Are you sure you are using the right indicator?
…if not you are bringing up the rear money!
Can you identify the stop signals on your chart – these are like those in the cities – they are in place to prevent accidents, if you don’t know what these are and go crashing across to the other side the chances of crossing safely are substantially reduced– the ones on your chart will do the same if you do not heed the warning they certainly provide – to note these warnings you have to know what the price is saying to you – i.e. obey the stop signal!
The “only” indicator…
Let me start by saying that the only indicator value any mention is the price itself, any other indicator is supportive, or more strongly worded, secondary. There is no indicator that will give you a better price management indication in the FX market than the price itself.
I can hear you, “HOW?” you say … please allow me to clarify in the hope that you will always dredge up what my many being of experience have taught me.
How it picks the right management
Let’s first question a question – what formulates the basis for this stop sign in a price go – our jargon, a Support (S) or Resistance (R) level.
Simple – the reduction or total lack of mass momentum. As the price candle approaches a given S or R level 99% of the time the price starts to slow down.
Reckon back – if you are a trader and use S & R levels you become more and more cautious as these levels are approached, but you are only one of the masses – thus it can be reasoned that the slowdown is caused by mass action, many traders with the same mental approach. These levels should provide you with a mental warning telling you not to proceed with haste beyond a certain point, the stop sign! – S or R level- careful here or you’ll have an accident!
Have you noticed that we follow the masses, and not go off on our own pioneering some new route – if you do the chances are you may get lost! In our own FX jargon we call this trading with the trend.
These barrier levels are made by similar situations having taken place at the same place previously, so to stop any more accidents the traffic department has place up a stop sign- the more often you get hit at the cross road the more careful you’ll become in crossing without looking. This is the case at the stop sign (S or R level) on your chart – the more often it costs you money the more often you will dredge up what I am telling you here.
The strength of S & R levels are so to converse in “self strengthening” stop signals – We all know that the more often we have the same level of a high or a low the level becomes stronger. This situation is perpetuated by traders.
Now… which came first the chicken or the egg?
1. The traders pull out and the price barrier forms
…or
2. The price barrier forms and the traders pull out
Whichever it is, the valuable fact here is that you are able to read what the chart tells you by understanding price action. The question is can you see the stop sign (S or R level) ahead? And do you know what it is telling you?
When the resistance to cross the line has died down i.e. directional confidence returns to the trading company and the traders’ mass movement is once more powerful sufficient to go the market in the preferred management. Thus, a choice by traders mass action (volume) has been made to cross that barrier line (the S or R level) in a prolongation of the previous price management– or -the trading masses dictate that it goes back from whence it came, (retracement). Let s place that in FX Jargon, the price retraces or the trend reverses or continues.
The above epistle demonstrates clearly that the traders are in charge of the price go – when they withdraw, we clearly see a lack of momentum to proceed beyond a certain point and the barrier is made – in our jargon, the support or resistance level.
I trust that this in some small way makes you know that you have no indicator that is more valuable than your S and R levels, and dredge up I say levels, not lines for a very excellent reason.
Author Bio: Hans is a South African Trader with 17+ being experience in the markets and 5+ being teaching others to trade as a tutor. His systems, skill and knowledge allow him to trade with very low draw down and very high accuracy. Feel free to question Hans a question below…
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