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3 forex books about technical analysis - Sensational Findings
Logic in the classical technical analysis algorithm and its vulnerability. Transition of a trend into a flat and backwards.
The scheme of the primary elements of the classical technical analysis algorithm of trading
In the previous chapter I promised to submit the old technical analysis algorithm of trading and that of the new technical analysis, developed by Masterforex-V. Via grasping this new algorithm, the reader will be able to do the following:
· To develop a trading system of his own and to clearly understand each element of it.
· To successfully derive benefit from trading at Forex.
· To find dozens and hundreds of mistakes made by the classicists of the technical analysis – such as Murphy, Elder, DeMarque, Luca, L. Williams, B. Williams, etc. The author of this book has dwelled on the corresponding problems in the 1st and 2nd Books by Masterforex-V.
· To distinguish the productive and profitable trading systems from the ones fraudulent and unprofitable – and not to be tempted by any of the most attractive advertising and flourish of trumpets.
First of all, let’s dwell on the primary elements of the old technical analysis algorithm of trading. The aim is the following:
· To elucidate the cause-effect relation between the elements and links of this old analysis.
· To distinguish strong links of the technical analysis algorithm from the weak ones.
· To rectify errors. By eliminating the weak links, one can develop the new technical analysis of trading according to Masterforex-V.
The principal unsolved problem of the technical analysis: criteria of the trend transformation into a flat and backwards.
Generally speaking, the keystone of the classical technical analysis of trading is the determination of a trend and a flat. All other elements of the technical analysis issue from the clear understanding of this problem.
* The opening and closing of deals, which are conditionally-subdivided into short-, medium- and long-term ones.
* The choice of timeframes ( >ì 1, >ì 15, >í 1, >í 4, >ä 1) and their synthesis. Here it is elucidated the following problem: is it better to submit 1 chart at the terminal, or 3 charts would be preferable (as according to Elder). In contrast to this, Masterforex-V trading system deals with more than 3 charts. In the next chapters I will explain the principal difference between 7-8 screens in Masterforex-V trading system and Elder’s simplified 3 screens. Besides, I will show the faultless way of choosing a timeframe (within m1-w1), where the pulse (the trend) is being generated. It will be also demonstrated how to determine the goals of the trend movement within a timeframe of a larger scale.
* The choice of stop-loss points or whether the lock would be preferable (and why it is so) – see Book 1 Masterforex-V (http://masterforex-v.su/book1.htm).
* Patterns of the trend reversal and continuation (to start from the figures of the “head and shoulders” and up to triangles of various kinds).
* Calculation of the currency movement aims and closing of deals.
* To clearly understand where the long-term deal is going on. In this case, certain profit must be allowed just to “flow in”. One must be able telling a long-term deal from a short-term one. The latter must be obligatorily closed, the profit being fixed.
* The choice of: those of a certain type are developed for the trend estimation, while other ones are intended for dealing with a flat.
Thus, before choosing working forex pairs and the corresponding working timeframes, installing indicators, seeing where to open and close a deal and so on. That’s, before a beginner starts his job at forex market, a trader must obligatorily understand the following.
1. There exist just 2 tactics of the trader’s job at forex – either within the trend or in the flat.
2. One must clearly see where are the trend (pulse) and the flat (correction), where is the 1st wave of reversal and the beginning of a new pulse (trend).
At any point of the currency movement the trader will learn what he must do:
* To open a deal on “buy” or “sell”;
* To open a short-term or a long term deal (within the timeframes >ì 5, >ì 15, >í 1, >í 4, d1 and so on).
* When and why the deal must be urgently closed (a “short-term deal”).
* When it is necessary to open the long-term deal (and just to “allow the profit to “flow in”). What are the goals of any of movements (m1-d1) - the resistance at the ‘bull’ trend or the support at the ‘bear’ trend?
* The combination of timeframes among themselves (within m1-d1 and higher). You must learn how to clearly see at what wave (of the pulse or correction) your working currency pair is moving in various timeframes (for instance, see the short-term trend m15 within the framework of the short wave h1 or the long 3rd wave m5 within the framework of the long 3rd wave h4).
Thus, according to Masterforex-V Trading System, the brief conclusions are the following:
* The keystone of the technical analysis of trading is the problem of the trend transition into a flat and backwards.
* All elements of the technical analysis serve for solving this problem.
* When the problem of the trend transition into a flat and v.v. becomes solved, the technical analysis becomes clear and understandable as a whole.
Why any of the classicists of the technical analysis has not developed an algorithm of the technical analysis.
Before proceeding to the next section, the reader must consider the following.
1. There are the aspects, not elucidated by any of the classicists of the technical analysis of trading.
* Any of the classicists hasn’t submitted the algorithm of the technical analysis.
* In fact, this problem is not singled out at all. Actually, even in the proceedings by such notorious specialists as Murphy, Schwager, Luca, Neiman, Kan and others, all elements of the technical analysis are just mixed together – such as the waves, patterns of the reversal and support of the trend, triangles, oscillators, moving averages, the levels of resistance and support, pivots, slanted channels, “cross-zero” puzzles, “Japan candles” and so on.
2. Why for the first time the problem of the trading technical analysis algorithm is posed in Masterforex-V trading system, the determination of the strong and weak points of the technical analysis and correlation of these links being included.
The determination of the trend and flat makes the keystone and the base of the technical analysis . The principal problem of the technical analysis (the trend transition into a flat and backwards is not elucidated by classicists of the “old” technical analysis of trading.
In the classical technical analysis, the problem of the trend transition into a flat and backwards has not been solved. As the consequences:
* The majority of the textbooks, dedicated to the technical analysis, just contain technical tricks in abundance, not systemized clearly. The correlation between these methods is not presented too. That is, one can find just “farrago” of different techniques without any correlation.
* Mishmash in traders’ heads is the logical continuation of the mishmash in the heads of the founders of the technical analysis. Those specialists could not submit an algorithm, appropriate for the branch of science, about which they have written hundreds of books.
Any trader-beginner knows the difference between the trend and flat.
A trend implies an intensive directed movement of the price (in the bull trend, it is directed upwards, while in the bear trend, it is directed downwards).Dealing with the trend, the trader must:
* Open deals only along the trend direction;
* Hold deals as long as one can – in order to “allow the profit to flow in”
A flat is the lateral trend in the price movement in a certain range. It logically stipulates the trader’s tactics –opening of short deals to starting from the range bounds and towards the opposite direction.
When one scrutinizes the history of the forex market quotations, everything becomes clear and evident: either it is a trend or a flat (the merchant range).
This graph is taken from the book “Technical analysis. The complete course” by
D. Schwager. I hope that any beginner will be able to easily tell the flat from trend.
As a rule, the classicists of technical analysis like to present such patterns to the beginners. After this, lecturers of courses for training to forex, attached to Dealing Centers, clearly point out to the beginners:
* Where it was necessary to hold the long deal (in the trend).
* Where it was necessary to open only a short deal (in the flat).
I hope that every reader (as well as every analyst) can clearly distinguish a trend from a flat in the charts – however, only afterwards.
Due to the knowledge of the platitudes concerning the difference
between the trend and the flat, issuing from the history of trading,
not only a professor from a
* There was a trend - respectively, the trader had to hold a long deal along the trend and “allow the profit to flow in”.
* There was a flat (brief deals started from the bounds of the flat range).
One of the principal problems of the technical analysis is to find the point of the trend end, the trend transition into a flat and backwards in the on-line regime .
a) This point makes it possible not only to see how it was necessary to trade rightly.
b) It enables us to gain profit daily, seeing this point beforehand and during the trading. There are accurate criteria what can happen after the breaking-through this very point.
* The trend is over, while the flat is starting. At this point a trader closes long deals along the trend and tries to “pip” within the flat in the correctional wave.
* The flat is over, while the trend is starting (“pips” in the flat have already come to the end, the long-term deals along the trend are being opened).
Thus, this algorithm of the new technical analysis by Masterforex-V allows the following:
1. The subjective factor is excluded. One can clearly see
* The pulse (trend) wave is going on
*Otherwise, it can already be transformed into the wave of correction (flat).
* The trend reversal (but not the correction) has started.
There are the comments by Masterforex-V.
Below I’ll explain the term “Pivot” (the point of reversal) to you from the position of Masterforex-V. Now let’s see the technical analysis classicists’ viewpoints on this problem. Due to this, the reader will be able to understand why all lecturers of forex all over the world follow the classicists and differentiate the trend from flat only after the events, issuing from the history of the deals.
The origins of the impossibility to solve the problem of the trend transition into the flat and backwards in the “old” technical analysis of trading. The expanding flat.
The problem of the trend transition into the flat and backwards in the on-line regime, is the keystone of the technical analysis (the fundamentals of it). When you understand this, you must try to grasp
1. How the chain of the technical analysis algorithm is being built up further.
2. What’ the essence of vulnerability of the old technical analysis algorithm (what are its weak links)? Why are these problems unsolved by the classicists of the technical analysis (such as Elder, Schwager, Murphy, Luca, Williams, De Marque and so on).
* At the same time, you, as a trader at forex, must take decisions every day.
3. At what stage in solving the problem of each link of the algorithm the classicists give up – or, maybe, they substitute, entangle and hide something. More in details this theme will be elucidated below.
4. How these problems are easily become solved in Masterforex-V Trading System.
The expanding flat is a problem, unsolved by the classicists of the technical analysis.
The classicists of the technical analysis have not managed to solve the problem of the trend transition into a flat and backwards in the on-line regime. This is conditioned by the existence of the expanding flat that breaks through the flat range borders. In this case, from the viewpoint of the classical technical analysis, the event development must logically be the following: either the breaking-through a level of resistance and the “bull” trend continuation or the breaking-through the level of support and the trend reversal from the bull type to the bear one.
However, pretty often at forex the pattern develops in the form, which doesn’t leave a stone standing on the “classical” postulates concerning the trend and flat, presented by the analysts and the authors of manuals of the technical analysis.
This is the expanding flat
These charts are taken from “Technical analysis of future markets” by J. Murphy.
How does J. Murphy solve the problem of the expanding flat?
In fact, he doesn’t solve it at all.
According to Murphy, the “expanding peak” is a relatively rare pattern of the break. As a rule, this figure signifies the turning point in the main tendency of the rise. Further, J. Murphy writes the following. During the formation of this model, a series of false signals becomes generated. This fact hampers the trader’s job extremely. At the same time, this model also contradicts to the pattern of the tendency development when the breaking through the level of the previous peak usually indicates the renewal of the ascending tendency. At the same time, the breaking through the level of the previous minimum indicates the beginning or continuation of the descending tendency. A trader, who uses the upward- and downward-directed breaks as the call to action, can receive a series of false signals.
Comments of Masterforex-V concerning J. Murphy’s technique of solving the problem of expanding flat.
* I recommend rereading the thesis by J. Murphy – one of the founders of the classical technical analysis – for instance, from the viewpoint of a programmer, who wants to introduce into his program clear criteria of the difference between the flat and the trend. You will understand why no adviser, no mechanical trading system, no “black box” can successfully trade at forex in place of a trader during a long period of time. Sooner or later any of such system will lose the trader’s deposit – it doesn’t matter how thoroughly this system is adjusted for gaining profit if the programmer issues from the history of events.
* The reader should pay attention how J. Murphy has “escaped from” the situation of the unsolved principal problem of the technical analysis. On this tottering base J. Murphy has built the theory of the technical analysis of trading in several of his books (with dozens of mistakes and errors).
According to J. Murphy, “the expanding formation” is a relatively rare model. However, J. Murphy is cunning. The flat expansion is neither uncommon nor occasional. This phenomenon is typical of the currency market of forex.
One can submit hundreds and thousands of such charts. Each of them depicts the loss of money by the traders who thoughtlessly read the books by Murphy, Schwager, C Luka, Kan, Neiman and others. Learning by such books, traders lose their deposits. These and other “classicists” of the technical analysis of trading are cunning even in their charts, designating the flat afterwards.
Once more the reader should scrutinize the chart from the books by Schwager, submitted above.
The prompt from Masterforex-V trading system.
* At first there was the false breaking through the flat.
* Further, issuing from 2 new local peaks (the minimum and maximum), Schwager has designated new levels of the trading range (the flat). When these levels are broken through, the flat “logically” turns into a trend.
Schwager can change the levels of the flat transition into a trend. Unlike Schwager, a trader cannot “play again” and change his deals (already opened by his broker) when it becomes clear that the breaking through the level is false.
In books of other classicists, one can find the analogous approach. That is, the levels of flat during its transition into a trend are plotted anew after the events. Examining the charts from the books by A. Elder, you should without assistance expose craftiness of this author (see “How to play and benefit at stock exchange” and “Fundamentals of the trading on the exchange”).
There is the chart from a book by L. Williams
Further, there is a chart from the books by E. Neiman “Trader’s small encyclopedia” and “Master-trading. Secret materials”. Neiman draws the reader’s attention to the problem of acceleration/attenuation of the movement. Instead of this, the reader should see how many times the flat transition into a trend has not occurred in d1.
The false and true breaking through the levels as a lame attempt to explain afterwards why not every breaking through a flat turns into a trend
There is the problem that the trend is not necessary starts after the breaking through the flat.
In order to somehow excuse their inability to solve this problem, the classicists of the technical analysis introduce the terms of the true and false breaking through the flat (the trading range).
The false breaking through the level of flat implies the breaking through the flat and the price return into the flat again.
The true break is the breaking through the flat and beginning of a trend.
Such explanations are applicable just to the situations, already realized.
* When the level of the trading range (flat) is broken through and the trend has started, the analysts write about correctness of their viewpoint on the flat transition into a trend.
* When the breaking through the level of the trading range (flat) is false, the analysts write about the expanding flat.
When understanding these axioms, the reader should try to study the criteria of difference between the true and false breaking through the level of flat.
The criteria of the true and false breaking through the level of flat in the classical technical analysis of trading.
The volume of deals is the criterion, used by all classicists of the technical analysis. The following authors have written about it:
J. Murphy Technical analysis of future markets and Visual investor. How to determine trends.
A. Elder How to play and benefit at the stock exchange. Fundamentals of trading on the exchange. Trading with Dr. Elder. Encyclopedia of stock exchange speculation.
D. Schwager. Technical analysis. The complete course.
B. Willams. New dimensions in trading on the exchange.
C. Luka. Trading at the world money-markets.
L. Konnors and L. Bradford-Rashki. Secrets of stock exchange.
L. Borcelino. Textbook of day-trading.
Ch. Lebo and D. Lucas. Computer analysis of future markets.
T. Chand. On that side of the technical analysis.
M. Kan. Technical analysis.
E. Neiman. Small encyclopedia of trader and Trader-Investor.
The indicator of volume in its essence
* When the indicator of volume increases, the breaking through the level of flat is true. That is, the trend transfers into a flat.
* When the indicator of volume decreases, the breaking through the level of flat is false (the expanding flat). For the trader, this implies the opening of a deal against the break.
The authors enumerated above submit this idea in their books in various forms. For instance, E. Neiman writes about the significance of the trade volume in the following way.
The majority of false signals is checked through the prism of the indicator of volume. During the 1st movement of the course towards the line of resistance or support, the volumes increase, while at the last movement they decrease. Thus, at the beginning of this pattern of reversal the volume increases in the old trend movement of the price. At the end of this pattern the volume increases in the direction, opposite to the old trend movement of the price. In this way the market demonstrates that it is not interested in the continuation of the old trend.
Comments and questions from Masterforex-V trading system about the indicator of volume
1. At forex the indicator of volume doesn’t exist. There arises the question. What criteria and prompts can help a trader to distinguish the true breaking through the level of the flat from the false one?
You should believe me: the market in the person of your broker will not allow you to “draw anew” the flat level - as the founders of the technical analysis of trading have done it in their books (Murphy, Schwager, Elder and others. The lack of knowledge at least of several clear criteria, not presented by any classicists of the technical analysis, will inevitably result in the loss of money at forex.
2. You should pay attention to other criteria, introduced by classicists of the technical analysis. These criteria are rather fuzzy and smeared. Besides, the reader can find cardinally different figures. Each author clearly sees the imperfection of criteria, used by another classicist. Each author introduces a new criterion of his own, no better than those of his predecessors.
The temporal criterion of difference between the true and false breaking through the level of flat according to J. Murphy (see his “Technical analysis of future markets”). J. Murphy has written the following. In contrast to the false break, the true one is characterized by closing of the trading day above the broken technical level. In addition, the true break holds out not less than during 2 days.
By making use of Murphy’s criterion of the flat transition into a trend in the real trading, one loses one’s deposit.
One can trace GBP/ JPY pair movement during December, 2001 – March,
* The flat 187.8700-
* The breaking through the support of the trading range;
* At the 3rd day after the close of the candle below the broken range, one opens a deal in the bear trend.
* Here arises the question to J. Murphy: where the stop-loss must be installed? Surely, this author doesn’t write anything about this problem.
An additional criterion of the difference between the true and false breaking through the level of flat, submitted by Schwager in his book “Technical analysis. The complete course”.
There Schwager has written about criteria of difference between the true breaking through the level of flat and the transformation of the flat into a trend.
.* Certain subjectivity is inevitable in answering to this complicated question. As a rule, the breaking through the line of the trend is accompanied by such price of closing, which substantially exceeds just a break within one day.
* There exist price filters. They “demand” that the trend line must be broken either by a certain quantitative magnitude or by a certain percentage.
* In addition, there exist the temporal filters. The most common one is the so-called the rule of 2 days. Schwager hints at Murphy’s temporal filter, understanding its imperfection.
* Therefore, Schwager presents a different temporal filter, developed by him. According to Schwager, it’s the true break. In contrast to the false one, it’s characterized by closing of the trading day above the technical level broken through, where it must hold out not less than during 5 days.
The comments and questions, submitted by Masterforex-V trading system, about Shwager’s criteria of the trend transition into a flat.
In this realm, Schwager is very honest. He states that the principal postulate (the very foundation of the classical analysis as a single whole) has no clear impartial criteria. According to Schwager, this question is not a simple one, certain subjectivity being inevitable in the answering.
* Schwager himself submits a criterion, no less subjective. That is, he recommends waiting during 5 days after the breaking through the trading range and the closing of the trading day below the level of the range broken through.
* At the 6th day, finally, one takes courage to open a deal in the bear trend. By issuing from the so-called “scientific” criteria of “ Schwager’s temporal filter”, the trader inevitably loses his deposit in the real trading.
Again the reader should return to the chart that depicts GBP/JPY pair movement.
* Let’s count out 5 days, and at the 6th day let’s open a deal on “sell”.
* Schwager, developing his own criterion of the difference between the false and true breaking through the level of flat, hasn’t mentioned where he has installed his loss-stop (as well as J. Murphy). How do you think, why is it so? Or would it be preferable to work without the stop-loss - according to Schwager and J. Murphy? Under these conditions, what deposit is implied?
Criterion of divergence according to A. Elder. Difference between the true and false breakdown (see his “Foundations of trading on the exchange” and “How to gamble and benefit at stock exchange”).
A. Elder has written the following.
True breaks are confirmed by the fact that technical indicators reach new maximums or minimums in the trend direction. False breakdowns often are characterized by divergence between the price and indicators.
One should examine the chart that depicts USD/CAD dollar in h4 (to start from March, 2007). How many times there occurred divergences in the bear trend? Were the downward-directed breaks false?
As regards, the same currency pair at the weekly chart, there was divergence under the condition of breaking through the minimum = the upward-directed recoil, the trend being unchanged. There is the reverse situation – i.e., intensive turns are not accompanied by divergence.
However, there exists a situation when A. Elder is right. That is, divergence precedes the reversal.
A prompting question from Masterforex-V trading system
The reader should try to understand A. Elder’s criterion independently.
* When does divergence testifies the reversal (when does Elder’s criterion work)?
* When Elder’s criterion doesn’t work and cannot work at all, reversals obligatorily taking place without divergence.
Due to understanding of these specificities, the reader will logically front one of the regularities of Masterforex-V trading system. The reader will understand why Elder has simplified synthesis of timeframes and has limited the analysis to “3 displays”.
Comments submitted by Masterforex-V concerning the shaky base of the classical technical analysis of trading .
Classicists of the old technical analysis perfectly understand that the criteria of the trend transition into a flat and those of true and false breaking through the flat level, enumerated in their books, are too fuzzy and unsteady. That is, one cannot develop a profitable trading system on this base.
J. Murphy writes the following. Sometimes during a day prices break through the trend line. At the same time, at the moment of closing all prices fall back to old values. This is why the analyst is puzzled over the problem: was there the break or not? For pity, it’s hardly possible to give an unequivocal answer, applicable to all situations. Sometimes the break can be neglected – especially if the subsequent movement in the market confirms the verity of the trend initial line. Sometimes a compromise is necessary. That is, in addition to the first line of a trend (a solid line), the analyst draws another line of this trend (a dotted one). It is the pilot line. In this case, the analyst has in his disposal 2 lines simultaneously. There can be the situation when the breaking through the trend line is relatively small and occurs just within one day. In addition, if at the moment of closing the deal the prices become evened out and again have reached the mark above trend line, the analyst can neglect this break and continue to use the trend initial line. As well as in many other branches of the market analysis, it’s best of all to rely on the experience and intuition. They are your best advisers in such moot cases.
Masterforex-V comments to Schwager’s approach are given in this chapter above.
E. Neiman has written that the contradictions in trend lines and patterns indicate themselves in the following ways.
* The direction of the trend in force contradicts to the prognosticated direction, obtained in the course of the analysis (it is especially significant under the condition of the trend reversal).
* It is difficult to estimate the price of opening during detecting the trend if one issues only from one general pattern of plotting (in the given case, the lines of the support and resistance are helpful).
* Trend lines and patterns, built in different timeframes can also bring to contradictive conclusions. For instance, a weekly trend is of the bull type, whereas the in-day trend has the bear form.
* If you are confronted with any of the contradictions, described above, beware of opening deals earlier than the situation becomes cleared up. You can have no time to recognize the beginning of the trend. However, it is of no principal importance. It is much more essential to get at least into the middle of the trend. As a rule, due to the speculative “warming-up”, this section of the trend is much more profitable than the 1st phase.
Thus, Neiman admits the following.
1. His trading system cannot recognize the beginning of a trend (and, respectively, the end of the previous one).
2. As the result, Neiman recommends to miss a greater part of the movement at forex – to gain profit in the middle of a trend, the beginning and end of which are unknown.
In “Technical analysis as new science”, T. DeMarque has written that, as far as he knows, a technique of detecting whether the price break is true or false is still not developed.
A. Elder states that the market spends more time in a certain price corridor than in a trend. The majority of breakings through the price corridor bounds are false. Such false breaks “seduce” the gambler to participate in the game earlier than prices return to the norm. The false breaks are the damnation for amateurs, whereas the professionals adore them.
C. Luca is less frank. However, his method of solving the expanding trend problem is more interesting. He has made the unsuccessful attempt to move aside the flat level as far as it would make it possible to avoid false breaks. The results are described in “Mistakes of C. Luca’s theory of the expanding triangle ( >http://masterforex-v.su/002_301.htm ).
Classicists of the old technical analysis: aphorisms or demagogy
The principal problem of the flat transition into a trend and backwards is not solved. Clear criteria of such transitions are not submitted (whether the breaking through the level is true or false and the finding out of the difference between the expanding flat and the trend beginning). Consequently, the authors of books about the technical analysis of forex can do just one thing. They keep on writing beautiful and right words. As far as I’m concerned, these words more resemble demagogy.
For instance, E. Neiman advises to trade in the middle of the trend, not giving the criteria of the beginning of the trend and its end. He forbids young traders (the readers of his books) to look for trend patterns where they are absent and invent them (nobody has doubts about recourses of your fantasy).
Trend lines and patterns allow you to imagine a mount, to which the prices rise (the bull trend) or from which they fall down (the bear trend). Such patterns can suggest to you paths, along which the price can move. Your goal is to precisely stick to the price dynamics. Otherwise, you run risks of falling down from the mount or getting lost. You must rise above the mount like the eagle, look round and search for all possible ways, where the price can go.
Is it possible to develop a mechanical trading system, which will trade better than a trader at forex?
At the beginning of the year of
* The principal problem of the technical analysis - the flat transition into a trend and backwards - is unsolved. Consequently, the classical technical analysis is deprived of a durable base for the further development.
* The classicists of trading have totally failed in their attempts to solve this problem via the theory of the true and false breaking through the flat.
* As the result, 99.9% of “successful” and “profitable” trading systems, which are available in internet, are just a myth and cheating. There one can find original trading systems – as well as optimizations of trading systems by B. Williams, Schwager, DeMarque, Luca, Elder and others. However, all such systems are useless and even dangerous to a trader if the principal problem of the technical analysis is unsolvable within their frameworks.
a). There is a trend, and a trader must “allow the profit to flow in” at this section.
b). There is a flat, and a trader should open short deals towards the direction, opposite to that of the breaking through trading range levels.
* In practice, such mechanical trading systems are developed by fitting the history of trading on the basis one or several criteria. For instance, it can be the location of candles higher/ lower than a moving average, the intersection of 2 averages, or synthesis of averages and oscillators.
* The work according to any of such marvelous mechanical trading systems always logically and naturally results in the loss of the deposit.
* Here I cite an experienced programmer-moderator from
There exists a mechanical trading system. It works successfully in a certain section. For instance, I have written a program for GBP/JPY pair movement. It works to start from the year 2001 till the current year (2007). From 50 kopecks, it brings up to 4 millions, which depends on the risks and money management – but its work is based on the history. On my real account “the adviser” buys this pair just to start from the beginning of this year, the Chinese fall included. There is a simple regularity. At present this program does work. However, in a year (or in a couple of months) it can fail. If there will be a sudden change in the yearly trends with this pair, this program can fail. Till EURO, GBP, JPY are moving upwards, this regularity works. Here I imply w1, mn1 + yearly trends - but not m1, h1. One can wait through “subsidence” with the help of “hedges”. Surely, one can try to use a screwdriver for nailing – but it is better to take a hammer. Analogously, if the currency pair is moving upwards during a couple of years, I should not entrust an automatic machine with selling this currency.
You should with attention reread the experienced programmer-trader’s opinion once more. You should try to understand
* What is his technique of developing an adviser that brings profit?
* Why will this mechanical trading system stop to work and will bring only losses?
* How to find the point of transformation of the profitable automatic system into the unprofitable one and how to replace adjustments?
Any trading system includes negative periods, and the mechanical trading system is a particular case. The market is unsteady. A trading system is based upon a certain model. First of all, any model is characterized by admissions and restrictions. No fixed algorithm yields 100% of hits. So, why to wait for things, certainly impossible? Mechanical trading system can overdo an individual from the viewpoint of enveloping the market and powers of endurance. Anyway, this is not a trifle at all.
In practice, in all mechanical trading systems consequences of the basic laws of the market are used but not these laws themselves. I don’t know any programmer who can envelop the general pattern of the market. And without this any mechanical trading system is doomed.
* You should think by yourselves, on solving of what problems do work this and other programmers from Masterforex-V Academy at present.
* Why this subsection about the mechanical trading system is included into the chapter about the algorithm of the technical analysis (in the section about the trend transition into a flat and backwards).
You can participate in discussing these problems at the forum of Masterforex-V Academy ( http://forum.masterforex-v.su/ ).
* Digital indicators;
* Indicators of trading systems;
* Indicators of Fibo levels;
* Indicators of channels;
* Indicators, based on ADX;
* Indicators of Elliot waves;
* Indicators of FanSimple family;
* Indicators of concealed (latent) divergence;
* Indicators of daily and session volatility of currency pairs, etc.
The prompting question
The description of the above-enumerated indicators is available for all visitors of Masterforex-V Academy forum gratis.
There is the question: what indicators are inadmissible for the free
use – so that they are intended only for students from
The prompting questions from Masterforex-V trading system concerning the problem of the trend transition into a flat.
1. You must start trading at forex only
* when you already have solved the problem of the trend transition into a flat and backwards on your own - as it is done in Masterforex-V trading system.
*For the successful and profitable trading at forex, the everyday practice is necessary - besides the knowledge of the basic theoretical questions (the trend transitions into a flat and backwards, the true and false breaking through the levels and so on). Masterforex-V Academy submits a criterion of the faultless passage at least through several reversals in the medium-term trends h1-4 at the demo account (before the trader opens a real account).
2. As regards the development of “advisers”, mechanical trading systems and new indicators, I would like to emphasize the following. If it is impossible to create mechanical trading systems, then there arise the questions.
* What of the new software is necessary and useful for the successful trading?
* What is the role and place of such software in your trading at forex (is it helpful)?
* There is the prompt: you should concern yourself with the problems, on which work programmers in Masterforex-V Academy at the chair of automation, indicators and development of software for trading at financial markets. You should try to understand their logic in solving these problems and see the difference from the approach of numerous authors of “black boxes” and “marvelous mechanical trading systems”. Such “specialists” have elaborated thousands of software products. The latter perfectly work on the basis of the historical data. However, they are totally dangerous and harmful for traders at forex. I hope that even the beginners have already understood the reasons why such mechanical trading systems are harmful and dangerous and why do the authors of such systems try to hide the algorithms, on which such “black boxes” are based.
* Can it be possible that somebody still believes that a programmer (but not a trader) is capable of solving all enigmas of the fundamental technical analysis, unsolved by J. Murphy, A. Elder, Schwager, Luca, Neiman and others?
* Further, can this programmer (not a trader) manage to synthesize at least several intricate “know-how” into a single program product, which he tries to sell to all traders-beginners.
3. By examining the algorithm of the classical technical analysis, you will understand its foundation and drawbacks of its main links. Further we will see:
* How the classicists of the technical analysis “have slipped out” of the situation of unsolved basic postulates, necessary for developing the whole construction of the classical technical analysis.
* How these very problems are easily solved in Masterforex-V trading system. The basic criteria of the true and false breaking through the levels and the trend transition into a flat are determined in Masterforex-V Academy. Every day they are being checked by our students in various timeframes during 2 years.
* Further new specificities in the algorithms of the old classical technical analysis and Masterforex-V technical analysis will be revealed. Masterforex-V will submit the continuation of the chart of the algorithm of the technical analysis, given here.
Masterforex-V about the technique of organizing a benefit trading system
1. I hope that you clearly see the basic logic of the algorithm of the old technical analysis of trading. Before reading the next chapter you should think about the following.
* What links are the logical continuation of the chain presented above (the overwhelming majority of the authors of the classical technical analysis include it into their books).
* Why do these links represent a dead end of the old technical analysis of trading? To get the confirmation that this dead end exists and see its logical consequence, you should take any 10 books about the technical analysis at your choosing (by Murphy, Luca, Schwager, Neiman and others). Then try to find “10 distinctions” (as in the children’ game of attention). These books are so similar to one another – in logic of the submitting the materials and repetition of the authors’ mistakes. In any science, the analogous situation clearly indicates that the given branch gets to the dead-end. In the case of forex, the number of traders-losers is the same as 10-15 years before - when these books were written for the “obligatory study”.
2. You can find answers to these and other questions in next chapters of Book 2. There the following materials will be submitted.
* The technical analysis algorithm continuation with pointing the weak links out; new elements of the technical analysis according to Masterforex-V will substitute for these weak links.
3. I will elucidate these problems in order
* To determine the technical analysis algorithm (and, respectively, the technique of developing a successful trading system).
* To detect weak links in the old technical analysis and to exclude them.
* To build up the algorithm of your own trading system and to check it by daily trades at forex – as it is done everyday in Masterforex-V Academy to start from 2005, where students from more than 40 countries all over the world study.
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Risk WarningBefore deciding to participate in the Forex market, you should carefully consider your investment objectives, level of experience and risk appetite. Most importantly, do not invest money you cannot afford to lose. There is considerable exposure to risk in any off-exchange foreign exchange transaction, including, but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of a currency or currency pair. More over, the leveraged nature of forex trading means that any market movement will have an equally proportional effect on your deposited funds. This may work against you as well as for you. The possibility exists that you could sustain a total loss of initial margin funds and be required to deposit additional funds to maintain your position. If you fail to meet any margin requirement, your position may be liquidated and you will be responsible for any resulting losses. To manage exposure, employ risk-reducing strategies such as 'stop-loss' or 'limit' orders. Placing Contingent Orders (stop loss, limit, etc) may not limit your losses to the intended amounts”