John Templeton, who has been an investor in forex day trading for more than five years and who is the originator of the Trading in the Buff forex signal system, soon discovered that all the complex systems that traders use to pick a profitable forex trade were only muddying the field for him. "I was basically just an inanimate object waiting for arbitrary lines to cross, signaling me that I should open or close a trade. Then it dawned on me. How in the world could I make money trading forex, if I don't even comprehend what I am looking at?"
This is when John determined to take the bull by the horns and to reason things out for himself. No more buying into this or that forex system theory. He proceeded by heeding what all the experienced traders had to say on the topic. And more than any other slogan that came out of their mouths was the phrase "price action." John was so aghast at himself that he could have kicked himself. "It was so obvious, I couldn't believe it."
When it comes to trading the foreign currency market, John concluded that the trader has to make a decision between one of two ways to analyze the trade: either by using fundamental analysis or using technical analysis. Fundamental analysis takes into consideration all the psychological fundamentals that can bear upon a currency's movement in the market. Things like the effect that the non-farm payroll numbers that are released once a month can have, or how raising or lowering interest rates can impact a given currency pair.
When it comes to using technical analysis, this kind of trader considers that opening up the indicator menu on their charting platform will in some way inform them which currency pairs to trade based on how the indicators read. From John's point of view these traders seem to think that -- rather than comprehending price movement -- paying attention to charts filled with lagging indicators such as RSI, MACD, and stochastics will guide them to the right trade to enter. After surviving years of losing trades following this same formula, John is convinced that following this path is a losing cause.
The one technical indicator that most unsuccessful contemporary traders don't make use of is price action. They're all waiting for all their other indicators to match up. For this kind of trader, the only important thing is what his static indicators are showing him, and price becomes secondary or even irrelevant. The only thing wrong with using lagging indicators the same as these is that they do not provide the trader a clear picture of what the market is essentially doing during a given trading period.
When, for instance, you train yourself to begin contemplating price support and resistance levels, you are seeing actual statistics which are influencing the direction of the market. No lagging indicator will ever give you that kind of knowledge which will last for very long. You have to be able to see it directly from the market itself. This is what John is attempting to hammer home in his currency trading course Trading in the Buff.
The name of his method refers to the shedding of indicator based strategies and returning to basic price action indicators. Put another way, trading in the buff, without using the theoretical indicator window dressing that many traders are taught to base their trading habits on. The theories sound good, but they don't necessarily work.