Do you ever look at Forex charts and fundamentals and feel like the markets move at random?
A trading tribe member sent me this chart with similar frustrations. To him, there were so many ways to interpret the chart it was almost a waste of time to use it.
Would it not be better to simply pick a direction and manage the trade well, he wondered?
There is a better way.
There is not always an edge
The first thing to understand is that there is not always an edge.
Charts are descriptive. They let you see trends and patterns formed though price pressure. There is not always something recognisable on the chart that your model will identify to trade.
In this case, perhaps there is no recognisable edge on entering right here and now. But that is ok. It’s fine to wait until something appears.
For example, imagine if there was a big spike through the level you have on the chart, and then a large reversal candle formed on some bearish AUD news.
Would you have a bias then?
How simple market type theory can help
The idea behind market types is that if you apply the correct strategy for the current market type, you will be much more successful than if you trade the same strategy irrespective of the market type.
Let’s look at the same chart now, in the context of market type theory.
Can you see how, if you simply look to buy in bull market types and sell in bear market types, your edge will be greatly increased?
You can learn more about how to identify market types here.
While we are looking at one chart here, market types are universal and timeless. Bring up any chart on any timeframe and the same rules will apply.
Instead of trying to look for something that is not there:
Sit back, relax, and identify the market type first
And in case you are wondering, yes, trading breakouts into new bull or bear market types is a valid strategy. You just need to apply the correct trade management rules.
If you want to learn more, I do market type analysis right here on the blog each week. You can go and check the history to verify its accuracy.
Finally, full details are available in the Advanced Forex Course for Smart Traders. You can join here and it is always 100% free.
About the Author
Sam Eder is a currency trader and author of the Definitive Guide to Developing a Winning Forex Trading System and the Advanced Forex Course for Smart Traders (get free access). He is the owner of www.fxrenew.com a provider of Forex signals from ex-bank and hedge fund traders (get a free trial). If you like Sam’s writing you can subscribe to his newsletter.