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The Basics
Hi everybody,
UK data was GBP favorable(theoretically) and Cable has been unable to break out the 09:05(CET) Highs ?MMM..Something is not quite right here,interesting day ahead,I am sure,I am getting no signals from my system and I have set my alarms,just in case, so I will invest some minutes in the Forum.
OK,back to my system,let`s start with questions and answers..And I can assure you that I am not joking,they are very serious questions,many people fail at trading for not having a clear personal answer to these questions..
1-Why do we have the right,as traders,to make money? A doctor makes a contribution to society/customers healing people,and,consequently he is paid for his/her services..A similar argument can be said for a teacher,a policeman a manufacturer..even for a soccer player..when Ronaldinho helps FC Barcelona to win,he is giving tons of pleasurable endorphines to his fans..
SO,Why do we think we have the right to make money as traders..please take some moments and check within yourself if you have a clear and personal answer before I explain mine.
MY ANSWER:You have the same right as an insurance company has.An insurance company takes a risk that a customer does not want to have,in exchange for money,and they earn money at the end of the year,ONLY IF THEY KNOW HOW TO PRICE RISK.
As a speculator you are taking other people`s risks,AND,IF YOU KNOW HOW TO PRICE THEM,you can make money,and you deserve to make it,you are either helping an importer/exporter cover their exchange rate risk,or providing liquidity to an otherwise "big spread" market,or whatever,in any case your intention is not relevant to "society"(aka as THE MARKET),what is important is:A- your function-buying other people risks,and B-If you do it well or not.
What do you think that an insurance company takes risks because they have a divine calling to help other people?They take risks because first-there is a demand for it and second-because they think they can price them in order to both cover the demand and make money at the end of the year.
It is obvious to me that there is a demand for traders-the more liquidity,commissions,etc,the better for the "society"/market-so,I want to focus on the second point..How to know what risks we can/should take and which ones we should avoid taking..an insurance company does not price the same a "life insurance" policy for a healthy 20 years old female than for a 80 years old smoking/drinking and licencious male..So,second question..
2-What is Price?Take some moments,again,to meditate about this question.
My personal answer,and,consequently the cornerstone of my trading philosophy and system is that ...
PRICE= SIGNAL+NOISE
SIGNAL has information relevant to the pricing of risk,it tells you WHERE THE MARKET IS( NOT WHERE IT WILL BE),and,since prices are either trending or ranging,SIGNAL should give us the information regarding these 2 points,so that we can take an acceptable risk..just checked the market,it is still nowhere,not moving and not signalling(12:01 CET),so,I will continue.
NOISE is,by definition,random and irrelevant,but for the fact that NOISE is your friend...if you know it and your trading competitors don`t,you have got yourself an edge..and same as an insurance company actuarial statistics,you need some techniques/indicators to do your job as trader
3-WHAT indicators DO WE USE :First,the basic system..we use 2
For GBPUSD 5MINUTES trading,we use SATL 4 HOUR timeframe to define the trend..market has started to move ,now @1.9656,still no signal..and WILLIAMS PERCENT R set at 90 periods,with-5 and -95 lines for timing.
Please check the attachment ,I will continue later.
Regards,
SIMBA
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