T is known that the technical analysis philosophy is based on three
1. The market considers everything.
2. The market moves in accordance with trends.
3. History repeats itself.
Although I accept and share these statements, I offer my own philo-
Sophical conception on the basis of which I developed my trading method
Based on common sense. In general, it does not contradict technical
Analysis principles, rather it supplements them.
The following three main postulates are the philosophical basis of the
New method and supplement the philosophical principles of technical
1. There are only two possible directions of a market movement.
2. The market moves permanently.
3. The market forms its trading range daily.
THERE ARE ONLY TWO POSSIBLE DIRECTIONS
OF A MARKET MOVEMENT
Most traders do not
fully realize this obvious statement. Somehow, it even
Contradicts the opinion widely held by traders that the side trend of mar-
Ccc_beat_053-058_ch07.qxd 6/8/06 2:36 PM Page 53ket movement is a kind of third direction. However, on close examination,
This side trend only occurs when there are alternating oscillations: up or
Down. The paradox is that the majority of traders cannot use that simple
Phenomenon to beneﬁt from it. However, if you think about it, an accept-
Able trade strategy can be developed on the basis of this statement alone.
Some inferences from the ﬁrst postulate turn out to be very important
In beneﬁting from market rate ﬂuctuations. Let us use common sense and
Elementary logic to formulate and then analyze some of these inferences
According to their primary practical importance.
I consider the fact that there are only two possible directions of mar-
Ket movement very important because this limits the market options of
Reducing a trader’s money. At any given moment, the trader has a mini-
Mum 50 percent statistical probability opening a new position in the right
Here, I have to make a brief detour and somehow explain my position
About a skeptic’s opposite point of view about the same fact. Why should
We consider the 50 percent probability of market movement in either di-
Rection as a negative factor, whereas the same probability about the trader
Is taken as positive? The reason for this seemingly contradiction is very
Simple. We consider the market behavior as primary and the trader reac-
Tion as secondary because, in making decisions and taking positions, the
Trader only responds to market changes.
So denying the assumption that trader activity causes market rate
ﬂuctuations, I suggest considering the market as spontaneously changing
Under the inﬂuence of factors unknown and unrecognized by us. Then, it
Can be concluded that a trader could survive in this environment only if he
Adjusts to these conditions. He should not try to dictate his will to the
Market, but only explore the ability to beneﬁt from some of the market’s
Features. One of these features is the market’s ability to move in either of
Just two possible directions.
If this statement is taken as a starting point, one thing is clear. For a
Speculative trade on the FOREX or on any other market, it is necessary to
Know that the statistical probability of all trade results should exceed 50
Percent to the trader’s beneﬁt in order for the ﬁnal result to be positive.
(This assumes the condition that the average proﬁt per any successful
Trade exceeds the average loss per any unsuccessful trade). In fact, it