There is a new category of technical analysis available to trade the FOREX markets. It’s called Shift Theory and this new technique is based on Shift Ratios which break down the three main types of chart conditions:
- choppy markets
- Uptrending markets
- Markets trending down
What Shift Theory Ratios does is focus on the important data and ignore the data that is responsible for false signals and noise. The theory of change approach to trading works better than any other form of technical analysis because it focuses on the science of price analysis. Most technical analysis today focuses on the closing price as the main data being analyzed. The main problem with that is that the closing price is a moving target. Many traders don’t realize that indicators are nothing more than measurement tools and should be treated that way. When it comes to measuring price, you need stable data to get an accurate reading. I like to use an example of trying to weigh yourself on a scale. If you keep jumping while trying to weigh yourself, it’s nearly impossible to get an accurate reading. That is exactly what the closing price does. It changes every time there is a bullish or bearish tick and that changes the reading of most indicators and that results in a lot of noise and false trading signals.
Forex trading indices are based on the undeniable facts of market trends. Some examples are:
- Prices on a chart can only go higher if they hit a new high.
- Prices on a chart can only go down if they hit a new low.
- Choppy markets have bars that have a high percentage of overlap.
As a trader, Theory of Exchange ratios are an excellent tool for keeping traders disciplined and sticking to sound trading principles. As an example, we will cover the reading and indications given by the Shift Ratios in 3 types of market conditions:
- chopped
- upward trend
- Downward trend
When market conditions are erratic, the insider exchange rate is the chart that measures that type of market condition. What the Inside Shift Ratio does is measure the percentage of the current bar that overlaps the previous bar. All choppy markets have a high percentage of bars that overlap each other. It’s easy to see on a chart, but most indicators simply can’t measure these types of conditions because they are based on the closing price.
If the market is trending up, the Upper Shift Ratio is the indicator that measures that type of price change. In bullish markets, the bars on a chart should make higher highs and that is an undeniable fact about bullish markets.
During bear markets, the Lower Shift Ratio is the indicator that measures the strength of the downtrend. This again is based on the undeniable fact that down markets must make lower lows in order to go down.
In the end, these techniques work and the proof is in the tests afterward. A dirty secret that many indicators have is that they don’t really work and that is why no one is willing to show the results of previous tests. So, if you want to find the best FOREX trading indicator, you should take a look at Theory of Exchange Ratios. If you want consistent and proven results, then as a trader you need to focus on the important data and ignore the data that is responsible for signal noise and delay.
