Let’s consider Sir Isaac Newton’s third law of motion: ‘To every action there is always an equal and opposite reaction: or the forces of two bodies on each other are always equal and are directed in opposite directions’.
This is very true when applied to the Bull and Bear Forex Market. If fear grips the trading world, the herd mentality seems to take effect and stampedes people into selling what they consider to be a high risk currency. The equal and opposite reaction is when other traders see the sell-off of the currency as an opportunity and begin buying the currency, causing it to rise in value once more, albeit a little slower than the rush of selling. (Generally, the bearish trade moves three times more quickly than the bullish trade – although sometimes the exception to this rule is on NFP data release.)
The law of the Forex Market is to understand the risk and keep that risk to a minimum; that way, we will survive the roar of the market whether it goes for us, or against us.
The main thing to remember when trading the market, is the ebb and flow of money that is based on people’s emotions. So you take a trade, an unexpected news event comes out and fear and greed take over. The trade goes your way…you feel like the world is your oyster. You take another trade and it also goes your way and you’re flying high.
Then the rot sets in. The unkind market takes a swing at your position (literally) and heads the wrong way. This is the time for your action and reaction to come into play. So, have you set a reasonable stop, so that the market won’t trample your account on its way to oblivion? Or have you set a wide stop, or no stop in the hope of lasting the swing out and recovering the pips you thought you’d already won?
The smart trader, who will live to fight another day, sets a reasonable stop. Always. And doesn’t move their stop. Ever. The trader who is yet to learn the law of action and reaction might set no stop or a stop hundreds of pips away thinking that the currency couldn’t possible move that far. The trader will learn that currency pairs with a high ATR (average true range) can move hundreds of pips in one market trading day, if an unexpected (or even an expected) event occurs.
Traders who trade longer term time frames such as Daily / Weekly / Monthly, may have a reasonably distant stop but they should never trade without a stop. Traders who trade 15 minute up to 4-hour time frames should place a more limited stop, based on their harmonic positions where the harmonic pattern trading method tells them to place it. The lower the time frame, the smaller the stop but remember, the lower the time frame, also the more volatile price action may be.
Trading takes some time to learn and harmonic pattern trading is no exception. However, it’s an easier and clearer path than trying to figure out moving averages or complicated indicators, and trying to trade the method that uses linear math in a non-linear market. Better to trade harmonic patterns, the method that uses non-linear math.
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your articles are fantastic maggie, thank you for sharing all that you do!
i had no idea what linear or non linear was before i started reading your articles maggie, wonderful work