John Templeton, who has been involved in forex day trading for more than half a decade and who is the creator of the Trading in the Buff forex signal system, soon discovered that all the complicated ways that traders used to pick a winning forex trade were only muddying the field for him. “I was basically just an inanimate object waiting for random lines to cross, telling me that I should open or close a trade. Then it dawned on me. How in the world could I make money trading forex, if I don’t even understand what I am looking at?”
This is when John decided to take the bull by the horns and to figure things out for himself. No more buying into this or that forex training theory. He started by listening to what all the professional traders had to say on the subject. And more than any other phrase that came out of their mouths was the phrase “price action.” John was so aghast at himself that he could have kicked himself. “It was so obvious, I couldn’t believe it.”
When it comes to trading the forex market, John realized that the trader has to make a decision between one of two ways to analyze the trade: either by using fundamental analysis or using technical analysis. Fundamental analysis takes into consideration all the psychological fundamentals that can influence a currency’s movement in the market. Things like the effect that the non-farm payroll numbers that are released once a month can have, or how raising or lowering interest rates can effect a given currency pair.
When it comes to using technical analysis, this type of trader thinks that opening up the indicator menu on their charting platform will somehow tell them which currency pairs to trade based on how the indicators read. From John’s point of view these traders seem to think that — rather than understanding price movement — following charts filled with lagging indicators such as RSI, MACD, and stochastics will lead them to the right trade to make. After enduring years of losing trades following this same formula, John is convinced that following this path is a losing cause.
The one technical indicator that most unsuccessful contemporary traders don’t use is price action. They’re all waiting for all their other indicators to line up. For this kind of trader, the only important thing is what their static indicators are showing them, and price becomes secondary or even irrelevant. The only thing wrong with using lagging indicators like these is that they do not give the trader a clear picture of what the market is actually doing during a given trading period.
When, for instance, you train yourself to begin looking at price support and resistance levels, you are seeing actual statistics which are influencing the movement of the market. No lagging indicator is ever going to give you that kind of information which will hold up for very long. You have to be able to see it directly from the market itself. This is what John is attempting to hammer home in his forex trading program Trading in the Buff.
The name of his program refers to the shedding of indicator based strategies and returning to basic price action indication. In other words, trading in the buff, without using the theoretical indicator window dressing that many traders are taught to base their trading habits on. The theories sound good, but they don’t always work. In short, what John learned by trading in the buff himself was that more and more of his trades became successful when he based them on price action.
Source by Thomas Eliot