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Trading On Market Generated Information

|Includes:CurrencyShares Euro Trust ETF (FXE)

Using "market generated information" means using only inputs or information provided by the market itself; for example using only a market's high, low, and closing prices in your analysis. Most of us would be surprised at the amount of information gleaned from just a market's high, low, and closing prices over different slices of time. At Trading University we calculate all the tradable patterns in a market using just those 3-inputs.

The idea behind a strategy of using market generated info is to remove your own opinion from the equation and allow you to trade the actual market, rather than trade what you believe the market should be doing. I'm sure we have all had times where we have disagreed with what a market was doing, and just as likely we lost money because of it. While it is easy to blame market makers, or primary dealers, or central bankers for the market not doing what it "should have" according to us, there is a much more simple solution. Want what the market wants. Go where the markets takes you. Close out thoughts of where you think the market should go, and incorporate market generated information into your analysis.

(click to enlarge)Click to enlarge
Figure 1.

Figure 1 is a trade signal today - Friday March 7th - in the Euro that we've highlighted that is based purely on the information generated from the market's highs and lows for the London and U.S. sessions. For ease of explaining the set-up and signal here is a link to a: YouTube Video. We waited for 3 patterns to align - the long-term, intermediate-term, and a short-term -- and based our profit objective on our risk - hallmarks of market generated intelligence.

Another advantage to using price only for your analysis is the results lend themselves well to statistical validation. If we are using the same inputs every time it is much easier to quantify and replicate a strategy, which is the assurance most of us need to continue to take the risks we do as traders.

Jay Norris is a McGraw-Hill author and a trading instructor at Trading University

Trading involves risk of loss and is not suitable for all investors.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Stocks: FXE