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There could be valid grounds to suggested that all Trading or investing is based upon The Greater Fool Theory (T.G.F.T.) which could perhaps, have been scribed on a Stone or Clay Tablet in a far off distant Galaxy or here in the past and just maybe found, hidden but written in the Forexmos S.T.A.R.'s or even written inside an Ancient Scroll somewhere. Things in life, do have the habit of re-orbiting, in Time, so with this in mind I would also suggest this post, maybe for some, is once again being read from a Tablet but not the so ancient ones, no, more over, the branded and logo digital type we see Traded all around us in retail outlets and in online stores. T.G.F.T. has seemingly reoccurred almost since time began or at the very least, buying and selling, exchanging or bartering. So the following will explain a little of what that means and a suggestion about viewing Forex in that light, along with a definition.

The Retailing concept dates back to Ancient Times, where products were exchanged within Ancient civilizations, goods exchanged for goods, skills for goods, goods for skills, food for other food, weapons for food and so on.  Individuals and groups of people like tribes, villages and complete Empires would have exchanged their goods, tools, food, livestock and land in some formal shape of a bartering system and whether learned or instinctively, would of have grasped the idea or a form of T.G.F.T. and held it in the forefront of their minds. Needless to say, a practice that still continues to this day.


  
The Greater Fool Theory can also be explained as an Economic Term, potentially involving everyone:

The Greater Fool Theory Definition:

On observation, any price no matter how unrealistic and not by any intrinsic value neither, over valued, over bought and so on, can be justified if a buyer believes that there is another buyer who is willing to pay more at a later stage. This could of course be immediate or even a longer term assumption and speculation that the price will continue. Thinking along these lines of Nature, it is not beyond the scope of reasonable thinking to see this, if left unchecked, eventually will lead the Herd and some individuals to some sort of Paranoia, this in-turn will become the Parent thought and creator to offspring for unstable reactions, like Fear and Greed.

T.G.F.T. in Trading Forex

If a trader buys or sells a currency pair then the aim is to see that pair rise or fall respectively and in doing so, put the Trader in a position to Profit.

Therefore, if a Trader buys a currency pair and ends their trade for a profit then the other Traders and the Market were the greater fool because they have all just paid more and the Market went or continued to be a Bull Market against them. Thus a profit was gained for the said Bullish Trader.

On the reverse side of the Currency Coin, we can also say, if a Trader buys a currency pair and ends their trade at a loss then that Trader themselves  were the greater fool because they have just paid more than the other Traders and the Market went or continued to be a Bear Market. Thus a loss was incurred for the said Bullish Trader.

Respectively, exactly the same can be said for the opposite, a Trader Selling or Shorting the Market, when in fact the price rises or continues to rise against that Bear trader.

Some Examples of Markets over bought and over sold:

EUR/USD being over bought in 2008 and before any news announcements, rumors or even listening to the emotional and psychological Twins, namely Fear and Greed. However, some traders may have had a mindset, through various abilities and experiences, to be in a position to see and then prepare for the otherwise, thus avoiding the aforementioned Herd instinct.

2008 Over bought EUR/USD with appropriate Early Pattern Recognition (EPR)

2008 EUR/USD - The Over bought and Appropriately named "I See Dead Countries" EU Chart which is a snap shot of my entry trade

2012 - GBP/JPY Oversold

Wider spectrum and Matrix

The Greater Fool Theory (T.G.F.T.),  on a much wider spectrum happens throughout all things and perhaps if Morpheus from the Matrix films was to comment, he just might of said, "The Greater Fool Theory is everywhere. It is all around us. Even now, in this very room. You can see it when you look out your window or when you turn on your television. You can feel it when you go to work... when you go to church... when you pay your taxes. It is the world that has been pulled over your eyes to blind you from the truth."

Boom and Bust and Natural Cycle of Life

Markets will continue to Rise and Fall, Boom and Bust scenarios will play out, Financial Bubbles will continue to inflate and then burst for whatever the reason and naturally, relative to Time Frames. Countries, Governments, Politicians, World News, the Fed Banks, Europe, Businesses and the like, whatever is said or promised, will always be a treadmill and Natural cycle of Life. Therefore, safe Trading will depend on several things to be kept in mind, like, Trading is about Y.O.U. and nobody else, develop a great sense of awareness, utilize the valuable and mainly untapped resource and commodity inside all of us, called common sense, and if all else fails prepare a great stop loss technique along with an exit strategy to keep afloat, after all, That's Life.

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Best Regards,

Sir Gissachance

Sir Gissachance (PPND)
Forex Trader and Senior Technical Analyst
Currencies USD, EUR, GBP, JPY, AUD, CAD, NZD, HKD, CHF, All.
Previous contributor and lead Trader: Secret Forex Society (SFS), IRC Forex, FXStreet, Forexmosgate, Forexmospherians.com
Market Alerts - Forex Trading and the Wisdom of the Crowd, Forexmospherian Currency Kraken.
Youtube Trading Videos.
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Comments

  • excellent post,its what posts should be,and expect nothing else from you my friend. 

  • Thanks for saying so Genx and Romano, happy to share but more over, happy to read your wonderful posts and everyone elses here too.

  • I recognize those 2008 EU charts and if I remember correctly you shorted around the tops and even got banned from a old forum for simply suggesting a big change ahead. You were so right ;-))

    Have a great May Trading Sir Gissa 

    All the best

    Peter

  • Haha Peter, ditto those EURUSD thoughts to GBPJPY AKA the 13 as above against perhaps a PHD Brainiac at another Forexbackstreet forum, good job t2lose did not get upset about USDCAD, otherwise that would be 3 Forums in a row, oh well that's showbiz and that's life :0)

    Best Regards,

    Sir Gissa

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Rejection of market and weekly pivot at ema confluence.

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Broadening formation on daily with test and rejection of 200 day ma

Bull hinge on daily and Renko stochastic.

Positive momentum on 5min, 1hr, 4hr and daily chart"

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"Forex Market analysis relies on two types of analysis much like Stock Markets:

Technical Forex Market Analysis views the data on a chart and considers that the News and Data is built into the Price already (economic, political, social, sentimental and psychological). Various tools and indicators will be used by technical traders, for instance MACD, Bollinger Bands, Moving Averages and more.

Fundamental Forex Market Analysis also uses indicators, for instance reports, Gross Domestic Production (GDP), Retail sales, Consumer spending, Industrial Production, Consumer Price Index, Commodities, Economic Calendars, Balance of Trade levels which could identify Trends between other Nations and more."

"Short rapid bursts and quick glimpses of an entry, trigger activated, trail in place and exit strategy and plan already set. Within a blink of an eye, instinctively the buy/sell button is pushed. The hammer falls and clanks decisively, echoing, sparking, like steel upon steel and the trade is executed. A Traders heart beats on with perfect set up, closely aligned with strict parameters, ready to continue the attack or recoil on a wire. Wrap the profit and then stand down, ready for the next hunt"

"When we are talking about sentiment it is very hard to say that this sentiment will prevail another 6, 9, 13 hours. Sentiment is not a constant line. Main trend is bearish, tech picture on daily is bearish, even intraday neutral. Nobody restrict to play long eur short usd position with the target at 1.12 or even 1.1361, this is every traders individual choice as always"