Rule of Thirds Trading

Rule of Thirds

Rule of Thirds

Rule of thirds trading seems to be unique to the trading style taught on the Courses on Forex programme. However, it is based on the simple, time honoured truth of commerce embodied in the phrase “Buy low, sell high”.

Rule of thirds trading is very simple, but it is not a stand-alone trading tool. Its job is to indicate whether a trader should be buying, selling or both. The indication of this is given simply by the background colour of the trading screen.

The screen shot, on which each of the candlesticks on the chart represents a single day of price movement, illustrates how the screen colours look and how things changed over the three months or so involved.

Early in this very volatile period, the screen was pink and, only sell trades would have been considered by the trader. Then there was a period during which both buy and sell trades would be considered. In the latter part of the period only buy trades have been considered.

Does it work?

 Well so far YES but as with all things in life; there are no guarantees.

What we can say is that ANY sell trade placed in the sell zone, ANY buy trade placed in the buy zone and ANY trade placed in the buy or sell zone as appropriate would have gone into profit.

I have been able to check the figures as far back as the 4th of January 2010, and this statement is true for all trades placed since then. Recent trades still have an indeterminate outcome as the price has not had time to move out of its current zone.

Where does the rule of thirds come from?

The answer as to where does the rule of thirds come from is simply “observation” and common sense. I realised that I was all too often being left with buy trades at the top of the price action range and sell trades at the bottom of it. I simply decided that I was fed up with this situation and realised that if I could determine what I meant by the “price action range” I could avoid placing such trades in the first place.

I decided to map out the price movement and range on a spread sheet. This was a much bigger job than I anticipated, particularly after I decided to go back as far as I could get data for. The resulting main basic data spread sheet currently has a grid of well in excess of 1,200,000 cells, and it grows every day! In addition, there are ten more spread sheets that I used to test the placement of the borders between the three zones.

The zones are based on moving averages. It took an enormous amount of work over many months to determine the very best number of time periods to include in the moving average calculation.

How is the rule of thirds used?

 This is an easy question to answers. The trader simply looks at their screen to see the colour behind the current price. If it is pink, they should only consider selling. If it is white, they should consider buying or selling, and if it is green they should only consider buying!

Of course, whether to buy or sell is only one, albeit an important component, part of the decision-making process. The actual price to trade at; the size (volume) of the trade, when to exit the trade, when and how to defend the trade are some of the other factors to take into account. The Courses on forex home study pack called Making Money with Forex covers all of these elements of the decision and more. This can be purchased from our website shop at http://coursesonforex.co.uk/shop

Does the rule of thirds work with all currency pairs?

 All currency pairs have their characteristics or, as I like to call it, their personality. For example, they have different trading volumes and different degrees of price volatility. I decided only to trade the GBPUSD currency pair. My strategy was to get to know this pair extremely well and not to divide my attention by fighting on more than one front. This has worked very well indeed for me so far.

The short answer is therefore that I simply don’t know if the rule of thirds will work with other currency pairs. It has simply not been tested. I suspect that the personality of the EURUSD or EURGBP pairs may be similar enough for the rule to work with them. However, it could very well be that the moving averages needed to calculate the borders between the various zones could be different.

It may even be that I need to adjust how the borders are calculated for the GBPUSD pair over time too, time will tell, and subscribers will get any updates that I produce.

How can I get the rule of thirds tool on my trading screen?

The Rule of thirds is designed for the MT4 trading platform and is a plug-in. It comes with an installation video and should take no more than 2 minutes to install.

It comes as part of a package of unique trading tools and also includes a plug-in for my Jeff’s Lines indicator. This is an even more powerful tool than the rule of thirds as it provides entry and exit points for the buy or sell trades that the rule of thirds has decided is appropriate. In addition, the pack comes with my Excel based trading gains target and planning tool which informs users of the trade size that is appropriate to the trade involved.

The trading tools pack can be obtained from our web shop at http://coursesonforex.co.uk/shop and comes FREE with the purchase of the full course which also includes life-long coaching and mentoring.