In this lesson we will explore how to read the language of the markets, unofficially referred to here as the “Forex Source Code.”
Combined with previous lessons this will present the foundation of capital preservation.
Learning how to read the language of the markets will greatly help your odds while trading. In my opinion, this is the most effective path to becoming a successful trader.
Just as with learning any language, it takes practice and continual learning. With enough screen time after reading and studying this course, you should be able to pick up clues as to what the market is communicating and to know how to trade in order to take advantage of price fluctuations.
Using Forex Signals
The market consists of buyers and sellers, some of whom are heavy players that can influence the market (the Agents).
These are the traders for whom you have to watch out. By educating yourself with this course along with price action you will be learning the language of the markets and by doing so you will learn how to identify possible Agents on the charts and use these as signals to enter or leave the market.
If you fight against the market you will lose; by trading with it your chances of success will be tremendously increased. This is one instance when you have to go with the flow.
Besides using price action signals to find high probability trades, I always try to combine it with some other helpful clues as to help increase the accuracy of my trade.
Using a confluence of signals is the best way to get further confirmation. For instance, price action signals at value areas of a chart present better indication of the strength of the signal to trade.
This will be discussed further on .
The Japanese candlesticks that appear on the monitors of traders around the world show us the “source code letters” of the market “alphabet.”
These letters were will be discussed in the next section below and then later constructed to create basic “words and phrases” which we call “price action” and which together communicates a language to the mindful trader.
The analogies provided here in this lesson are meant to educate you in our proprietary system of reading the markets. This is not taught anywhere else on the Internet.
The Forex Source Code Alphabet
Basic Price Action comes from reading Japanese candlesticks. These candlesticks show us the necessary information to learn the market language source code.
As mentioned above, the candlesticks represent the letters, which are crucial to deciphering the source code.
The white candlestick (below, left) represents an upward price movement, where price closed higher than where it opened.
The black candlestick (below, right) represents a downward price movement where price closed lower than where it opened.
The green wicks at the top and bottom of the candles represent the maximum and minimum prices that were reached but then rejected.
Keep in mind that candles can be seen on any timeframe: i.e. 5min, 15min, 1hour, daily, weekly, or even monthly charts. Depending on which timeframe you are on, each “letter” will represent how price moved during that specific time interval (i.e. 4hr chart = how price behaved in 4hrs).
In the English language there are 26 letters; in the Forex Source Code language there are virtually an unlimited number of letters.
However, most candles can be categorized into specific types of categories that communicate clues.
Study the picture above and become familiar with the price movement on each type of candle. Know where the price opened and closed, and where the high and low for each candle stands.
Here is a more concrete example of how a source code “letter” is formed.
Since the close price is higher than the open price, we know the candle is white because its price is moving upwards. If the opposite were true, the above candle would have been black to represent a downward price movement (like the one below).
There can be virtually an unlimited number of letters since, if price moves by just a small amount, the shape of the candle will be affected. If instead the candle had closed at 1.10, the body of the above candle would have been shorter. Candle shapes will vary greatly, however much like different fonts, we can put certain categories of letters together as they will tell us important clues as to what the market is communicating.
In the next lesson we will provide you with some important letters in the Forex Source Code alphabet with which you can start reading the language of the markets.