FOREX FOCUS

Game Plan In Accordance

# The Forex Gambit

by Walter T. Downs

This trading strategy uses logic and analysis from math and chess. It’s bold, it’s aggressive, and you don’t lose sight of risk.

I am an advanced chess player, and I have an advanced education in esoteric mathematics. Together, these two disciplines embody powerful logic and methods of analysis. I have created a system based on the idea of the gambit, a term borrowed from chess. In its essence, it is the sacrifice of material in order to launch a bold attack. The gambit is everything a trading system should be: audacious, dynamic, and fluid. When it is successful, it reaps great rewards.

Here, when I am referring to logic and analytical technique from chess and math, I will refer to chess as “C,” and to math as “M”:

C and M both favor economy of time and effort in relation to what is achieved.
In this regard, a daily time frame is the best choice. C and M both state that the optimal strategy is composed of the most prolific factors within the general theory and body of knowledge that governs the system. The general theory of technical analysis is:

• Market action discounts everything.
• Prices move in trends.
• History will repeat itself.

Within the body of knowledge, the most prolific factor that governs trend is the simple moving average (Sma). The most prolific price used is the closing price. The period used for the Sma is determined by M and is a value that has statistical significance. Therefore, the value used is 30.

Within the body of knowledge, the most prolific factors that govern market entry are the correction (a brief countermove before the trend resumes) and the breakout (price action moving above or below a defined point).

FIGURE 1: A BUY PATTERN. The blue square indicates a completed buy pattern (two lower lows, and a C > midpoint of bar and > SMA). The turquoise square indicates that the exit condition has been met (A range > three previous ranges and a C in top 10% of the bar). The yellow square indicates the trade exit (C < previous C).

...Continued in the June issue of Technical Analysis of Stocks & Commodities