As far as I’m concerned as a trader at Forex , the problem of finding a proper trend is one of the keystones in understanding of the market. On the surface of it, it is quite simple. One has just to make use of the trend definition as the currency stably-forward movement, then to open a deal concerning the trend and to gain profit.

In the trend absence (a flat, lateral movement), one must not take risks and stay outside the market. Otherwise, as it is written in all the manuals of Forex , one should open deals on “sell” at maximums of uptrend and on “buy” at minimums of downtrends.

It is so logical and simple, isn’t it?

However, the first thing that makes me wonder is the following. Authors of numerous books concerning Forex pass the problem of the trend detection clear criteria over in silence (respectively, they do not dwell on opening deals by a trader in this trend). Even B. Williams has omitted this principal problem (the author who has written about Elliott’s waves, fractals, changes in the momentum direction, divergence, target zone, cushion pads, etc.).

So, what is the trend by definition? What are its criteria? In what a temporal chart is it detectable? I mean that one wants to open a deal not “just for fun” but in order to gain profit faultlessly and regularly. As I can see, this problem is not elucidated in the literature.

However, the problem of the trend detection is primary with respect to the problems of a fractal, “Alligator”, “a wonderful indicator”, etc.

Thus, who does teach whom and to what? How can one gain profit? For instance, in what cases the stochastic indicator is applicable? Let us suppose that this indicator fails to function in a trend. At the same time, we do not know how to detect these trends… One can clearly see the logical consequences of this situation. 

So, the stochastic indicator exists by itself, indicating something every second (as well as many other “classical” indicators at Forex do). Forex market is operating separately. Traders are on their own as well – they either work or play. It is necessary to find out the keystone of the whole system in order to link all of its elements together. That is, we need a certain indicator to detect the trend. Respectively, we can distinguish a flat, the trend replacement, etc. Various indicators are applicable at different stages in the currency pair movement.

Dozens of various indicators and techniques are developed by “Classics” and “Masters” of Forex . Such “specialists” do not see the system as a whole. All the same, they try to prove the reliability of their mathematical techniques of detecting particularities, whereas the whole pattern remains unknown.

Therefore, it is worthwhile to dwell on this problem more in detail. The scheme of the examination is the same as in all chapters of this book. That is:

a)   elucidation of the problem in the classical literature;

b)   the unresolved contradictions that hamper a trader to gain profits regularly;

c)   my approach to this problem and, respectively, the method of gaining profits.

CONCEPT DEFINITION of TREND in MANUALS of FOREX

 Here I do not want to dwell on the basic definitions again. What a trend represents by itself, its classical figures of reversal and continuation, the movement channels, etc. – all these aspects are in detail elucidated in the corresponding literature. As a matter of fact, the beginners pay $150-500 to various forex brokers for this information.

Any fundamental course of Forex takes for granted the following definition of a trend, formulated by Ch. Dow in the 1930s. The trend is the tendency in the price movement when each of the next maximums is higher (lower) than the previous one (the same relates to the minimums).

There are the three types of trends:

·   “bull” – the price is going upwards;

·   “bear” - the price is going downwards;

·   “lateral” - the price is moving within the trading range (channel), unable of breaking through the levels of resistance neither from upward nor from downward.

Is it so easy? On the face of it, "The Trend is Your Friend ". That is, one must open deals only in accordance with the trend direction. In this way, one can receive a profit automatically - the gaining will “just come to you”! At the same time, why do 90% of traders keep on losing their deposits at Forex ?

There are even verses dedicated to this problem. It can be translated approximately like this: “A trend should me whisper how to enter and when to exit. In vain, I’m visiting forum with friends. To quit it! We howl and wail”. Here I’m not going to discuss this work of art (as well as the quality of the translation). However, the essence of the problem is depicted perfectly. That is, any trader-loser asks the same question: “What is the trend in its essence?”

The problem becomes obvious. Even the concept of “trend” is obscure. That is, nothing is clear and simple – notwithstanding the information submitted in every manual for the beginners.

And what is more, many traders in earnest consider that there are no long-term prospects for trends at Forex.

·   Nobody understands the concept of trend;

·   Some traders, rather experienced and successful, don’t mind the problems of this kind – i.e., they don’t care for the trend concept. They are not interested in detecting trends at Forex.

At Forex , the problem of the trend identification is important from the only point of view. That is, a trader wants to understand how to detect a trend and its criteria (not post factum !). An individual wants to clearly see the applicability of such criteria to any currency pair at any second. The goal is to open deals at the very beginning by making use of these criteria in order to regularly make money at Forex . As regards any trader, this problem is purely practical. To work in accordance with the trend, which is “my friend”, it is necessary to calculate the point of beginning of the trend and its direction. In this way we get a section (segment), where a trader can gain profits faultlessly.

From this practical viewpoint we will examine classifications of trends given by various classics of Forex . We want to detect various trends (i.e., the price directed movement) according to their techniques. Our goal is to regularly gain profits when we work with these trends.

TREND CLASSIFICATION by CHARLES DOW

The classification submitted by Ch. Dow can shock and muddle up a contemporary trader. Really, towards what direction a deal must be opened? Must it be done either upwards, or downwards? Or, probably, it would be better just stay out of the market because of the flat. Ch. Dow’s theory is still not disproved by anybody. According to this theory, there are the following types of trends.

1.   A long-term trend lasts several years (according to Dow, it is the basic trend). Can you imagine what a currency pair it must be to make you to stay in this deal during such a period?

2.   A medium-term trend lasts several months (the intermediate tendency). According to Dow, the direction of this trend is opposite to the long-term basic trend. In its essence, the intermediate trend is corrective (it depicts retracement ). Below one can see the charts of the two principal currency pairs movement. The medium-term trend of the duration of several months is depicted. However, the long-term (basic!) trend of the duration of several years is absent.

3.   The short-term trend lasts not longer than three weeks. It consists of short-term oscillations in the framework of the intermediate tendency.

4.   The comment . According to Dow, the intra-day trade is just “small ripples”, and not much attention should be paid to it. Nevertheless, the fact of its existence must be mentioned. 

There arise the questions:

a). How many traders do work in the long-term trend of the duration of several years? Personally I do not know anybody. How is it possible to keep the deal open during such a long time interval? Above all, towards what direction this deal must be carried on? – See the charts D1 that depict the movement of EURO/USD and GBP/USD pairs.

b). How many traders do work in the medium-term trend and hold up deals opened during several months and longer? And what is more, traders must risk! Really, according to Dow’s theory, the medium-term trend, being corrective to the basic one, goes in the opposite direction. Personally I know a few of such traders.

c). How many traders do work in the short-term trend? According to Dow, such trends last not longer than three weeks, being just short-term oscillations in the framework of the intermediate tendency. A few of traders work with short-term trends as well.

d). Nowadays the majority of traders work with intra-day trends. 100 years ago such trends were regarded as absurdity and nonsense. Ch. Dow considered such trends to be just “small ripples, not worthwhile of one’s attention.

Thus, there at least three types of trends (the “bull”, “bear” and flat). This figure must be multiplied by their four varieties that differ in the duration. You can see how many variations are possible! In addition, in what direction and for what time interval must a trader open his deal?

You can imagine what an extended “front of operations” analysts of Forex have!

You can find the technical analysis given by JPMorgan Securities Ltd. London to USD/SWISSI movement on September 27. The medium-term trend is of the “bear” type; during the short-term trend the upward retracement occurs. The long-term trend is ascending (the uptrend).

Issuing from the recommendations given by JPMorgan Securities Ltd and FXEUROCLUB , who can tell me towards what direction a deal must be opened? (Is it the uptrend or downtrend?). In any case, post factum such “analysts” can explain anything. They had warned you…. Why were you guided by the medium-term trend under the condition of the short-term retracement ? Why did not you pay attention to the long-term trend? Are you an investor who disregards the short-term downtrend when the medium-term trend is directed towards the opposite direction, while the lateral trend lasts already for two years? These are the reasons for your losses. As it is evident, the number of such answers to traders is unlimited.

The FIRST CLASSIFICATION of TRENDS according to E. NAIMAN

Let us examine how another up-to-date classic of Forex presents the trend classification (see “The trader’s small encyclopedia” by E. Naiman ):

-   the long-term trend, the period of which makes two years or longer;

-   the prevailing (dominant) trend; its period is one year;

-   the primary cycle (or medium-term trend); its period is within 9 -26 weeks;

-   the trade cycle of the duration of 4 weeks;

-   the semi-prime cycle; its period is in the middle of the duration of the primary and trade cycles;

-   the a / b cycle of the duration of 2 weeks.

Another important aspect of the formation of the cycles and giving analysis to them must be mentioned. It is the right- and left translations.

The right translation consists in the following. In the first phase of the cycle (the uptrend) the impulsive lines are tilted to the right with respect to the time like axis. The left translation occurs in the second phase of the cycle (the downtrend) when the impulsive lines are tilted to the left with respect to the time like axis.

As regards the application of the right and left translations, the following fact is the most interesting. In the “bull” trend the rise is slower than the decrease (the retracement ). In the “bear” trend the rise (the retracement ) is quicker than the decrease. If you notice such dynamics in prices, you can classify the trend type and predict the reversal more accurately.

The classical theory of cycles marks out the following 5 phases (stages) in the cycle development:

-   the preliminary phase (the introduction);

-   the rise (development);

-   the maturity;

-   saturation;

-   decrease and recoil.

Can you understand this classification? Personally I cannot.

Besides, I think that the trend up-to-date classification by E. Naiman (2003) is even more perplexed than the classification by Ch. Dow (1930s).

In addition, in another part of his book E. Naiman submits one more classification of trends.

The SECOND CLASSIFICATION of TRENDS according to E. NAIMAN

The duration (life time) of the trend and its life cycle.

As regards their duration, trends can be the following:

a)   the short-term trend;

b)   the medium-term trend;

c)   the long-term trend.

All trends differ in their life time. The analysis may be given to various intervals in the course of the trend life time.

On average, the long-term trend lasts 2-2.5 years. The medium-term trend lasts from 3-6 months and up to a year. The short-term trend can last from 1 day to 3 months. The trend life time can be determined by giving analysis to the trend life cycle (TLC). It is very important to correctly determine the cycle duration.

How to discern TLC

a). the beginning (the birth, childhood and youth);

b). the middle of the term (the maturity);

c). the end (the old age and death).

Even you may have no time to detect the trend beginning. However, it does not matter so much. More importantly is to get at least into the middle of the trend. The trend center is much more profitable than the first stage because of the speculative warming-up. You must be especially careful when the trend is dieing. You risk having no time to gain profit. Even worse, you can suffer heavy losses (take a bath) if you will be enable to react to the trend reversal.

The THIRD CLASSIFICATION of TRENDS according to E. NAIMAN

Bell curve model

This model of the price dynamics is applied by financial and technical analysts of Forex already the last 30 years. This cyclic model is based on the study of the three fundamental types of the market dynamics:

a)   the long -term trend;

b)   the medium-term trend;

c)   the short -term trend.

According to this model, the long-term trend lasts 4-4.5 years. The cycle “bull” stage lasts 28±1 months. The “bear” stage lasts 15±1 months. To understand whether a given trend is a long-term one, it is recommended to make use of monthly charts. Long-term trends are mainly used by those investors who carry out real investments.

The medium-term trend duration (the second cyclic wave) is 20±1 weeks. The “bull” stage lasts 12±1 weeks. The “bear” stage lasts 8±1 weeks. Generally speaking, one can see the medium-term trend twice a year. Its “bull” stage coincides with the “bull” stage of the long-term trend 3-4 times during the total cycle. The “bear” stages of these trends coincide 1-3 times. The majority of traders prefer to make deals exactly in periods of the unidirectional dynamics of development of these trends. To detect medium-term trends, it is advisable to examine weekly charts. The results of giving analysis to medium-term cycles are valuable for those traders who possess substantial investment resources to hold on the positions open during rather long time intervals.

The short-term trend is the third wave of the cycle in question. The total short-term trend lasts 39±1 days (as it is considered, there are 240 trade (marketing) days in the calendar year (CY)). In one CY there can be 5-7 short-term trends. To detect them, it is advisable to examine daily charts. Both traders and short-term speculators analyze short-term trends for their work. The best positions for making the corresponding deals belong to interval where the price movement direction in the medium-term trend coincides with that of in the short-term one.

Thus, the long-term trend lasts 4 years and 1 month. The “bear” stage lasts 42 months, and the “bull” stage duration is 8 months. The long duration of the long-term trend first stage is conditioned by the protracted medium-term trend at the beginning of the complete cycle The latter makes 107 weeks, and consists of 87 “bear” weeks + 20 “bull” weeks. The medium-term trend duration varies within 7-37 weeks. In general, short-term trends rather precisely depict all principal oscillations of the price about the medium-term trends. There are 3 short-term trends, where the dynamics development direction coincides with that of the long-term trend. In the retracement (correction), one can single out two basic short-term trends, which is in the perfect agreement with the theory. It is difficult to distinguish short-term trends from medium-term ones because of the negligibility (minority) of the second stage in the complete cycle development.

So, should a trader remain in a deal during 1 day, 3 months or 3 years in order to gain the maximum profit?

The FOURTH CLASSIFICATION of TRENDS according to E. NAIMAN

The trend 4^th classification by E. Naiman has confused even me. Let us try to understand what types of trends exist according to it. Below we issue from Naiman’s recommendations for opening deals.

Possible strategies of the work. The choice of one of the three techniques available depends on the period under analysis and the trader’s preferences. 

The first strategy consists in keeping the positions open during a long time interval (from a few days and up to several months). This strategy is used by large-scale investors (investors-strategists) and semi-professional speculators. It is the most effective in the trend springing up. This approach is the least profitable when trends are lateral or stagnant (sluggish). A kind of security against losses (a cushion pad of a sort) and the corresponding work at the terminal market of options are necessary.

The second strategy consists in the work with medium-term trends of the duration up to several days. It is also popular mainly with semi-professional speculators. This approach combines advantages, inherent in various working strategies. On the one hand, this strategy can be long-term enough. On the other hand, it can be rather short-term. A suspension pillow of a kind (a security net) at the market of options is also desirable.

The third strategy implies opening of short-time positions (their duration varies from several minutes up to some hours). This strategy is applied by speculators-professionals, who know the market well enough and already “have developed a sense” of it. The positive aspect of this approach is the following. Unexpected messages and changes in the price that appear at the moment when you were out of the market do not affect your trading. At the same time, indirect expenses are rather heavy (the commission, spread, communication services, etc.). Besides, there are great risks of unfavorable short-term oscillations of the price. That is, a trader must be continuously concentrated. The whole day long such an individual works under the condition of self-control and stress.

CONCLUSIONS MADE by NAIMAN about HIS CLASSIFICATION of TRENDS

As it is mentioned above, Naiman writes that, as regards the trend types, there are no strict rules, established once and forever. Anybody’s opinion about an object under analysis can be too subjective. Therefore, it cannot be taken for granted and must be thoroughly checked by a trader himself.

In the theory of cycles it is important now and then to look anew at the regularities discovered by you earlier. The so-called “the rule of mirror” is one of the best means of avoiding subjectivism. That is, logic of the development of any cycle must be confirmed not only directly. The inverse pattern, as if reflected in the mirror, must also prove the correctness of your model. For this purpose, you should reverse a sheet where the cycles are plotted. The cycles must be seen all the same (this can be done with the help of a mirror). The principal problem of all cyclic theories is the following. It is easy to see a certain pattern in the past, while at present it is rather dubious. As regards the future development, in practice, it is totally uncertain and unpredictable.

You try to set up hypotheses of your own. If the market confirms them, you can use such hypotheses as the foundation of your practical work - otherwise, you are not obliged to apply the incorrect theory.

Briefly speaking, the essence of Naiman’s approach can be depicted in the following dialogue:

-   Where is the trend? Where must one open and close a deal to gain profit at Forex ?

-   I do not know... But I submit the trend classification…

-   Can one work faultlessly according to this classification?

-   No, it is impossible. You must decide by yourself or take a sheet of paper. 

I beg your pardon for dwelling so much on Naiman’s approach to the trend classification. This is done on purpose. Really, Naiman has correctly depicted various aspects of the existence of different trends at Forex . He has demonstrated that as a trader can gain profit with these trends. However, the trend classification is so unsystematic. No correlation between different trends is traced out clearly. As a result, even an experienced trader can be perplexed by the four sorts of trends described by Naiman .

General conclusion

The traditional approach is of no use to traders. It is suitable only for analysts, who try to “scientifically” explain the reasons of traders’ losses at Forex post factum .

I hope that now it is evident why Dow’s classification of trends is still acknowledged and approved almost by all analysts at Forex . In practice, they do not want to change anything in this classification. In addition, each of such analysts has his own vision of these sorts of trends, which introduces an additional confusion (mishmash).

TREND CLASSIFICATION according MASTERFOREX-V

Let us begin with a platitude. The theory is viable only if it depicts the reality correctly, helps to understand it better and predicts its further development.

Often practice leaves a theory behind. In this case, turning into dogma, the theory hampers the development of practice. As the result of this in the case of Forex , traders will inevitably make mistakes – consequently, they will lose real money (above it is demonstrated by the examples of Dow’s and Naiman’s trend classifications).

At Masterforex -V, the trend classification is the following:

1.   the intra-session trend;

2.   the weekly trend;

3.   the trend that lasts several weeks/months

That is, I try to classify trend from the viewpoint of a working trader. I use this very classification by myself, and it does help me in the practical work at Forex . The correlation between the three kinds of trends is clear. One can trace it out at the very beginning of the intra-session movement of ally currency pairs – in contrast to the majority of systems developed by “analysts”, where this correlation becomes understandable only post factum .

For instance, two kinds of trends (the intra-session and the weekly ones) coincide at the beginning of the trading session. In this case, it is a wave of the general trend. This wave can be detected even by a beginner at Forex – to say nothing about more experienced traders. If the trends do not coincide, there occurs retracement (correction) of one kind of trends with respect to the others.

A trader can see the area of this movement, clearly distinguishing tactic from strategy of “his” currency pair movement. This is the only way to detect a trend of the duration of several weeks/months. Respectively, from the very beginning the trader can see towards what direction it will be worthwhile to open a deal - but not post factum when the movement is already dieing out. For instance, in for GBP/USD and EUR/USD pairs (see below) the segments of this trend are clearly observable.

a). April 18 – July 20, 2005;

b). July 20 – September 5, 2005;

c). September 5 – November 28, 2005;

d). November 28, 2005

The corresponding charts clearly indicate what a trader had had to do on any of those days. At the same time, one is interested in gaining profit but not just in acquiring materials for the analysis. The work with the intra-session trend permits us to understand the situation at Forex at a given moment (the intra-session trend, the retracement , reversal or the weekly/monthly trend continuance). Naturally, it serves for gaining profit.

The trend of the 1^st type is an integral part of a longer trend, its continuance or retracement .

Thus, the principal difference of this classification from other ones consists in the following. The 1^st and 2^nd positions are introduced as new. The long-term trend lasts several weeks/months. The next (4^th) position can be examined as well. However, being a trader but not an investor, I’m not interested in taking it into account in my practical work at Forex .

The intra-session trend at Forex : proofs of its existence and practical application .

The proof #1 . At present the trend classification is of a somewhat dogmatic character. Therefore, let us dwell on practical problems – i.e., the methods of up-to-date traders’ work and time intervals during which deals are being kept open. Understanding of these practical aspects will facilitate us the understanding the theoretical problem of the trend classification.

At the traders’ forum a poll is being carried out. It is dedicated to the present-day techniques of traders’ work at Forex . All interested individuals can take part in this forum. One can register oneself as a participant just in several minutes

The question is formulated in the following way: “On average, for how long do you keep the position open at Forex ? -

a). the intra-session trading during 1 day;

b). several days (up to a weeks);

c). from a week till a month;

d). from a month and longer.

As it turned out, the overwhelming majority of traders work exactly during the intra-day trading session (more than 80%). Just a few traders keep their orders open from a week till a month. The results could shock all those theorists who still consider the intra-day trading to be just “a trading noise”. 

The proof #2 . Let us compare the charts of GBP/USD and EUR/USD movement with the currency pair spread extent.

Chart 11.1. GBP/USD movment

The chart11. 2. EUR/USD movement

Working with these currency pairs, I always suppose that per session the stock reserves (the stability factors) of GBP/USD and EUR/USD pairs make ~70 and ≥40 points, respectively.

There arises the question: why should not a trader work within the intra-day trading session? Really, the spread makes 2-4 points, while the currency pair stock reserve (the stability factor) more than 15 times exceeds the spread?

I’m wondering do such up-to-date authors-analysts at least sometimes open the point-of-sale terminal when they talk about “the market noise”. Why do they vigorously talk traders out of working within the intra-day trading session? – Naturally, here the up-to-date authors are implied but not those who lived decades ago. 

The proof #3. Let us examine intra-session tends from the viewpoint of the criteria of the trend itself.

a). According to Ch. Dow, the trend is defined as the price directed movement when each of the next maximums is higher/lower than the previous one. Analogously, each of the next minimums is higher/lower than the previous one. From this very viewpoint, let us examine the charts M15 of GBP/USD movement in the Asian, European and American trading sessions on December 12, 2005. We can clearly see that each of upward fractals is higher than the previous one. Respectively, each of downward fractals is lower than the previous one. Thus, there are precise criteria of the trend type in each of trading sessions.

Chart 11.3. GBP/USD movement

Chart 11.4. GBP/USD movement.

Chart 11.5.GBP/USD movement

b). When the trend is over, there starts the natural retracement (correction) towards the direction opposite to the trend movement. The correction is equal to various Fibonacci levels. It is clearly depicted in the given intra-session trend charts. The proof #4. If during the intra-day trading session the currency pair movement is heavy, then in the end of this trend the natural retracement occurs. It makes at least 23-38% in accordance with Fibonacci levels. That is, the retracement is inevitable and it substantially exceeds the spread in magnitude. Consequently, why should a trader keep on holding the position open further?

Is it because some analysts somewhere and some time denied the intra-session trend existence? Evidently, only unqualified theorists, talking about the “market noise”, can recommend issuing from charts D4 to traders in their work.

The proof #5 . You should carefully study where traders of one of the first-rate informational agencies (Dow-Jones agency) place their orders for the buy and sell of currencies.

EURO: orders for buying are at 1.1950/60 (options), 1.1935 and 1.1890; orders for selling are at 1.2000.

YEN: orders for buying are at 116.30/40; orders for selling are at 116.75 (options) and 117.00 (options).

STERLING : orders for buying are at 1.7660; orders for selling are at 1.7700.

The difference in 40-60 points testifies that these orders are intended for the intra-day trading session.

The proof #6 . Let us examine the levels of support and resistance, edited by world-leading banks market-makers. One can see the analogous recommendations – i.e., to work within the trading session (or a day).

According to Deutsche Bank, EURO remains in the neutral corridor. Today a good resistance is registered in vicinity to 1.2255. The breakout of it will tempt the “bulls” to concentrate on the level 1.2395. The support level is located at 1.2125/35, the next value being only at 1.1980. The last support level is the critical one.

As another example, let us consider the trading strategy by Saxo Bank on December 9, 2005: EUR/USD - (1.1782) Long 1.1765, SL 1.1690, target 1.1905; GBP/USD - (1.7489). Off-floor USD/JPY - (120.69) Short 120.80, SL 121.50, target 118.40; USD/CHF - (1.3041) Short 1.3030, SL 1.3095, target 1.2870.

As one can see, both Deutsche Bank and Saxo Bank place their orders within the intra-day trading.

There arises the logical question. In the cases of the breakout of the levels of resistance or support, why should not a trader open his order and enter the market? The only reason is that some theorists, pretending to be “classics”, refer to this movement as to the “market noise”. Probably, such “analysts” must come down to earth and revise their views on Forex after examining the work of real traders. 

The proof #7. Let us dwell on the results of real traders’ work; the profit gained within an intra-day trading session.

In http://forum.masterforex-v.su, one can find examples how traders from Masterforex-V Trading Academy work at Forex . There is no doubt that the commercial account balance is the principal criterion of the trader’s success at Forex . If the positive balance (up to several hundreds of percents per month) is the result of the intra-trading session, it serves as absolute proof that the stable movement of currency pairs does exist within the intra-day session. Skillful traders who have mastered the technique of intra-day trading gain profits by this method.

Conclusion. There is a manifest discrepancy between the theory and practice. As it is evident, the overwhelming majority of traders work in intra-day sessions. The “Maintenance Staff” (banks, forex brokers, leading informational agencies) works in the same regime. In fact, the up-to-date market of Forex is formed by such organizations and individuals (the chain “trader – forex brokers – informational agency”).

At the same time, there are analysts who, not dealing with any link of Forex , claim that intra-session/day trends do not exist. Such theoretical conclusions have turned into dogmatic statements long time ago! 

The proof #8. However, it must be mentioned that a series of theorists have already acknowledged the intra-day work existence (so to speak, they “validate” it). For instance, E. Naiman has recognized that the short-term trend can last from a day till several months (see above).

The proof #9. Practice is the criterion of correctness of any theory and technique. Analysts of the “old” traditional school of Forex ignore the intra-session/week trend (or even deny its existence). Confusing real traders, this viewpoint causes irreparable damage to the real trade at Forex .

As an example, let us examine the situation on December 12, 2005 (the charts D1).

The chart 11.6. Movement of GBP/USD pair.

The chart11.7. Movement of EUR/USD pair.

The graph clearly indicates that on December 12, 2005 B. Williams’s Alligator had not reversed upwards yet (the reversal appeared after the heavy movement on that date). However, on December 12, 2005 there had been the lateral trend (flat) of USD with respect to EURO and GBP. The flat had started on November 28, 2005 and lasted several weeks. About two weeks earlier (December 5-9, 2005) there had been USD “bear” lateral trend (flat) of a week’s duration.

The day after December 12, 2005 I received a letter from a skillful trader. He informed me about his enormous losses induced by the currency pair reversal (stop losses worked). Besides, about a dozen of his colleagues were taken in the same trap (captured by the same trick) – notwithstanding the fact that their experience of work at Forex varied from 2 to 8 years. At the end of his letter my colleague wrote that the losses were inevitable because of the absence of any signs of the reversal at all. In its essence, such viewpoint is typical of traders who belong to the old traditional school. This approach logically results in the loss of their deposits by more than 90% of traders. When this happens, the theorists-dogmatists just can say that the market is unpredictable.

However, Forex is perfectly predictable and logical. To confirm this, I want to quote extracts from the closed forum of Masterforex Trading Academy on December 12, 2005 during the on-line trade.

- Vert : “Let’s wait and see. In the case of the upward breakout, we’ll buy. In the case of the downward breakout, we’ll sell. Otherwise, we’ll do nothing”.

- F. and M.:”The movement is started, the levels are broken. I have been right to buy. Now it is important to get out correctly. Good lack to everybody!”

- I:”I have gained some profit…I want more but I’m afraid of opening in the middle of the channel. As regards EURO and GBP, likely, it would be possible to open at the breakout of Fibonacci 61.8% from D1. Maybe, professionals have done this way. It must be taken into account”.

- b: “Not bad! I pocketed 45 points! If I were not afraid of entering as I had written, I would got at least 75 points. That’s all right – we are still learning. Long live Profit!”

- I: “First time I have successfully closed the deal according to MasterForex technique. In reserve I have 90 points in GBP and 50 points in EURO. Now I go out, it’s enough”. 

- S: ”The trading is successful. Now the retracement is ò=15.24 ( Kiev time). So, Americans, you come!

Masterforex estimated the movement in the European session as classical. Nobody lost! However, issuing from the traders’ questions, it would be worthwhile to attract your attention to certain details.

In that session the levels function perfectly. The reason is that all conditions for “playing the trick” on the majority of traders have been prepared. First of all, in England has happened the technogeneous catastrophe – the greatest one to start from the World War II. You guess towards what direction the majority of traders’ orders would be opened in accordance with the fundamental analysis canons.

That is, when I keep on writing that you must try to open your deals against the “flock”, it means against the canons. However, one can combine different techniques of the analysis in the presence of the necessary prerequisites. More in detail this subject is elucidated in the paid enclosures. Ibidem one can find specificities of trading at the American session, analyzed by the corresponding examples.

Dwelling on problems of logic and intuition .

A series of examples of opening and closing various deals and the corresponding reasoning are in detail examined in the paid enclosures. 

To the beginners I recommend to work according to the standards. It is better to take less but for certain.

Those who are confident in themselves can try the technique of getting into the lock. It is just impossible to lose working by this technique (in detail see the paid encloses). 

That is, an individual of a certain experience can break rules, clearly being aware of the risk taken deliberately. Respectively, one must realize when (to start from what point) it is necessary to acknowledge the made mistake and to get into lock. After this one must add positions in the opposite direction.

I hope the idea of breaking the reader’s own rules is not too perplexing - in case of the possibility of gaining profit more than 70 points, whereas the lock is half the value.

Traders write to me, tell about their experience and ask for advises. Of course, here I cannot go into details of the analysis given to the trend intra-session motion because it is the authors’ techniques. However, the principal point is evident. Every participant in Masterforex Trading Academy is horrified when the price is starting to approach his stop-loss against all rules of the “traditional’ Forex .

To prove that the above-described situation was not accidental, I cite on-line posts on December 13, 2005 (it was the day that followed the issue of news about the rise in the interest rate; at first this information caused the fall in USD rate; further USD started to slowly rise again).

-   A: “Today the scheduled meeting of FOMC of USA Federal redundant system (FRS) took place. The level of basic interest rates was discussed. As the majority of economists had expected, Federal fund rate increased by 0.25% - up to the level 4.25% (December 13, 2005; 19:14 GMT). So many traders were entrapped!”

-   Ser and Br: “It is nonsense! USD rate must increase together with Federal fund rate rise!”

-   B: “What a trick FRS played by removing the word “soft” from the announcement (statement)!”

-   And:”The scheduled meeting of FOMC has heightened the rate. Again the consortium has demonstrated that traders must not believe “the base”. What is about the flat? Personally I had time to take 34 pips upward with GBP”.

-   Several other traders: «The best thing is to close the deal. It is just the beginning!”

A and B: “The direct the rise in the interest rate is already taken into account in the price. However, not the rise itself is important (it was expected for sure by everybody) but the comments about the rate policy in future.

In what way are the interest rates taken into account in the price? If it was done yesterday, it was a kind of fun – i.e., USD in advance had fallen down by ≥200 pips with respect to EURO and GBP. If it was starting to be done last week, then up today USD has fallen down by ~500 pips with respect to GBP. Consequently, “the base” must be considered to be a heavy movement. However, its direction is not prognosticated. Otherwise, why did Masterforex write about such situations?”

I hope that changes in the traders’ approach are evident. Instead of intricate dogmatic theories, traders clearly see what is going on at the market. They can take into account many factors simultaneously. They understand the notion of “trend” anew – as a stable movement, in the course of which one must gain profit.

What is important, many participants of the closed forum at Masterforex Trading Academy are the beginners. Their experience at Forex is just about several months. One should compare their posts with those of “competent analysts” in the same situation! 

Below we’ll dwell on forex brokers Alpari”’s review of the European session on December 12, 2005. According to this forex brokers, in the European session USD was continuing its fall down to 90.76. Our prognosis for USD index, presented in the reviews, still is realizing with the regular reflection. We don’t know what can be done with such inversion. According to a dealer, traders are not inclined to make transactions with USD before FRS meeting on the subject of interest rates. Therefore they work with other currencies.

Comments

d)   With what a dealer an analyst from Alpari could communicate in the heat of the trading? The text testifies that this dealer was at the working place at that time and he saw the number of deals opened on each of currency pairs.

e)   Since when dealers are allowed to communicate with clients-traders and give interviews about prospects for currency movements, especially during the trading? Or the analyst does not know these rules?

f)   How it can be that traders are “not inclined” to make transactions with USD before FRS meeting if during the daily session USD fell almost by 200 points with respect to GBP and EURO?

g)   What is the source of such deep knowledge that a unanimous dealer possesses? Such an educated individual can find a work much better than to be a dealer.

Let us return to forex brokers Alpari again. The specialists examined the American session review, edited only the next morning. Alpari was very surprised that the market was reversed only because of mere surmises, the results of FOMS not being awaited. According analysts from this Forex Brokers, important technical levels can be passed through only on the basis of verified information, presented by reliable sources. Further these analysts dwell on the Asian session review (December 13, 2005). Because of the losses, they went out of trading for long. I think it is enough to give such examples of forex brokers Alpari technique and its results – the picture is completed.

At forex brokers Alpari cite and forum it is forbidden even to mention the word “ Masterforex ” already from several months ago. I was personally obliged to apologize to 40 traders for this banning from entering Alpari forum (for some individuals this prohibition will be valid for 10 years). The only reason was that those people spoke favorably of Masterforex or just wanted to know the other traders’ opinion on this or that part of my techniques.

We now dwell on another specificity of the trend characteristics.

The intra-session trend is the means of gaining profits but not the method of classifying traders according to intra-day or not-intra-day trading. I wonder, at so many forums they try to artificially divide traders into two groups – those who work during a day (intra-day) and all others.

As far as I’m concerned, not traders must be classified but their techniques of gaining profits. Each of such techniques is just one of facilities for gaining profit. The more of such facilities (techniques) a trader possesses, the higher are his chances of gaining profit.

Really, nobody classifies carpenters in accordance with the tools they use (a plane, fret-saw, ax, hammer, hack-saw, etc.). Analogously, in any area a professional must to perfection master all facilities. A professional chooses those ones that are most suitable for given circumstances.

On the contrary, “analysts” of Forex do not notice evident things. They keep on inventing “new” classifications (indicators, techniques, etc.), thus confusing traders and themselves as well.

The site http://forum.masterforex-v.su contains an illustrative example of the traders’ attitude to this classification (the intra-day or not-intra-day traders). Traders vote for the intra-day trading as the basic means of gaining profit at Forex . They fairly mention that it does not matter for how long the position is opened – either a week or several seconds. Everything depends on the situation at the market. As the market is chaotic, we cannot change it. It is unnecessary to see everything in absolute terms. This is the comprehension of the currency pair motion in its essence. Nobody knows in advance what level a currency pair can reach during its motion in the trend or in the corresponding retacement . It becomes evident only when the currency pair in its movement reaches certain levels at certain moments. The trader must know at least several points (goals), where a currency pair can stop and turn to correction. However, only a “Guru” can exactly predict at which points this will happen (see B. Williams).