John Lee

1. John Lee: A Comprehensive Guide for Beginner Traders

John Lee is a prominent figure in the realm of financial trading, particularly known for his development and popularization of the Three Moving Average (TMA) strategy. While not a household name in the mainstream financial media, within trading communities, his methodologies are widely studied and implemented, especially by those focused on scalping and short-term trading. This article provides a detailed overview of John Lee, his trading philosophy, the core principles of the TMA strategy, and how beginners can approach learning and applying his techniques.

1. 1. Who is John Lee?

Information about John Lee's personal life is relatively scarce. He maintains a relatively low profile, preferring to let his trading strategies speak for themselves. He is widely believed to be based in Southeast Asia and has been actively involved in financial markets for over two decades. Unlike many "gurus" who focus on self-promotion, Lee’s reputation was built through consistent profitability demonstrated by his students and through online forums dedicated to his work. He primarily focuses on trading the Forex market, but his strategies can be adapted to other markets like indices, commodities, and even cryptocurrencies, although with careful consideration of market nuances.

Lee’s approach is rooted in technical analysis, specifically focusing on price action and the use of moving averages to identify trends and potential entry/exit points. He emphasizes discipline, risk management, and a systematic approach to trading, rejecting the idea of relying on “gut feelings” or chasing unrealistic profits. A key tenet of his teaching is the importance of backtesting and forward testing a strategy before risking real capital. He is a strong proponent of demo account trading as a crucial learning stage.

1. 1. The Core Philosophy: Trend Following and Precision

John Lee’s trading philosophy centers around the principle of “trend is your friend.” He believes that identifying and trading in the direction of the prevailing trend offers the highest probability of success. However, he doesn't advocate blindly following trends. His strategies are designed to pinpoint *precise* entry and exit points within a trend, maximizing profit potential while minimizing risk.

This precision is achieved through the use of multiple moving averages, which act as dynamic support and resistance levels. Lee's strategies aren't about predicting the future; they're about reacting to what the market is *currently* doing. He emphasizes that the market discounts everything, and price action is the ultimate indicator of market sentiment. Therefore, understanding how to interpret price movements in relation to moving averages is paramount.

He particularly stresses the importance of understanding support and resistance levels and how they interact with moving averages. Identifying key levels can significantly improve the accuracy of trade entries and help traders set realistic profit targets. Lee’s approach also incorporates elements of candlestick patterns to confirm potential signals generated by the moving averages.

1. 1. The Three Moving Average (TMA) Strategy: A Deep Dive

The cornerstone of John Lee’s trading system is the Three Moving Average (TMA) strategy. It's relatively simple to understand, yet powerful when applied correctly. Here’s a detailed breakdown:

1. 1. 1. Components of the TMA Strategy

The TMA strategy utilizes three exponential moving averages (EMAs) with different periods:

• **Fast EMA (5-period):** This EMA reacts quickly to price changes and is used to identify short-term trends.
• **Medium EMA (20-period):** This EMA provides a smoother representation of the trend and acts as a filter for the fast EMA signals.
• **Slow EMA (50-period):** This EMA represents the longer-term trend and provides an overall context for the trade.

The use of EMAs is crucial, as they give more weight to recent price data, making them more responsive to changes in the market compared to Simple Moving Averages (SMAs). Understanding the difference between EMA vs SMA is fundamental to implementing the TMA strategy effectively.

1. 1. 1. Entry Rules (Long Position)

1. **Uptrend Confirmation:** The 5-period EMA must be above the 20-period EMA, and the 20-period EMA must be above the 50-period EMA. This confirms a bullish trend. 2. **Price Crossover:** Price must cross *above* the 5-period EMA. This is the primary entry signal. 3. **Confirmation Candlestick (Optional):** A bullish candlestick pattern (e.g., bullish engulfing, hammer) forming after the crossover can provide additional confirmation. Understanding candlestick reversal patterns can improve entry accuracy.

1. 1. 1. Entry Rules (Short Position)

1. **Downtrend Confirmation:** The 5-period EMA must be below the 20-period EMA, and the 20-period EMA must be below the 50-period EMA. This confirms a bearish trend. 2. **Price Crossover:** Price must cross *below* the 5-period EMA. This is the primary entry signal. 3. **Confirmation Candlestick (Optional):** A bearish candlestick pattern (e.g., bearish engulfing, shooting star) forming after the crossover can provide additional confirmation.

1. 1. 1. Exit Rules (Take Profit & Stop Loss)

These are critical for risk management and maximizing profits.

• **Take Profit:** Lee typically advocates for setting take profit levels based on multiples of the risk (i.e., Risk-Reward Ratio). A common ratio is 1:2 or 1:3. This means for every unit of risk taken, the trader aims to earn two or three units of profit. Understanding Risk-Reward Ratio is vital.
• **Stop Loss:** The stop-loss order should be placed strategically to limit potential losses. Common placements include:

   *   Below the recent swing low for long positions.
   *   Above the recent swing high for short positions.
   *   A fixed number of pips/points from the entry price.
   *   Below/Above the 20-period EMA.

• **Trailing Stop Loss:** As the trade moves in your favor, consider using a trailing stop loss to lock in profits and protect against sudden reversals.

1. 1. 1. Timeframes & Market Selection

The TMA strategy is most effective on shorter timeframes, such as the 15-minute, 30-minute, and 1-hour charts. However, it can be adapted to longer timeframes with adjustments to the EMA periods.

Lee primarily focuses on the Forex market, specifically major currency pairs (e.g., EUR/USD, GBP/USD, USD/JPY). However, the strategy can be applied to other markets, but it’s crucial to consider:

• **Volatility:** Adjust the EMA periods based on the market's volatility. More volatile markets may require longer EMA periods.
• **Liquidity:** Ensure the market has sufficient liquidity to allow for easy entry and exit.
• **Spread:** Consider the spread (the difference between the bid and ask price) as it can impact profitability, especially on shorter timeframes. Understanding trading spreads is essential.

1. 1. Advanced Considerations & Adaptations

While the core TMA strategy is relatively straightforward, John Lee’s teachings extend to more advanced concepts:

• **Dynamic Support & Resistance:** The EMAs themselves act as dynamic support and resistance levels. Traders can look for price to bounce off these levels or break through them with conviction.
• **Fibonacci Retracements:** Combining the TMA strategy with Fibonacci retracement levels can help identify potential entry and exit points with greater precision.
• **Trendlines:** Drawing trendlines in conjunction with the EMAs can further confirm the prevailing trend and provide additional support and resistance levels. Understanding trendline analysis is highly beneficial.
• **Market Structure:** Analyzing market structure (e.g., identifying higher highs and higher lows in an uptrend) can help validate the TMA signals.
• **News Events:** Be aware of upcoming economic news events that could impact the market. Avoid trading during periods of high volatility caused by major news releases. Understanding economic calendar is crucial.
• **False Breakouts:** Lee emphasizes the importance of identifying and avoiding false breakouts. He suggests using candlestick patterns and volume analysis to filter out false signals.
• **Money Management:** Lee is a staunch advocate of proper position sizing and risk management. Never risk more than 1-2% of your trading capital on any single trade.

1. 1. Common Mistakes to Avoid

Beginners often make these mistakes when learning and applying the TMA strategy:

• **Overtrading:** Taking too many trades, especially without proper confirmation.
• **Ignoring Stop Losses:** Failing to set stop losses or moving them to breakeven too early.
• **Chasing Trades:** Entering trades after the price has already moved significantly in one direction.
• **Lack of Discipline:** Deviating from the rules of the strategy.
• **Insufficient Backtesting:** Not thoroughly testing the strategy on historical data before risking real capital. Backtesting using tools like TradingView's Pine Script is highly recommended.
• **Ignoring Market Context:** Not considering the overall market trend and economic conditions.
• **Emotional Trading:** Letting emotions influence trading decisions. Understanding trading psychology is vital for success.
• **Not Adapting:** Failing to adjust the strategy to different market conditions.
• **Insufficient Record Keeping:** Not tracking trades to analyze performance and identify areas for improvement. Maintaining a trading journal is essential.
• **Ignoring Correlations:** Failing to consider the correlation between different assets. Understanding asset correlation can help diversify risk.

1. 1. Resources for Further Learning

• **Online Forums:** Search for forums dedicated to John Lee’s strategies (be cautious and verify information).
• **TradingView:** Utilize TradingView to backtest and forward test the TMA strategy.
• **Babypips:** A comprehensive website for learning Forex trading fundamentals. Babypips website
• **Investopedia:** A reliable source of financial definitions and educational articles. Investopedia website
• **Books on Technical Analysis:** "Technical Analysis of the Financial Markets" by John J. Murphy is a classic.
• **Online Courses:** Consider taking online courses on technical analysis and Forex trading. Look for courses that emphasize risk management.

Technical Analysis Forex Trading Moving Averages Exponential Moving Average Candlestick Patterns Support and Resistance Risk Management Trading Psychology Backtesting Demo Account Trading

Bollinger Bands MACD RSI Stochastic Oscillator Ichimoku Cloud Pivot Points Fibonacci Retracement Trendlines Market Structure Economic Calendar Trading Spreads Position Sizing Trailing Stop Loss TradingView's Pine Script Trading Journal Asset Correlation EMA vs SMA Risk-Reward Ratio

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