postulates, and it is very important to a trader. It states that, during
one trading day (i.e., 24 hours), the market should start and finish a cer-
tain trading range. This range can be simply calculated based on an analysis
of each currency rate’s behavior on the preceding day even for a relatively
short period. In other words, for any currency rate, there is the
so-called daily operational task to fluctuate with amplitude of a certain
value. This minimum to average fluctuation amplitude is not the same for
different currency pairs. Also, from time to time, it deviates for the same
currency pair, depending upon market activity due to cyclic oscillations.
Nevertheless, the intraday fluctuations mean amplitude is more or less
stable for each cycle. The duration of each cycle is measured in months,
optimally providing the base for the approximate calculations of the minimum
to average fluctuation amplitude. This calculation allows a trader to
conduct an approximate advance forecast for the current day.
After creation of a philosophical basis of the method, formulating the
basics strategy and tactics of a speculative trade was an easy job for me. It
involves six steps:
1. The fundamental nature of the exchange rates’ fluctuations is not denied
by the method, but in practice it is not taken into consideration
because it does not directly affect the trader’s one and only goal,
which is to gain speculative profit on the basis of these fluctuations.
2. The basis of the method is the trader’s reaction to trading signals generated
by the market itself. The application of substitute and artificial
derivatives such as indicators, oscillators, and other man-made instruments
is essentially limited in this method. (In reality, for the market
analysis, I use only two or three indicators, which have no independent
significance and serve only to confirm basic signals in accordance
with the principles of my trade methods.)
3. The signal’s identification on a buy and sell is based on a set of market
behavioral models. The trade takes place when one of the trading
templates corresponds with a current market situation.
4. The templates represent a set of standard variants of a trader’s actions
executed in a certain sequence.
5. The basis of all templates used in the method is the estimation of a market
movement probability in one or the other direction. The estimation
of probability is made with the use of some rules of technical analysis
combined with money management elements in each of the templates.
6. Sometimes there is a possibility of using several different templates in
the same specific market situation. In this case, a final choice depends
on the trader’s will, his individual desire to undertake an increased
risk in exchange for an opportunity to gain an essential profit.
It is clear that the trader’s basic task is to be on the right side of the market
at the right moment. Basically, it is supposed to be his only concern.
My trade method is based on probability evaluation of the market future
behavior, which, as stated earlier, represents a set of templates that
are formulated in advance and then tested. The trade does not occur until
one of the templates corresponds with a current market situation. If and
when a template corresponds with the real market situation, the decision
to open or to liquidate a position will be taken by trader almost automatically.
In addition to some elements taken from technical analysis, I also
apply some issues concerning money management. They are an important
part of a trade strategy and serve as the additional insurance in the
event that the signal subsequently appears false and the market changes
its direction.
Therefore, it is possible to tell that different templates represent
combinations of trade signals received on the basis of the technical
analysis, estimation of probability of common statistical laws, and money
management.
Read More : The Market Forms Its Trading Range Daily
