The Basic Market Paradigm of Trading
The market is a battlefield of buyers and sellers slugging it out at various price levels. Although it is not perfectly accurate, you may think of each chart time frame as a different level of buyers and sellers in mortal combat. The market is the combined interplay of all of them. The current price is essentially a very temporary truce. It is a result of all the previous battling, the price about which buyers and sellers agree to continue to disagree.
In a downtrend, it is seller thrust followed by buyer parry followed by seller thrust.
Keep in mind a trend is relative to a time frame. What is a trend at one time frame or price level is a sideways or trading market at anotherâand vice versa. Everything, and I mean everything, in the market is a 1-2-3 of thrust-parry-thrust. The chart you see is the interaction of 1-2-3s at multiple price-time levels. For me, it has always been the fundamental chart component. All other components, formations, and patterns are interactions of the primary 1-2-3. See Figure below.
[caption id="attachment_13197" align="aligncenter" width="550"] Thrust-Parry-Thrust, a 1-2-3[/caption]
This thrust-parry-thrust leads directly to the basic market paradigm (BMP) for trading any market, including currencies. The logic of this is intuitive:
- The trend is your friend. You want to always go with the trend. (Identify the trend.) This is the 1 thrust.
- Prices do not move in one direction without corrections of some magnitude. You do not want to buy at the top or sell at the bottom. (Wait for a correction.) This is the 2 parry.
- Let the market tell you when the correction is over. (Enter as soon as the trend is reestablished.) This is the 3 thrust.
An old market adageâperhaps the best one of many of themâstates "The trend is your friend." Very true. The trend may be your friend but the basic market paradigm is family.