I once heard that an individual could never read a text book on a subject but still understand it and become proficient in it by having a firm understanding of the basic and key definitions of the subject. With those definitions through observation, trail and error they can increase their ability to produce the expected results. This ,if true, Shows the important of having and understanding the key terms of a subject area and that is why we have defined all the key terms in our trading philosophy and methodology. Putting them all in one place for you.
Our Trading Philosophy Terms
Trading Definition:
The study of, and application of a strategy to, the financial markets. Typically for short term gains rather than a long term investment.
The more you trade. The more you study the markets, The more able you should become to produce the desired results.
If you are not producing the desired results while trading, the solution is more trading.
Trading Rationale:
An understanding of the markets and an understanding of oneself and how they interact/affect each other; In essence it is the ability of a trader to read and understand the market data and make the best decisions based on this data.
Compulsive Trading:
a “disconnect” that happens where a trader starts to take actions and place trades against his own best interest; In essence it is a trader that starts to make mistakes
Flawless trading:
Flawless trading doesn’t mean never taking losses. It means not making mistakes, This is the ideal for any trader.
Mistakes:
A type of trade placed unnecessarily, Typically compulsively. There Are 3 types of mistakes 1) Stupid Trades. 2) Re-Entry Trades 3) Over-Risked Positions.
Stupid Trades:
What makes a trade stupid is two things. A lack of commitment and/or too much inherent risk. Typically it is placed out of a short-sightedness and compulsion.
Re-Entry Trades:
A trade placed right after another trade on the same asset/currency pair. Typically done on the same trading day. This is not always bad but it is destructive when done compulsively.
Over-Risked Positions:
A trade where a trader uses more monetary risk than he has previously allotted or decided on.
Monetary Risk:
The amount of risk allotted per trade. This is typically decided on beforehand and stays the same every trade.
Inherent risk:
The amount of pips between the entry and stop loss of a trade.
Apparent Risk:
An arbitrary measurement. It is the perceived likelihood of the trade losing based on the analysis and strategy used. Stupid trades have a lot of apparent risk.
Basic Technical Terms
Support and Resistance:
Specific price points or zones/areas where price tends to reverse in direction
Rejection:
The action of price reversing at a level of support and resistance
Overshoot:
An occasion where price appears breaks through a level of support and resistance only to reverse its course. It could be defined as a delayed rejection of a support and resistance area.
Instant rejection:
The price touches a level of support and resistance and instantly reverses. This is the ideal behaviour of price when it reaches a zone of support and resistance however the action/behaviour of price is out of the control of the trader.
Repeated patterns:
The basic definition of an opportunity in trading is a repeated pattern. There are 2 types of repeating patterns:
General- These are patterns that can be seen frequently across most currency pairs and can be basically broken down into three forms: Uptrends, Downtrends, and consolidation ranges. These patterns will repeat in the markets indefinitely.
Specific- These patterns are specific to one or afew currency pairs at a specific time. The greater an individual's traders rationale the more able he is to identify specific repeated patterns and capitalise from them. These patterns are specific to an asset or group of related assets and are driven by key technical and fundamental factors.
Mechanical Terms
Percentage based risk:
In essence how much monetary risk an individual takes per trad expressed as a percentage of their trading account. For example if you were to risk 0.5% of a $100,000k trading account your risk per trade would be $500
Risk to reward ratio:
This is a metric (Unit of measurement) that varies from trade to trade. The general rule is that the higher the risk to reward ratio on a trade, the less likely it is to win. This is not always true and as traders we aim to find opportunities or positions with the largest risk to reward but least apparent risk.
High quality opportunities:
Opportunities which have the highest risk to reward ratios but the least apparent risk.
Win Ratio:
A metric which measures how many trades an individual wins vs how many he loses. A good general rule if a trader aims for a higher risk to reward ratio his win ratio will be lower. When an individual trades compulsively his win/loss ratio is lower than it should be.
Our Core Concepts
Concept def:
An idea and the theory behind it. In order to understand a strategy you need to understand its basic concepts ,for example, The basic concept of support and resistance is that price tends to reverse directions at specific points. There are many reasons why but the basic one is because investors large and small will place limit orders at these points as they expect other traders will do the same. A kind of self fulfilling prophecy.
Strategy:
A set of concepts that an individual uses to identify an opportunity. That is the purpose of strategies and why they exist in trading.
Basic Theory:
The simplest or most fundamental reason as to why a thing happens. Once you accurately understand why something happens you can predict with certainty the most likely result. Basic means “fundamental, centric or underlying”.
Development:
Improvement in ability in some area of field.
Unprofitability:
The state of not making money through trading, Caused by ignorance or misunderstanding in some way shape or form.
Ability:
Effectiveness. The capacity (Knowledge, skill or understanding) to do something well or produce the desired results.
Predictability Theory (The golden rule of trading):
The Golden Rule of our trading strategy (Predictability theory) states that any price movement that can be predicted can be profited from. Profiting from a price movement you didn't predict is akin to reckless gambling.
Σχόλια