Forex Glossary – Basic Concepts and Definitions
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Rule # 0
Trader, know yourself.
Successful trading is 97% understanding and exploiting your strengths and weaknesses.
If you constantly enter into trades that do not play to your strengths, then you will lose money.
Rule # 0
Invest your money, not your ego.
Even the most carefully constructed system can lead you unexpectedly in the wrong direction.
Conditions are changing.
Markets are changing.
And even a system that works ideally can fail due to such changes. Always be prepared to adapt.
If you are not willing to change your settings, it can cost you dearly.
Never let your trade become an “investment” simply because you are unable to understand market changes.
Rule # 0
Keep a trading journal.
It’s very hard to learn from mistakes if you don’t remember them.
Always keep records of your past mistakes and successes handy.
Monitor market movements and reactions and record your observations.
Record how the market moves at certain times.
Such a detailed journal is as valuable as any successful trading textbook ever written.
Rule # 0
Enter a position as if it had the potential to be the “biggest trade of the year.”
In other words, plan your trades.
Do not enter the market until everything is thought out and analyzed in detail.
Think about how you will add to an open position (building a pyramid).
Make a contingency plan to exit the trade.
Otherwise, you will have to lose money.
Rule # 0
Practice discipline and patience: Wait for the right moment.
According to Bill Lipschitz, out of 250 trades, you will lose money on three, two will be very profitable, and all the rest depend directly on you.
Expect and track compound trends: strong stock, strong group/sector, strong market.
Wait for the moment when compound support/resistance levels will be in your favor.
Successful trading is a business where a lot of time is spent doing nothing.
Rule # 0
Open small initial positions.
Use the pyramid principle to add to the original good position.
Once it turned out that you were right in your decision, add to your position strategically.
As Davy Crockett said, “Make sure you’re right and go!”
Rule # 0
Be prepared to make mistakes and accept small losses.
Trade is trade, markets are markets, and losses are inevitable.
However, they are manageable.
Place stops, mentally or physically, and execute at the planned level without hesitation.
This way, you can manage your risks.
And this is the only way to protect your capital and stay in the game.
Rule # 0
The news is already on the chart, both yesterday’s and tomorrow’s.
Proponents of fundamental analysis predictably react to the news.
Technical analysts react predictably to chart patterns and indicators.
If you can read the chart correctly, then you don’t need to follow the news or even worry about what’s on the news.
Base your decisions on what’s happening on the chart, not what you think will happen after the news.
Forget the news.
Remember the schedule.
He had already taken into account future news.
Rule # 0
There is always a crowd of people who missed the first boat.
For example, the first sell-off will always find buyers, and the first rally will always find sellers.
These “reactions” are almost always temporary.
Plan to buy on the first bounce off a new high and sell on the first bounce off a new low.
Rule # 0
High volume kills the prevailing trend.
Always remember that there may be a climactic (too high) new rise or an overly strong collapse.
Such key ups and downs throw both buyers and sellers out of the market.
After such breakouts, the market usually moves sideways.
Rule # 0
Use trailing stops if the market is moving in your direction.
In order not to close the position too early or too late, mentally place a stop at 10-15% of the current market price, or just beyond the latest highs or lows, or better yet, at current support/resistance levels.
After that, correct the target level.
Rule # 0
Always, always protect your capital.
Trim small losses.
The most important principle is to be intolerant of losses.
As always, small losses and quick losses are the best losses.
These are not the losses that need to be paid attention to.
It is much worse to experience psychological pressure from maintaining a losing position.
Practice total risk management.
Rule # 0
Never, ever add to a losing position.
If you build a pyramid of long positions, then the price of each new purchase should be higher than the previous one.
If you add to a short position, then the price of each new sale must be lower than the previous one.
This is a mandatory rule.
Rule # 0
Don’t try to “catch a falling knife.”
On the contrary, wait a few days – a strong rise, a bounce back, and a return to the previous low.
If the price does not go below the previous low, then plan to open a position.
If the price doesn’t go up again, it doesn’t matter, and there will always be other opportunities.
Wait for the optimal moment to open.
Rule # 0
Buy at the support level.
Place tight stops when approaching a resistance level.
Your price may break through the resistance level, stop, or fall.
If the price decreases, the position must be quickly closed.
Rule # 0
Buy at the support level and sell at the resistance level.
You must do so, even if it is difficult.
If you see it on the chart, then others see it, too.
They are just waiting for the moment to join.
Rule # 0
Never lose sight of support
(or resistance if you’ve sold).
The further you are from support or resistance (if sold), the more naked and alone you will be.
If you want to challenge the price, then imagine a quick reversal to the resistance level; imagine a big loss.
Rule # 0
Every day is a new day, and every open position must be reviewed.
This is especially true for your exit strategy.
The price you paid and the size of your profit or loss are unrelated things.
If a share is to be sold, it must be sold.
What matters is not the amount of profit or loss from each position but your ability to stick to the chosen strategy and implement it.
Rule # 0
Be patient.
Once a position is open, give it time to develop.
Give her time to create the profit you expected.
The saying “You never go broke closing profits” is probably the most nonsensical advice ever given.
Closing small profits is the surest way to increase the probable loss because small profits are not allowed to grow into large profits.
The huge amount of money in trading is made on one, two, or three big trades every year.
You must develop the ability to hold profitable positions patiently.
Rule # 0
Avoid this haste that makes you jump into the market to be “in the game”.
Take your time.
Observe, build strategies, and be the first at the right time.
Rule # 0
No matter how worn out the saying is, but the trend is really your friend.
Don’t try to be smart and fight it.
Don’t try to be a hero.
If you think it’s stupid to drive in the opposite direction on a one-way street, then you’re right.
Bring that understanding to the market. In a bull market, you need to buy or stand aside.
In a bear market, you need to sell or stand aside.
And always remember – not having a position is also a position.
And in many cases, the best position.
Rule # 0
Avoid untested “known” strategies.
There are many of them.
A few examples:
“All gaps get filled” – “All gaps are filled.”
Attrition gaps are being filled.
Breakout and continuation gaps are not supplied.
“No one ever went broke taking a profit” – “No one went broke taking a profit.”
Closing quick profits and holding losing positions can ruin faster than you might think.
“It’s not a loss until you sell the stock” – “It’s not a loss until the share is sold.
Try telling that to your banker.
Cut your losses and let your profits run.
It is simply not possible to be successful in the long term if you do not cut your losing positions quickly.
Unfortunately, this and the preceding rule are especially difficult for beginners to follow because the pain of loss is much more intense than the joy of profit.
In no other activity is the conflict between emotions and objective reality so intense and so obvious as in stock trading.
“Always buy at a new high” – “Always buy at a new high.” Trends do not start at new highs, and they end there more often.
Whenever possible, buy as close to the beginning of the trend as possible.
Rule # 0
Something then it’s not there.
As Elder says, “Technical analysis provides enough opportunities to deceive yourself and see what you want to see.
“The harder it is to find something, the more likely you are to see something that does not exist in reality.
Rule # 0
Trends don’t unfold quickly.
Trend reversals take time to develop.
They build slowly.
The first few sharp drops always find buyers, and the first few strong advances always find sellers.
In both cases, buyers (ups) and sellers (downs) must be gradually “washed” out of the market.
Rule # 0
Do more of what works for you and less of what works against you.
View your open positions every day.
Plan to add to the position that gives you the most profit.
Consider closing positions that are not making a profit or with very little profit.
These are the basics of the thesis: “Let profits rise.”
Rule # 0
When you suffer sharp losses, move away from the market.
Close all positions and stop trading for a few days.
After several sharp losses, do not try to win back and return the money.
In such cases, the ability to really perceive the market and its decisions is lost.
Rule # 0
Think like a hired gun.
Fight on the side of the market that wins.
Don’t waste your time and capital in futile attempts to make money by buying the lows and selling the highs or some kind of market movement.
It would be best if you profited by fighting on the side of the conquering forces.
If neither side is winning, then don’t fight at all.
Rule # 0
Beat the market crowd.
Other traders are in the game to take your money.
You must grab their money before they get to yours…
Rule # 0
About Analysts:
Look at an analyst and their invoice.
Everyone lies.
Basically, they do it to collect your money.
Analytical services belong to financial institutions.
They are not in business to help you.
They promote the interests of the firm and collect commissions.
Rule # 0
Be prepared to study hard.
Those traders who do not want to spend time researching and observing the markets, teaching and training, mastering technical analysis, new trading systems and methods, etc.,
will almost always lose.
You can read other chapters.
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