The question posed in the headline to this article ought really to be turned around and asked: Did John Templeton’s formula (of using price action to determine a successful currency trade) ever fail consistently? And the answer is: No. It hasn’t. Not in all the years since there have been markets to trade in. In fact, it is what many, if not most, successful professional forex traders use as their main guideline for finding successful trading opportunities.
According to John, if you are looking for a trading robot (also known as “Expert Advisors” or EAs) to help you trade the forex market, you are barking up the wrong tree when it comes to finding profitable trades. “The trading markets are way too complicated to let a robot do the trading for you.” There are just too many variables that can come into play for any self-respecting forex trader to allow a robot to do the trading for him. Besides that, it just doesn’t make any sense, at least with the data that most of these robots are being programmed to gather and decipher. In other words, the data they are considering and deciphering is not always actionable data.
And what about those who trade using “special indicators?” Special indicators are interesting in theory; and they certainly make an intriguing selling point for those who sell forex trading strategies based on using these indicators. However, they only tell you what has already happened. They show a trend already half way through its life cycle. But they certainly aren’t able to predict where the market is likely to go for very much longer. And by the time you enter your trade using these indicators, you’ve already lost half the profit you might have made. So, what good is that!
Let’s examine an indicator like stochastics. According to the so-called “experts,” this indicator is meant to show you when the market is oversold or over-bought. But how does this apply to the forex market, where what you are buying is one currency as against another and not a product oriented stock competing against similar product oriented stocks? As John asks: “Just because this indicator is telling you that a currency is over-bought or oversold, does that really mean that it’s time to buy or sell?” The currency market is a different animal from traditional commodity or product oriented stock investments.
John sees himself as being a technical trader who is laser-beam focused on price action, which is why he decries all these gimmicky theorems for investing in the foreign currency market. “Once traders can get rid of this kind of mindset, and start focusing on what’s important for a technical trader, which is price movement, then you can start to call yourself a trader.” Finding profit potential trades based on price movement or price action is what John’s educational material Trading in the Buff teaches.
And he is not just making a pitch for his forex trading product; he is speaking from experience: “When I first started trading forex, I had to take my lumps, just like anybody else. I bought one gadget after another. And after all that, it became obvious to me. No gadget is going to do the work for me. I wasn’t going to be able to push a button and become a millionaire.”
Instead, he hunkered down and began studying the only forex trade signals he needed to give him a heads up as to what currency pairs to invest in: price movement. Which currencies you invest in varies depending on the conditions of the market, which are always in a state of flux. Market conditions are going to change depending on whether it’s a ranging market or a trending market. But you have to be able to look at the bare statistics and know what you are looking at in order to be able to tell what is happening in the current moment.
Fashionable forex trading systems will come and go, just like any other trading fad. Yet, if you really want to make money trading on the currency exchange market, you’d better pay attention to the basics. And that means watching price action and the fundamentals that move price action. That’s where the actionable data is at.
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by Thomas Eliot