The importance of understanding context. Part 2 - Page 121
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Thread: The importance of understanding context. Part 2

  1. #1
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    The importance of understanding context. Part 2

    Hi traders.

    Beginning of this article is here.

    Trading is difficult because we tend to analyse objective outcomes (that have already happened), but when we analyse something that has alerady happened, we tend to look at the past. When we analyse market conditions, we look to the future. To be successful in trading, we have to be ahead of the crowd and we definitely need to look at the future than to the past.

    As I have said in previous article, every pattern on the market is context dependent - somethimes it will work, sometimes it will work with the opposite result, sometimes it will have no impact on further price action.

    Let's look at the popular "engulfing pattern". In classic literature dedicated to candlestick analysis, it is considered as pattern showing strong buyer (seller - for the opposite setup) stepping in the market.

    And in some cases it looks nice:

    Attachment 9337

    Now look at the setup below:

    Attachment 9338

    As you see, nothing really happens after the second setup. Beginner trader would think, that may be length of candlesticks was not enough or he would need to combine it with violation of trend line.

    But let's look at the context. In the first case pattern was preceeded by mature trend that was ready to reverse:

    Attachment 9339

    What do I mean mature trend? It's a trend that already has some history, this trend will attract a lot of weak holders - uninformed players, who are willing to get in the position and to take a risk, but they have relatively close stops that will be located in the same location. Big market players use this liquidity (orders from these weak holders) to build their positions. So, engulfing patter occurs in conditions prepared for falling.

    Now let's look at the context of the second pattern and analyse market conditions associated with this pattern:

    Attachment 9340

    Here we also see mature trend that also was combined with elongated candlestick. Such candlesticks often form vacuum in the market - and market "repairs the structure", statistically such empty levels will not hold for long - possible scenario is rotation inside of this bar (candlestick).

    So, pattern is the lower level in decision making process, the higher level is understanding context. We can't really evaluate our decision if we always operate from lower level of this process. It is only possible to evaluate it when we look at the picture with "eagle's eye"

    Of course, the more level of perception we will have, the more ambiguity we will add to decision making process, and therefore - the more errors we will tend to make. According to my view, every trader should develop some balance between lower (patterns, setups) and higher (context, big picture) levels of perception in decision making process.

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  2. #1201
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    Quote Originally Posted by sniper007 View Post
    The trader that has fully understand the business will get to know what they should be expecting and then what they are looking for before taking any trades in the market. Lack of the market understanding is the reason why we see a lot of traders not making the right decisions and also keeping wrong market expectation, wanting to make a whole lot in a short while.
    I would not say fully, but those who understand Forex market and their strategies enough will be the right insights to take strong trades. Negative thoughts should be avoided, but it is also necessary we take into account the possible losses from any trade and plan the risks properly. Unless we are equipped with a trading system and with experience. our chances of losing in trading is not just at 50%, but it is much higher than that.

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  3. #1202
    Trader layigold's Avatar
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    Quote Originally Posted by Abhishekwala View Post
    Unless we are equipped with a trading system and with experience. our chances of losing in trading is not just at 50%, but it is much higher than that.
    Forex is not what anyone can just dabble into without getting properly equipped as you have said , In fact , those people who have much knowledge , skills and experience still face some challenges of trading at one time or the other how much less someone who is half-baked . I thought I could settle down on forex having retired from my day job but I have had a change of mind because retail forex trading through a broker is what may be hard to build one's life on . I have my pwn personal reason for my conclusion

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  4. #1203
    Trader cutiekc's Avatar
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    This has the whole thing to do about the way the trader sees the market, because the way a trader trades with the market gets to showcase how they understand the market. But when the trader has learned and been in practice, so therefore the trader will be able to comprehend the market more and more, therein being able to understand the market more better and then from there they be able to succeed the market.

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  5. #1204
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    The way to have a good context understanding is to be active in making use of the demo account in learning. Because with the demo account it is more like you are making use of the real account, so you will more connect with it than any other learning and then you will be able to have what it takes to become profitable, though this will not be done instantly, a lot of learning is needed.

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  6. #1205
    Trader Yayami's Avatar
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    Quote Originally Posted by Striker$ View Post
    The way to have a good context understanding is to be active in making use of the demo account in learning. Because with the demo account it is more like you are making use of the real account, so you will more connect with it than any other learning and then you will be able to have what it takes to become profitable, though this will not be done instantly, a lot of learning is needed.
    during demo practice, it's also important for us to trade in real account by joining broker's campaigns or promotions that offers no risk trading with real prize to withdraw. one easy example about it such as competing in demo contest where we challenge ourself and do the best with our knowledge with our strategy to get as many profits as we can while managing the account from losing too much. this is a great way to understand this market without losing our money and get the experience at the same time.

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  7. #1206
    Trader layigold's Avatar
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    Quote Originally Posted by Value trader View Post
    Trading is difficult because we tend to analyse objective outcomes (that have already happened), but when we analyse something that has alerady happened, we tend to look at the past. When we analyse market conditions, we look to the future. To be successful in trading, we have to be ahead of the crowd and we definitely need to look at the future than to the past.
    As a matter of fact , we have to analyze objective outcomes in order to have an idea what the market may do next and that is essentially what traders do in technical analysis . You look at the historical chart to see what the market has probably done in the last few weeks , days or hours. In the process of doing this , you mark out the levels of support and resistance so that you could see how price would react to such levels in the future time . I think this is trading within the context

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  8. #1207
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    Quote Originally Posted by layigold View Post
    As a matter of fact , we have to analyze objective outcomes in order to have an idea what the market may do next and that is essentially what traders do in technical analysis . You look at the historical chart to see what the market has probably done in the last few weeks , days or hours. In the process of doing this , you mark out the levels of support and resistance so that you could see how price would react to such levels in the future time . I think this is trading within the context
    Actually the market can do anything for the next and so after we do the analysis we have to also use the stop loss to be on the safe side. We need to grasp the right concept of trading and make sure to trade only on seeing the right signals from the strategy and dont expect too much any time. Forex is a business and obviously those who cannot do it properly will be losing their money.

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  9. #1208
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    Those who understands the market handles it with care as they know that just a little mistake is enough to make them loss a lot of their money. The understanding can be gotten when the trader also has been able to make use of the demo account in learning. That also is the reason why I have been able to have taken my time and then use the demo account where I can learn all which I should learn without losing a dime.

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