Below questions and answers explain the key elements of successful financial trading as simple as possible for trader.
Q1: What is the trading ?
A1: Trading is profit seeking. Profit seeking is materializing the regularities in the financial market. If you made money from the market, you must found some sort of regularities in the market. Some people call these regularities as correlation, patterns, trend, holes in the financial market, or many other names. But they are all regularities regardless of how you call them. Even you are doing some sort of arbitrage trading, you are still making use of regularities that are known to few people.
Q2: What are the regularities trader should know for their live trading ?
A2: There are regularities from simple to complex. To make your life simple, I have gathered five most occurring and most important regularities for trader in my price pattern table. They are Trend, Seasonality (additive + multiplicative), Cycles, Fractal Wave and Correlation. Typically each trading strategy is designed to capture one of these five regularities. Typically you need to mix and match several strategies or tools to yield notable profit taking instead of just using one strategy because the financial market itself is the complex of several of these regularities.
Q3: How to capture these regularities for profit ?
A3: It is important to understand your tools. Instead of blindly applying MACD and RSI for your entire trading, you need to study each tool and strategy carefully on which market they are designed to work best. Especially it is important to understand each tool are typically designed to capture one of the above regularities. Hence, most of good traders are using multiple tools.
Q4: What else trader should know about for safe capital increase ?
A4: Risk management and position sizing is the golden rule for successful trading. Key point is to understand these three variables for your trading.
Breakeven win rate
Physically and psychologically, with these concepts in your head, you will get a lot of buffer for losing trades but spring board for winning trades.
Q5: Any further tips on improving profit ?
A5: trade with deep decision making instead of superficial decision making. It is the quality matter and not quantity. It is useless that you trade fast reckless. Many number of trade will not guarantee your success. Even for one trade, pull the quality piece of information technically (from chart) and fundamentally (from surrounding market environment).
Q6: How to use your Price Pattern Table ?
A6: Price pattern table shows how five regularities are existing in the market. From left to right, we are having more complex form of regularities (or market) depending on what internal and external factors are correlated with. Price pattern table is also the representation of how financial market evolves from simple to complex with number of influencing internal and external factors.
Column 1 in Price Pattern Table
This is extremely simple market where not so much regulation and not so much information around. Trading this type of pattern is not so complicated even for average people. You would become just successful trader using some simple technical indicators like moving average indicator, MACD, etc. However, in reality, we do not get this sort of simple market most of time because real world market is filled with so many government regulations, diversified players, fast economic news release, etc.
Column 2 + 3 in Price Pattern Table
When market started to correlate with time, we will start to see some sort of cycles in the market. When there is single cycle you would notice but several of the combined cycles can confuse many average people if they are not trained. Buy and sell decision making can be more complicated comparing to the market state in Column 1.
Column 4 in Price Pattern Table
Many cycles are mixed and it is difficult spot the presence of one dominating cycle because there are too many cycles mixed. We need more and more skillful decision making to become successful trader in this type of market.
Column 5 in Price Pattern Table
Number of influencing variables in the market increased too many (like too many government regulations, too many diversified players, too many financial news release, etc), cycles are no longer dominating market patterns. In this market, we can trace the footage of fractal wave instead of cycles. This is the scientific idea behind the Price Action and Pattern Trading.
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