Stocks & Commodities V. 26:8 (14-20): Forex Focus: Fishing For Trading Systems by Alexander Sabodin

Forex Focus: Fishing For Trading Systems by Alexander Sabodin

Here’s a step-by-step look at a trading system that you can incorporate into forex as well as other markets.

The essence of the trading system I discuss here was already proposed by Charles Henry Dow, the founder of the Dow Jones indexes and Dow theory, at the beginning of the 20th century. Dow pointed out three categories of trends: primary, secondary, and minor. The primary trend tells you which way prices are flowing. The secondary is made up of waves that form the flow, and the minor trends look like ripples on the waves. As traders, our task is to define the major trend of the direction of prices and then to find a wave inside it as a good point of entry.

IS IT THAT EASY?

Very often while analyzing the market, we can come across contradictions. Let’s point out two major ones:

1.) At various time scales, you can observe conflicting trend directions. For example, on a weekly chart the trend may appear to be ascending, whereas on a daily chart the trend may be descending. And when it comes to intraday charts, the direction of the trend is usually vague.

2.) Various groups of indicators may show contradictory signals. While a trend indicator may suggest that the trend is ascending, the oscillator may show that traders are outbidding and therefore give sell signals.