There are No Rules, Only Edges

I was Skyping back and forth with a trader and he was eyeing set-ups in bonds and notes, while I was eyeing set-ups in currencies, and I made a comment on momentum as a stipulation for a trade set-up, and he said “Yeah, but now we’re back to that idea of “factors” again. He likes his inputs simple, not subjective.

We had both come to the conclusion that when it comes to trading there are no absolutes. Try to put a rule on something that moves and the natural reaction is rebellion. We had already come to the conclusion that if you can’t fit your trading plan on a small piece of paper you’re overcomplicating it. Less “factors” are better than more. Simplify, simplify, simplify. If the price pattern is up, buy a dip, if the pattern is down, sell a rally.

There is a reason however why Wall Street does not make their money from directional trading but as market makers: because for all their billions they already know that computers will likely never figure out how to trade direction successfully. Computers can’t match humans when it comes to pattern recognition, but humans can’t overcome the emotional programming that money and fear have already inflicted. Wall Street is like Las Vegas, they are not interested in a better trading system, they’re interested in betting against you’re trading system.

In the end today the existing price pattern triumphed in the markets we were following with AUDJPY rallying sharply and the 10-year treasuries continuing to sell off. Not only was AUDJPY showing a simple pattern of higher lows and higher highs from yesterday’s session into today, giving longs an edge, but it was also higher on its weekly, daily & 240-minute trends.  On the two charts the white line represents weekly direction, the yellow line represents daily direction, while the teal is the 240.   With price above all three directional lines in the AUDJPY and below all three in the treasuries, guess which way do you think the edge lie?  It just can’t be that easy…can it?

Jay Norris hosts Live Market Exercise where he spends 12 hours per week pointing out trade set-ups and signals  in live markets. He is the author of Mastering Trade Selection & Management, McGraw-Hill, 2011, and Mastering the Currency Market, McGraw-Hill, 2009.

Trading futures or Forex is a risky endeavor and not suitable for all investors!

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About Jay Norris

Jay Norris is Director of Education at Trading University, has over 30 years of trading experience, and is the best selling author of "Mastering The Currency Market", McGraw-Hill, 2009, and "Mastering Trade Selection and Management", McGraw-Hill, 2011. He has also been published multiple times in Technical Analysis of Stocks & Commodities magazine.

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