you will have a solid foundation and you would just need to build your skill set around these rules.