Article: “Never forget the Market can do Anything” – November 19, 2014

20131205_market can do anything

Dear all,
I often find myself and other traders and students I work with to never forget that the Market can do Anything.
Indeed, most of the things and concepts of trading that I have learned or unlearned in the years had to do with the two following concepts:
1) designing my strategy so that I could  cope with anything the market could throw at me — yes, because the “Market can do Anything” (and I would not end up ‘holding the bag’ because price would move and remain below my entry point)

2) incorporate proper and enhanced risk management so that the possibility of 1) happening is low or non-existent — a level of risk management that the majority would not be ready to accept, like exiting half of the position once the gain on the position reaches a level where it equals the trading risk.

Thus I believe the majority of retail traders do not understand or realize that you *MUST* cope with the master principle that “Market can do Anything”, while I often hear words like “expect”, “assume” and even “know” that the price can do this or that.
Words are powerful, and you should be very careful because you need to *think* something before you say it. And if you think you can expect, assume and even know what price is going to do next, well…. you will be lost — statistically and practically becoming part of the 95% group of retail traders who do not make money in the markets, but rather lose consistently.

The market is “Always Right”, if you address it with a “fixed number of pip risk”, or any other type of assumption of expectations, you will fail. Full stop.
Let the market pick the pip risk, the trading plan and all the rest: you must understand how the market is moving (normally, extended, are algos holding their anchors, etc.)
On the risk side of things, the majority of traders also do not understand that this is a game that you win in defense. You must consistently take small risks and increase the reliability and expectancy of your method. Risk management is a constant and there are ways to improve it. The problem is that you cannot just avoid optimizing risk because you only have access to a method that — being based on traditional technical analysis — can only offer R/R<=3 trades with low probability of hitting the targets.
When you start with such a disadvantage and do not get involved at the beginning of a move (the best way to manage risk too) you will think that the only way to make good return in trading is to increase risk and, maybe, even use leverage (I am *AGAINST* the use of leverage in trading, and it is not needed)…

A smart follower wrote the following to me today in relation to a level I mentioned a few days ago in the EUR/USD before it materialized: “Have a question… you had predicted EUR/USD to 1.21ish and before that to 1.26. We technically touched 1.26 today, but not over 1.26. Do you think now down to 1.21 before any uptrend ?

This question offers me the opportunity — before I offer the answer — for some speculation on the way I think about trading. For me price analysis is a balances of forces. Typically when a level or area of participation by Algos is reached I wait for a confirmation. Basically the Algorithms on the smaller timeframe, driving the counter-trend move into the important level of participation, have to show me that they give the way to the larger timeframe. The larger timeframe wins often, but not all the time. And those time when it does not win, summed to the resulting highest reliability and expectancy that can be obtained by trading right at the FibStalker levels, adds up a lot! Both in the area of winners percentage and R/R values.

So here below is my answer:

“The way my method works is that when I get price into the level of interest, where I anticipate participation for algos on the larger timeframe, I look at what happens on the smaller timeframes.

Imagine 1.26 like a potential barrier where sellers on the larger timeframe can come back into the market again. But nothing is guaranteed int the market. So at these levels I become more vigilant and switch to the smaller timeframe.
To know whether shorts will be successful they need to be strong enough to win the buyers that have pushed the market higher in the last few days.
There are two set of sequences of moves higher that matter at the moment: one on the 4-hour and the other on the 15min.

What I do then is checking if and when these counter-trend sequences fail, as an effect of new shorts that can potentially come in into the markets at the 1.26.

We all know all the information in advance and I use the FibStalking Timing Technique to verify where the 4-hour and 15min sequences fail, if they fail.

So generally there are two scenarios: 1) the sequences fail and the FibStalking timing tells you the exact confirmation level (is a well-defined price level) that tells you when the counter-trend move is not valid any more. That’s the time you must get involved in a short.

Using the confirmation level you get involved in very good spots with high R/R and only after confirmation. This is why trading with the Algos is so convenient and traditional TA is not capable of offering such high R/R trades.

On the other hand it can happen that the counter-trend sequences on the 4-hour and 15min remain intact and no-one shows up at 1.26. In this case you don’t have money at risk and the market can do whatever it wants. I will just wait.

I only get involved in the markets at my own conditions (because after you are in the market can do anything).

Now the good point is that when the counter-trend move fails below or above a FibStalker level, price momentum in the direction of the trade is strong enough to generate a free-risk trade.

If you understand trading and risk management, you know that generating a free-risk trade from a low risk retrace is your job #1 as a trader.

And that’s what I attempt to do. Once I have a free-risk trade I also have a free mind and I can go to think to something else. Because either the market hits my swing profit target or closes me at breakeven minus costs and slippage.

PS: I teach the mechanical and totally procedural way to time FibStalker levels like the 1.26 in the EUR/USD in my multi-month Coaching Program. Drop me an email at fibstalker at gmail.com and ask for information.

As usual, let me know what you think by leaving an email at: fibstalker at gmail.com or a post on my blog.

Below the link to my newsletter if you want to learn more about my methods and my edge in the markets.

Have a great day.

The FibStalker Giuseppe, ~the FibStalker

 

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4 Comments

Filed under Articles, Coaching Program, Education, Forex, Market Timing, Money Management, Risk Management, Trading Method, Trading Plan

4 responses to “Article: “Never forget the Market can do Anything” – November 19, 2014

  1. Great article Giuseppe. It is good to have some insight into your procedural approach. Thanks

    • Thank you Peter,
      how are you?
      I though it would be good to describe what I do in more details.
      Some people are reporting they do not receive my emails.
      Please let me know if you have received mine but, most importantly…
      Have a great day.
      Regards,,,
      G.

  2. AS

    Hello Giueseppe,

    Already looking forward to your weekend newsletter 🙂

    Thanks again for the great help and have an awesome weekend..

    Best regards
    AS

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