The 11 Axioms of Price Movement

Trading Systems Free Forex Trading Systems
1

This is pure chaos… or is it? What if it followed a set of rules and it followed it every time?

[B]Scrambled Eggs
[/B]
Take a look around this area of the website. There is an overwhelming amount of trading methods. They all try to make you money. You would have to test each one tirelessly to see if they work. That is frustrating and near impossible. There is way too much information here and not much of it is any good believe me, I have 1000s of hours poured into trading and it took a long long time before any of these axioms or conclusions were reached.

I think you can trade simply. A lot of people say that, but no one takes the time to really explain it. I will.

[B]Run the Gamut
[/B]
When I first start in Forex and I pressed my first buy button on a practice account the trade somehow went positive. It was about then I decided I would really like to call myself a trader. Eventually the despair and hopelessness of losing set in. I gave up all together on several occasions. You probably have that same story. Or do you not?

I always had a nagging suspicion that I was just missing something. I was right. I have codified the missing steps for you here.

[B]Un-break yourself
[/B]
I want you to be good at trading if this is really what you want to do with your life. And here is the solution to 95% of your problems. The biggest problem you will run into from here is your ability to handle the trades themselves and trust what you are doing. That all comes with repetition though and you will get there if these axioms are used to evaluate whatever trading system you are using. So please if you want to be a good trader, apply these.

[B]Simple solution
[/B]
What I have compiled for you is a list of all the Axioms of trading that I have found out to be true through hours of my life staring at a screen and reading everything I could get my hands on.

I will release one each day with a short description. The purpose for these are so you can take this info and evaluate systems with them to see if they are worth your precious free time and attention.

Here is your first one and it is basic but it is the basic on which all other Axioms came from and it’s a simple truth

[B]Axiom 1
[/B]
[I][B]Price Moves in a structured way that always has explanation.[/B][/I]

That simply has to [I]be[/I] for technical traders, if it is not then what the hell are we doing? This is demonstrable in so many ways so really take that one to heart. You are not fighting a rule-less fight. If the system you are using does not account for all market action then you are missing something and you need to fill it in yourself or look for another system because your’s is simply incomplete. That will kill you at some point, it is like driving half a car down the street, it will work up to a point.

This is not always to say that price is 100% predictable, it is not quite that. But if the price suddenly drops there is a reason for it and your system should have a plan of action to account for this. The real reasons are explained by further axioms and logics.

Evaluate that and if it is not correct for you, do not bother reading any more of this thread. It only grows from here.

[B]From Axioms spring forth further Axioms and Logics.

Axiom 2
[/B][B]Axiom 3
Axiom 4
Axiom 5
Axiom 6
Axiom 7
Axiom 8
Axiom 9, 10 & 11[/B]

2

Cool write up Coffeeshop and cool name. I imagine that’s where you’re sitting and writing your material.
It’s a nice piece to read and quite a point nobody wrote about before.

However it feels like you are cutting things short. I’d like to read more in depth discussions. You have made a strong case! Now let the words flow…:44:

Just a friendly oppinion.
Best

3

Axiom 2

[I][B]Price moves because of how groups of people react and move money.[/B][/I]

[B]Building with Foundation[/B]

This again is very basic, as these first couple are. Although these datas are very slight they are really the foundation of everything, and you need a solid foundation to build a skyscraper.

This second axiom must be assumed for any systems to be considered workable. If it is not then what are you basing your trades off of? Things move because people are moving them, and If your system does not have this as one of its main reasons for price movements then you are simply not using a system of any real use.

To be very clear about this point I am not referring to things like volumes and Moving averages. Those show things after the fact and you really need to be ahead of the curve when you are trading, you must know what section of the cycle you are in and what can happen next.

Also, as a side note. Both of those indicators have not ever done me too much good, other than one MA system in particular (that I personally know of). If yours works then by all means keep using it.

[B]The Why of the Why[/B]

Think about it like this. You have a ton of people sell at some point and then a bunch more people come in and buy, what happens at the end? Well someone wins out and for you to be on the winning side you need to determine which side has the better chance of winning. That has always made sense to me at least.

So, How do you know who wins? Well as Axiom 1 states that Price Moves in a structured way that always has explanation. And the explanation is provided here, it is groups of people making some choice, what is funny about it though is the larger group normally makes the wrong choice. Remember that. My main trading system is extremely contrarian and with good reason.

[B]This is stuff I already know[/B]

You will of course have your own market insights that should be considered valid if you are in fact making consistent money with them. Another note, please do not fool yourself into believing that you are making money when you are not. Let’s get you all straightened out and heading in the right direction instead.

Axioms 3, 4, 5 & 6 will go into more detail about how to determine what side ultimately wins out. But these two axioms so far should be applied relentlessly, it will save you so much time and heartache. Really look at these two and check your own trading system to make sure they stay true to these 2 Axioms. If they do not I can almost guarantee that you are not making consistent money.

4

Axiom 3

[I][B]Size of movement is caused by the amount of people that react to a movement.
[/B][/I]

[B]Running with a knife[/B]

Alone it is practically useless. But coupled with Axioms 1 & 2 it is deadly accurate. And it is one of the most important Axioms there are.How could you ever decide position size or target without knowing how far the ride might go?

Think about this, you now know why price moves (Axiom 2), how it moves (Axiom 1) and and now how far it will move.

If your method does not include these measurements in some fashion then you should not be using it and expecting success until these holes are filled in and patched up. You [I]MUST[/I] have a way to measure amounts of people. With my system I can always tell this by which part of the progression is happening. And you should be able to define this in yours somehow, it is up to you to find out how to measure this, without it you will die.

This does not need to be over complicated by any means, even if you are are using an MA based system (I hope you have evaluated the hell out of it if you are) you can measure this by steepness of line or speed of crossover.

All other indicators are up to you.

[B]These are too basic.[/B]

Now I know this might all seem humdrum and even a little bit boring but this is really the solid basis of a good trading method.

Now please take these lessons to heart. You will need to know them before you can ever really get into the drivers seat and make it home without crashing.

If you really understand these Axioms so far then Axioms 4-11 should basically change the way you trade totally. They are pretty controversial but remember, the bulk of traders are not actually making money. So why not do the exact opposite?

5

Well now. Lead on, good man, lead on!

6

So, what is your favorite / main entry signal?
Piggy-backing off of that, what is the associated exit signal?

:slight_smile:

7

Axiom 4

Smaller Movements trigger larger ones. They go until the swing back is large enough to trigger a move movement in the opposite direction and then move reverses direction.

Freak of Nature.
That one probably is confusing. So I will clarify. Every movement happens because it has been set off by another movement. The new movement will always be 60% - 200% of the previous move. So if you have something that moves that are large, and some that are small.

Let us say you have a drop of about 100 pips, you can pretty accurately assume that the price once it hits the bottom of this move will retrace about 60%.

If you always target about 60% you can hit that an astonishingly high amount of times. Really, go look.

The real secret from here is developing a system that allows you to pick tops and bottoms of given movements. Concentrate on that. This gives you an exit every time. Holding onto a winning trade long enough to see it through is a skill in itself though and will come through much repetition.

8

I have developed my own method of trading, so there is not really a signal. I have a special way of getting into trades that are borne out of my theory of natural market progression. Basically the market makes one move over and over again without and variation that I have been able to find so far.

My exits are actually giving in Axiom 4. There are a couple variations to that exit but those are explained by further Axioms and Logic.

9

Axiom 5

[I][B]Price always moves in Percentages of previous movements, never in pip movements.
[/B][/I]

[B]Steal all the cards from the hand.
[/B]
This is an axiom due to it’s pure workability. Think about this when selecting a method. Nothing should ever tell you to take X amount of pips. That is a total arbitrary and will ruin you.

If you have a method that demands 30 pips for you to close a trade that method is going to kill you. You can of course take 30 pips if the environment your trade is happening in will provide to you that much movement but it won’t always. That must be observed. With my method I sometimes take 20 I sometimes take 900. Your method should always be things in relative sizes, never ever in pip amounts.

10

Axiom 4. Since you are talking about moves in relation to other moves. How do you define a move? Change of price between swings? In that case how do you define a swing?

11

I have to disagree with you on this.
Size of movement is caused by the volume of business conducted in one direction as opposed to the opposite direction, not by the amount of people that react to a movement. The biggest amount of people reacting are mainly retail traders with relatively small trades, so they would have a disproportionately small effect on the size of the movement

12

Great observations, looking forward to your upcoming Axioms! Constant learning is always very satisfying!!

13

Price swings are a good way to look at it, from one to the next but it also applies to all time frames as well.

So if you have a candle on the 4hr chart that closes lets say mid way of the entire candle, you can actually view that on the 15 min chart and see all the swings that follow that Axiom. All time frames obey these Axioms.

14

The Axioms stated here are all based on empirical evidence as well as work-ability. If you are [B][I]consistently [/I][/B]making money trading in another fashion then please totally disregard them. If however you disagree with one of them then none of them will ever be of any use to you, they are very interdependent.

On the other hand if you need a cure for some trading ills then please review and consider the information put forth.

Either way, happy trading.

15

The point I am making is that your assumption that “size of movement is caused by the amount of people that react to a movement” is incorrect
Since this is incorrect (you haven’t refuted this), and the other axioms are interdependent, then the whole concept is flawed.
I am not here to criticise or nitpick, but I would appreciate a better response rather than your earlier take-it-or- leave-it type reply

16

Gotcha, I see what you are getting at now. Let me attempt to clarify.

Let us say you have a movement caused by a large bank, this drops price 20 pips. From there other large banks hop on board and drop price little by little (they do account for most of the move with their volume). While this happens smaller guys also jump in and help drive it down.

The reason we are concerned with amount of people over size is just because we are looking for effect over time, and not really the instant move of someone dropping a huge amount of money into the market.

So you are correct to assume volume matters, it does. But I have no way of measuring that, what I do have is a accurate way of gauging response from traders so I choose this every time because it is workable.

I hope that answers your question better. If now please PM me your phone number and I can explain that way.

Thanks!

17

Axiom 6

[B][I]The market must be put into sections so that you can clearly see the area of movement and define percentages so that you can predict upcoming reversal.[/I][/B]

[B][/B][B][I]Corollary: If you are trying to trade based on too much market action you will get too much conflicting information to ever trade successfully. [/I][/B]

Put it in a box.

There is a body of knowledge that has as one of it’s many tenants “You must compartment off problems so you can solve them more easily”. The same goes for the market.

So what is said here is simply trade some section of the market that you have defined and always trade that. I think this was a big reason for Darvas success as a trader. (See Darvas Box indicator)

This is not like dividing your trades into longs and short by which side of the 200ma they are on, this is really taking whole sections of the market and putting them into a box.

Define your trading range, this can be almost anything but the whole Idea is to keep the information fresh so you are making decisions based on something relevant. A good place to start if you are trading smaller time frames (5-30 mins) is probably around 1 day. I would not try to pull information from anything older than that.

Define it.

Are you are trying to trade based on the last 5 years of data? The last year? Month? Week? Day? This is one of those things almost no one has answers too. So do not be one of those people.

[B][I]Keep up the good trades![/I][/B]

18

Watching the markets sometime ago, I said to myself “just let it do what it always does and trade it”. But I eventually got caught up in all of the “successful” strategies and knowledge nuggets from the terribly wise…and went absolutely nowhere.
Some of my recent research seems to confirm that I, as a neophyte trader, was originally on to something. The market is not random. The market does follow patterns. The market does poop on the thousands of “important” indicators most traders use.
I’m am enjoying your thread here very much and hope you continue to share!

19

Axiom 7

[I][B]The system is flawless and the market is never wrong, but errors occur when things are not seen.[/B][/I]

[B]Self-correcting[/B]
A little arrogant? I know. When I was first compiling these axioms I remembered a story a friend of mine told me.

Altitude:
He was just over the fence, about 100 and so odd feet up. Him and his then girlfriend where going flying for the first time - he was what one would consider a fairly green pilot and she was terrified of flight but she trusted him.

The tower rang him back telling him him he was clear of the runway and to have a good flight. Throttle in and off he went. Things went well for about 10 seconds beyond that then he felt the plane lurch, then a loud metal ping followed by the stutter and stall of the engine. In short he told me he “was pretty sure he was ****ed”. 100 feet is not very high even for a Cessna.

He was scared, he was in fact about to kill himself and his girlfriend. He needed to act quick so he did what he was trained to do and went to work. First he rang up the tower, and they scrambled to divert ALL air traffic, they got back to him and said “The entire field is yours, do what you need to do.” So we swung it around and to the amazement of his instructors, the tower and the crowd that had gathered to watch someone die he landed a Cessna from 100 feet without power.

I asked him about how he did it. He told me he did by using what he knew to be true. He did not second guess any of it. And wouldn’t you know, it saved his life

20

Ok, beacause you state, “The new movement will always be 60% - 200% of the previous move.” To even verify such a statement one needs to know how you define a move. Swings, candles?