it is moving in the opposite direction. In other words, a market’s motionless
state is practically impossible. Any position opened in any direction
cannot keep the trader uninformed about the result for a long time; in a
few minutes or hours it will generate either an essential profit or an essential loss.
An essential profit now and later means a profit equal to or exceeding
25 percent of each trade’s trading capital (or initial margin). For the major
currency rates at an initial margin of 2 percent, it equals $500 for any minimal
standard contract of $100,000.
Because of specifics of money market trends, substantial fluctuation
amplitude of each trend is a rule, whereas a narrow and more or less continuous
side trend is rather rare. Any taken position may generate profit or
loss in a few days, which will be several times more than the initial margin
size.
This particular feature of the money market allows everybody to conduct
a very interesting experiment/investigation. First, you should picture
two parallel lines at a distance of 50 to 70 or even 100 pips from each
other, drawn on a randomly chosen area of a chart showing the prehistory
of any of the major currency rates (distinguished by their almost ideal liquidity
and highest activity). Then, imagine that every time the market
crosses this line in the upward direction, we open a long position. Then,
imagine that every time the market crosses this line in its downward direction,
we open our short position. In other words, the open short position
is always below the lower line, and the open long position is always
above the upper line. See what happens next. This simple experiment
helps to explain that, regardless of the initially opened position, this action
will immediately bring a substantial, progressing profit. In another
scenario, closed with a loss and being reversed in the opposite direction,
the new position would sooner or later generate the same profit; or, as a
minimum, would cover the initial losses by the subsequent profit. In this
case, the multiple market movements up and down crossing the drawn
horizontal lines on the charts will cover the initial loss or any possible series
of consecutive losses. This is true even if the zone we use is optional
and we choose it in the very middle of any real horizontal trend seen in
the past—even the most prolonged in the trading history of any major currency
pair.
There is a logical conclusion based on this simple experiment/investigation:
Any random position opened at any randomly chosen price will allow
the trader either to get a substantial profit immediately or to be in a
break-even situation after a relatively short series of simple, automatically
performed transactions.
In the foregoing discussion, I somehow simplified the situation by
not considering the probability of draining the trading account because
of so many turnovers. I have no intention of suggesting this probability as
an option to the readers, but only to use it as a theoretical illustration of
the statement of a market’s permanent movement. Opportunities to use
the statement in practice will be described in the following chapters of
the book.
Now it is time to discuss the third and final basic philosophical postulate
of my method.
Read More : A MARKET IS IN CONSTANT MOTION
