The First Thing Every Trader Should Master

Summary

In this trading tutorial, the importance of understanding market bias is highlighted, emphasizing how determining whether the market is moving higher or lower is crucial. The concept of 'bias' is explained through fair value gaps, showing how bullish or bearish arguments can influence market probabilities. The video breaks down how to assess whether the market has a one-sided argument or is divided, and why this affects trade decisions. It also discusses the correlation between different currency pairs and choosing the strongest pair to trade, providing actionable insights for traders to refine their strategies and improve their decision-making process.

Takeaways

• 😀 Bias is essential for traders, but it's not enough on its own; traders must understand which bias has stronger supporting arguments.
• 😀 Bias refers to the direction in which the market is likely to move, either higher (bullish) or lower (bearish).
• 😀 Market bias is not constant and can change. Traders need to wait for clear, obvious moments when the bias is ‘stupidly obvious.’
• 😀 One-sided arguments in the market lead to higher probabilities for a given market direction.
• 😀 Probabilities play a key role in trading, as one direction is always more likely than another, but nothing is 100% certain.
• 😀 Fair value gaps (FVGs) are important tools for traders to assess potential market movements based on historical data and price behavior.
• 😀 In a trading ‘courtroom’ analogy, the bullish and bearish sides present arguments, and the side with more valid arguments is considered stronger.
• 😀 When both bullish and bearish arguments are equally strong, the market shows no clear bias, and this can result in consolidation.
• 😀 Traders should always focus on the pair with the stronger argument. A stronger market direction is easier to trade than one with conflicting signals.
• 😀 In comparing currency pairs, even if two pairs share a similar bias, the one with the least conflicting arguments should be chosen for trading.
• 😀 Implementation of these concepts is crucial. Traders who objectively evaluate market conditions based on arguments and probabilities are better equipped to make informed decisions.

Q & A

What is the first thing a trader must figure out when they open a chart?

A trader must first figure out the market bias, which is whether the market is going higher or lower.

Why is having a bias alone not enough for successful trading?

Because two pairs can have the same exact bias, but one could result in a winning trade while the other could lead to a loss. The bias needs to be backed by other arguments and conditions to be effective.

What does the term 'stupidly obvious bias' refer to?

'Stupidly obvious bias' refers to moments in the market when the direction is so clear that even non-traders can easily predict where the market is heading.

What are 'one-sided arguments' in the market, and why are they important?

One-sided arguments occur when there are only bullish or bearish arguments present in the market, making the probability of one direction happening significantly higher. They indicate that the market is likely to move in a clear direction.

How do probabilities affect trading decisions?

Probabilities influence trading decisions because they indicate the likelihood of one event happening over another. Higher probability situations are more likely to result in favorable outcomes for traders.

What role do fair value gaps play in determining market direction?

Fair value gaps provide clues about potential market directions. A bullish fair value gap suggests the market may move higher, while a bearish gap indicates the potential for a downward move.

What is the significance of respecting fair value gaps?

Respecting fair value gaps indicates that the market is honoring previous price levels, which supports the continuation of a trend in the direction of the gap.

What happens when there are equal arguments for both sides of the market?

When there are arguments on both sides of the market, it indicates uncertainty or a lack of clear bias. This usually leads to a consolidation phase, where price action doesn’t strongly favor either direction.

Why might a trader prefer trading Euro US Dollar over Australian Dollar US Dollar in a bullish scenario?

In a bullish scenario, Euro US Dollar might be preferred because it has fewer bearish arguments compared to Australian Dollar US Dollar, making Euro US Dollar stronger and more likely to continue higher.

How does the concept of 'filtering process' help traders choose the best pairs to trade?

The filtering process helps traders objectively identify which currency pairs have the strongest arguments for a particular direction, allowing them to choose the pair with the highest probability of success based on current market conditions.