You’ve probably heard the expression: “Make the trend your friend”. For many, this basic idea has already been forgotten and regarded as yet another cliché. Nevertheless, it is still very relevant.
If your system involves looking at 1 hour charts, check out the 4 hours charts and the daily charts to get the bigger picture. What is the general direction of your currency pair?
Are the larger scoped charts headed lower when you place a long position? Maybe it is time to rethink your position.
Sure, you can money on corrections. If the pair approached a resistance line and the general direction is up, you may short the pair when it approaches the line and profit off the bounce. But let’s remember two things:
This could be the break: Perhaps the pair has enough momentum to cross the line this time. If the general direction is higher, you don’t want to be the contrarian in this case, as your trade will lose.
Corrections are smaller: Breakouts are usually stronger than corrections. Many traders use Fibonacci lines to measure the potential of the correction. Using this theory, a correction is 38.2%, 50% or 61.2% of the move while a breakout has a larger potential of covering 100% of the previous range, according to the same theories.
Of course, breakouts can be false, and may not yield the desired results. There are ways to cope with false breakouts, and in many cases, the preliminary false breakout is a preparation for the big move. The wider trend longer term trend has a better chance of being the winning one.
Trying to outsmart the markets sounds bold and can make a great impression on your friends, but you won’t be running to boast your victories to your friends if this strategy turns out to be a losing one.
Has the pair recently been trading in an uptrend or downtrend channel within the current range? What is the news about the currencies in question? In some cases, a potential direction can emerge for the pair and you could be aware of this and take advantage of this.
Flat ranges aren’t forever. The pair will eventually break out, and making a deeper analysis can help you find the right direction.
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This is the second chapter of 9-chapter series about trading forex responsibly.
If your system involves looking at 1 hour charts, check out the 4 hours charts and the daily charts to get the bigger picture. What is the general direction of your currency pair?
Are the larger scoped charts headed lower when you place a long position? Maybe it is time to rethink your position.
Sure, you can money on corrections. If the pair approached a resistance line and the general direction is up, you may short the pair when it approaches the line and profit off the bounce. But let’s remember two things:
This could be the break: Perhaps the pair has enough momentum to cross the line this time. If the general direction is higher, you don’t want to be the contrarian in this case, as your trade will lose.
Corrections are smaller: Breakouts are usually stronger than corrections. Many traders use Fibonacci lines to measure the potential of the correction. Using this theory, a correction is 38.2%, 50% or 61.2% of the move while a breakout has a larger potential of covering 100% of the previous range, according to the same theories.
Of course, breakouts can be false, and may not yield the desired results. There are ways to cope with false breakouts, and in many cases, the preliminary false breakout is a preparation for the big move. The wider trend longer term trend has a better chance of being the winning one.
Trying to outsmart the markets sounds bold and can make a great impression on your friends, but you won’t be running to boast your victories to your friends if this strategy turns out to be a losing one.
Sideways
When the currency pair of choice trades sideways, there is no trend in theory and both directions can work. Also in this case, it is important to have another look and try to identify if any direction, up or down is emerging.Has the pair recently been trading in an uptrend or downtrend channel within the current range? What is the news about the currencies in question? In some cases, a potential direction can emerge for the pair and you could be aware of this and take advantage of this.
Flat ranges aren’t forever. The pair will eventually break out, and making a deeper analysis can help you find the right direction.
----
This is the second chapter of 9-chapter series about trading forex responsibly.
Editors’ Picks
EUR/USD advances above 1.1800 ahead of German inflation data
EUR/USD stretches higher above 1.1800 in the European session on Friday, helped by sustained US Dollar weakness. Attention now turns toward the release of the preliminary inflation data for February from Germany and its major states during the day.
GBP/USD struggles near 1.3500 amid UK political drama, BoE easing bias
GBP/USD struggles to build on the overnight modest bounce from the weekly low and oscillates in a narrow band near 1.3500 in European trading on Friday. The Gorton and Denton by-election, held on February 26, has become a focal point of political drama in the UK, along with the Bank of England (BoE) easing expectations, acts as a headwind for the British Pound and the GBP/USD pair.
USD/JPY falls back below 156.00 as Tokyo CPI backs BoJ's hawkish outlook
USD/JPY attracts fresh sellers for the second straight day following the release of Tokyo CPI, which grew slightly more than expected in February. This comes on top of hawkish comments by BoJ officials and backs the case for further policy tightening, providing a modest lift to the Japanese Yen. Apart from this, sustained safe-haven buying, amid trade-related uncertainties and geopolitical tensions, benefits the JPY's safe-haven status. However, reduced Fed rate cut bets underpin the US Dollar and could help limit losses for the currency pair.
Editors’ Picks
EUR/USD advances above 1.1800 ahead of German inflation data
EUR/USD stretches higher above 1.1800 in the European session on Friday, helped by sustained US Dollar weakness. Attention now turns toward the release of the preliminary inflation data for February from Germany and its major states during the day.
GBP/USD struggles near 1.3500 amid UK political drama, BoE easing bias
GBP/USD struggles to build on the overnight modest bounce from the weekly low and oscillates in a narrow band near 1.3500 in European trading on Friday. The Gorton and Denton by-election, held on February 26, has become a focal point of political drama in the UK, along with the Bank of England (BoE) easing expectations, acts as a headwind for the British Pound and the GBP/USD pair.
Gold flat lines below $5,200; traders look to US PPI for fresh impetus
Gold struggles to capitalize on its modest gains registered over the past two days and trades below the $5,200 mark through the first half of the European session on Friday. Geopolitical risks remain in play amid a large US naval and air power buildup in the Middle East.
Bitcoin, Ethereum and Ripple consolidate with short-term cautious bullish bias
Bitcoin, Ethereum and Ripple are consolidating near key technical areas on Friday, showing mild signs of stabilization after recent volatility. BTC holds above $67,000 despite mild losses so far this week, while ETH hovers around $2,000 after a rejection near its upper consolidation boundary.
Changing the game: International implications of recent tariff developments
The Supreme Court ruling on International Emergency Economic Powers Act (IEEPA) tariffs provides limited relief for the rest of the world, with weighted average tariff rates modestly lower.
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