Notes From Gordon: Sexy Forex Trading (Going Both Ways)

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Dear Friends,

I have been tasked by a NYC marketing specialist to teach my Forex course again.

I imagine that the course will be available sometime this Fall, close to the election and just in time for the economy to convulse and generate some really terrific trading setups!

I thought it might be fun to resurrect an old article in which a new currency trading student interviewed me on the subject of market price action.

Student: Which way is the market heading at the moment?

Gordon: Well, let's see. On the 1-minute chart it's heading up. On the 1-hour chart it's heading down. On the 4-hour chart it's heading up, and on the 1-week chart it's heading down. So I guess you'd have to say it's heading in both directions.

Student: Why does this happen?

Gordon: Well, it's like the Earth. The planet currently rotates from east to west. Say you're on an east bound train but you're walking west to the dining car. Are you heading east or west?

Student: I see your point. This could get quite confusing.

Gordon: That's why the train has a conductor.

Student: So you're saying the market is heading in both directions at the same time?

Gordon: Precisely. It's always going both long and short at the same time, just more in one direction than the other. We call the preponderance a trend. That's why you can always draw rising and falling diagonal parallel price regression lines on any chart, some going up, some going down at the same time.

Student: How can there be rising trend lines on a falling chart?

Gordon: Well, it can be a lot like marriage. Early rising expectations can lead to a long term decline in results. In the case of Forex, millions of traders who went long as the market turned short are caught fighting the tide. So there are two directional vectors moving through the price action, one long and one short, at the same time.

Student: So how do you make money?

Gordon: You don't make money, you make pips. The pip is an electronic derivative of the Federal Reserve Note, which is itself a derivative of real money. So you could say that the pip and precious metals are first cousins, twice removed.

Student: OK, so how do you make pips if you don't know which way the market is heading?

Gordon: But you do know which way the market is heading. All you have to do is look at the charts.

Student: But you just said that it's heading in both directions at the same time. So how do I know which way to trade?

Gordon: It's all a matter of perspective, my boy. Say you were a tick living on the tick chart. You'd could easily see which way the market is moving because the tick chart isn't any bigger than you are. But the 1-week chart would look like the curvature of the Earth to you because you're so small. Now, if you were Zeus, the entire Earth might look like the 1-minute chart to you, in which case you'd be interested in trading the 1-eon chart.

Student: Let's stay on this planet, shall we?

Gordon: Certainly. Feel free to ask me anything else.

Student: What about the daily chart?

Gordon: Well, if we think of the federal government as the daily chart, the 50 states can be 5-minute charts and the 1-month chart could be the emerging New World Order.

Student: Is this your way of telling me that everything is proportional?

Gordon: Bingo. And fractal!

Student: So getting back to actual trading, let's say the trend is long on the 5-minute chart. Do I buy or sell?

Gordon: Why, you buy of course. Everyone knows that.

Student: But how do I know when to get out?

Gordon: You look for regression line intersections. Or you could just use a bunch of indicators and keep getting whipsawed for the rest of your life, lose everything and have to check into the Forex Rest Home.

Student: The Forex Rest Home?

Gordon: That's where losing Forex traders eventually end up. The staff is very nice, and you can demo trade against other residents as an alternative to shuffleboard.

Student: Is this the kind of support you normally provide?

Gordon: No. I'm usually much more enigmatic.

Student: If I have both a personal and a business trading account. Can my trades become mixed up?

Gordon: Being bi-Forexual can be confusing, especially when you’re short in one account and long in the other. This is where size really matters. But as long as you use a protective covering hedge, it's probably OK to go both ways at once.

Student: One last question, and this is kind of personal. I’ve been trading along with my girlfriend and worried about exiting my trades prematurely. I don’t want her to get upset and see me as a loser.

Gordon: Don't panic. Many people become excited and prematurely “pull the trigger” when they haven't entered a trade in a long time. Just start over. She probably won’t mind if you enter again.

Student: Thanks, this has been most informative. I hope we can do this again next year.

Gordon: Sure. You look like you might make it.

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