Based on the book by Josh Lukeman: The Market Maker’s Edge
Technical analysis offers a wide range of possibilities for developing a personal trading strategy. However, depending on a trader’s level of knowledge and experience, it can often become redundant or conceptually limited when applied to financial asset markets such as stocks or forex. According to Lukeman, a well-structured strategy should be minimal in distracting elements and complementary in terms of strength, trend, and volume indicators.
Given the large number of available indicators, strategy simplification becomes essential. Avoiding the use of multiple indicators that measure the same or very similar characteristics helps eliminate conceptual redundancy within any strategy’s structure. In this way, to simplify the trader’s environment, only one indicator should be used for each conceptual category, ensuring a technically sound and efficient analytical framework.For this particular case, we will describe a strategy that, in our view, is highly functional and properly combines indicators, creating a simple and conceptually coherent environment. This is not intended to be a definitive paradigm of technical analysis strategies; each trader must adapt strategies to their own timing and needs in order to maximize returns while minimizing risk. It is important to note that this article has no conceptual or operational connection with Phi Price Trade Number or its team.
For this strategy, the following indicators are considered: candlesticks, the 14-period Exponential Moving Average (EMA), and the Average Directional Index (ADX). Candlesticks provide valuable information about volume and price action at opening, closing, highs, and lows across different timeframes. However, they require a trend indicator such as the EMA to identify trend breakouts between buyers and sellers. Additionally, it is essential to qualify and quantify the strength of market participants to determine whether the identified trend, supported by volume, is likely to be sustained. This is where the ADX plays a fundamental role, as it indicates whether market activity is strong in buying or selling, depending on the crossovers between AD+ and AD−.
When interpreting these indicators, priority should be given to the 24-hour timeframe, followed by progressively lower timeframes such as 4 hours and 1 hour. However, it is not advisable to rely on timeframes shorter than one hour. Although intraday trading often operates on very short timeframes—even seconds—Lukeman considers this approach excessively risky.
Technical analysis should serve as a complement to fundamental analysis due to changes in the financial and credit environment driven by monetary and fiscal policy adjustments. Such policy changes can have an almost immediate impact on the prices of all types of financial assets, leading to shifts in trends that may appear unexpected when viewed solely through technical analysis. For this reason, it is crucial to have a framework that reflects these policy changes and the ability to interpret them correctly. In The Market Maker’s Edge, Josh Lukeman clearly explains the financial and credit elements that traders must consider when developing a robust trading strategy.
Once a trader has an effective strategy that integrates both technical and fundamental analysis, timing becomes the most critical factor when entering buy or sell positions in the continuous price auction process of stock and currency markets.
How can the right moment be determined? One key factor is allowing immediate fluctuations—caused by scheduled economic data releases from major financial and credit institutions—to pass. Over time, the market tends to follow a more logical direction based on causal analysis of financial and credit variables.
Regarding spreads and stop-loss orders, these elements can sometimes distract from strategy execution. For example, many traders seek currency positions with lower spreads measured in pips, as this reduces operational costs and allows for more reliable stop placement. As for stop-loss orders, they are often triggered during movements that signal trend changes. Many successful traders choose not to use stops because they have a deeper understanding of unexpected volatility during trend shifts, particularly those resulting from official financial and credit reports. It is often said that stop-loss orders primarily serve to generate profits for market makers who can manipulate the market. While this may only be a rumor, it remains an interesting consideration.