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Geza Varkuti

THE KEY OF FOREX

L E T’S M A K E M O N E Y

THINK DIFFERENT ®

A Revolutionary new Theory

DEDICATED FOR LUDA

She is the sunshine in my life,
even in the Night

Impressum 
Copyright: © 2016 Géza Várkuti

Verlag: epubli GmbH, Berlin, www.epubli.de 
ISBN 978-3-7375-9160-7

TOC

TOC      3

Introduction      4

Why is the approach used till now wrong?      5

Determination of key levels      8

The Fibonacci law      16

Fibonacci in Forex      20

The key levels and the Fibonacci      25

Concrete example      31

The author      35

Terms      36

High risk warning      37

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Introduction

I have been analyzing the market every day for 25 years now. Obviously, like every thinking human, I was also excited to unravel the great mystery. How Forex works, what kind of laws you can discover that are universal. We have all read millions of books about basics, trends, resistances, indicators, and so on. But after learning that nothing works with 100% accuracy all the time, I found myself looking for the roots, thinking that if I was able to discover the operating mechanism I could significantly improve my trading results.

Like Elliot, I was also interested in the internal anatomy of the movements of the market. After all, what is our activity about? We are trying to forecast what will happen in the near future. If you know how the price moves within a trend, then you can "foresee" the future in a more reliable way on this basis. In this the Fibonacci law provided great help. These levels work with a high success rate, but of course, it is crucial where you drag up the device. We learn where to drag the trend lines, resistance/support levels, but I found that we put them in the wrong place. That is, neither dragging them to the top or bottom of the spikes, nor to the candle closures, give good results.

Both approaches are wrong! But where are the real key levels, then?

Well, I believe I have found the key. But where are the real key levels? Since then, my success rate is above 75%. I think this point of view radically changes what has been learned about Forex so far.

With some practice, this new way is available to everyone and can be learned by anyone. But whatever strategy you follow, if you know where the key levels are, your results will grow explosively.

Its particular advantage is that you can trade with pending orders, so it is enough to control the position once a day and place possible new pending orders. Thus, this can also have applied even by those who cannot be at their computer during the day

Why is the approach used till now wrong?

If I think Forex trading is all about trying to guess what the price will do – which way it will go (direction), if it is already moving, then approximately how far it will go (target price) – when can I be sure that my forecast will not be confirmed (stop level)?

The exchange rate will be determined by two basic factors: outside-market factors (fundamental events) and in-market factors (the principle of supply and demand). External events obviously affect the price indirectly. The impact will be felt when traders react to the fundamental trigger, be it a country's GDP, unemployment data, or even a natural disaster. As a result of the event the supply-demand balance is upset and the price breaks out into some direction. More and more traders get connected, and more and more people jump on this accelerating train. This is a very important point. For example, the more people go long, the greater the demand is, and the value of the given currency increases more and more. (Actually, it should be clarified because obviously the decisive factor is not the number of traders but the volume of the currency involved.) In other words, it is a self-reinforcing process, a self-increasing bubble that will inevitably burst. As with all such phenomena, excessive values come out which must be corrected by the market. During the trend more and more people take profit and close long positions, and this sends a conflicting signal to the market because it means that the demand is decreasing. But it takes some time until this is shown on the charts too. It is sometimes a few seconds, sometimes a few minutes.

Here is the first point in which my vision is different from the commonly used interpretation. Most people draw a resistance line to a past peak or valley, don’t they? This is wrong. What is relevant here is not what the end point of a movement was. The heavier a train is and the faster it goes, the greater is its braking distance. That is, the real resistance doesn’t start right where the movement stops, but much earlier, when traders began to push the brake pedal. As with the train, in the case of the exchange rate a breaking distance is needed; and as with the train, in the case of price, mass (volume) and speed determine by when the movement will successfully stop.

According to another interpretation, the general resistance/support is right where the candlesticks close. This is also illogical. When deciding what timeframe closure to take as a basis, then we have made an arbitrary decision, because according to this the truth would lie either on the 15-minute chart, the 1-hour, or the 4-hour. But even the initial premise is wrong. On what grounds do we state that that the tick at 10:00 is more relevante than the one that happened at 9:59? Why?

Imagine the exchange rate as a river consisting of countless water drops. To be able to understand its dynamics, we need some kind of system, we need to hold to the points in comparison to which we can interpret the next dip, and the next ones, and so on ... This is the time grid. But the river does not know the time, it just rolls along according to its own dynamics. The same applies to the price. In our case, the river itself is the price, and the drops are the ticks. Therefore, the grid (timeframe) that we have overlaid actually has nothing to do with the dynamics of the river: it is useful only to depict the movement somehow. Therefore, it is nonsense to say that, according to a system forced on the “river” from the outside, the levels originating from this external picture have a greater significance than the previous or the following ones. In other words, I am not interested in where a given candle closed, but in the actual movement itself.

The movement of a currency pair is like a pair of parallel rivers. One is wider, deeper (there is a greater volume in the market), and the other has a steeper gradient and moves faster. These regularities must be searched for and recognized. Only then can we understand the movement - only then can we forecast, with a good chance, how to go on.

So we need a new "grid" which is not arbitrary as the time grid, because, as I mentioned the level wind up in one place on the 5-minute chart and somewhere else on the 4-hour one. And we cannot have several truths.

There are methods, strategies, where the time factor is turned off. For example, the Renko chart. Here it doesn't matter how long it’ll take the price to make, say, 50 pips; the point is whether it will make it. Here we determine a fixed unit and try to interpret the exchange rate on that basis. But this fixed unit is also arbitrarily. The Renko bricks can be of any size, so again we should face the existence of several truths.

Then we have the so-called “Grid Strategies”, where we also superimpose a grid with equidistant spaces onto the exchange rate. The determination of this distance is also arbitrary - even though we could even logically explain why we have chosen this or the other. But on what basis can we expect the exchange rate to follow our logic? This is fatal narrow-mindedness. The interpretation must originate from the exchange rate, and not from some external logic. We need a new method to approach the market, rather than imposing something on it.

It is well known the phenomenon that if a resistance line is broken, it will become support. And in turn, if a support falls, it will become resistance. Let us talk about “key levels” instead; since support and resistance are the same, it just depends on our vantage point. Basic truth: The levels which are really relevant are those that acted as both resistance and support within a short time frame. Levels which rejected movement from below, and, after being broken, exerted resistance from above - those are the levels that are actually relevant!

So forget the controversy of whether we should drag the Fibonacci tool from peak to peak, or from closing to closing. Both are wrong! We should look for the real resistances or supports - this is the key to Forex; this is the basis for our forecast.

So if neither the line placed on the spike nor on the candle close are in the right place, then our resulting assumptions are wrong, too. Our strategy may therefore be logical, but if the starting points are in the wrong place,