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.
----
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 rebounds after falling toward 1.1700
EUR/USD gains traction and trades above 1.1730 in the American session, looking to end the week virtually unchanged. The bullish opening in Wall Street makes it difficult for the US Dollar to preserve its recovery momentum and helps the pair rebound heading into the weekend.
GBP/USD steadies below 1.3400 as traders assess BoE policy outlook
Following Thursday's volatile session, GBP/USD moves sideways below 1.3400 on Friday. Investors reassess the Bank of England's policy oıtlook after the MPC decided to cut the interest rate by 25 bps by a slim margin. Meanwhile, the improving risk mood helps the pair hold its ground.
USD/JPY rallies to near 157.00 as Yen plunges after BoJ’s policy outcome
The USD/JPY is up 0.85% to near 156.90 during the European trading session. The pair surges as the Japanese Yen underperforms across the board, following the Bank of Japan monetary policy announcement. In the policy meeting, the BoJ raised interest rates by 25 bps to 0.75%, as expected, the highest level seen in three decades.
Editors’ Picks
EUR/USD rebounds after falling toward 1.1700
EUR/USD gains traction and trades above 1.1730 in the American session, looking to end the week virtually unchanged. The bullish opening in Wall Street makes it difficult for the US Dollar to preserve its recovery momentum and helps the pair rebound heading into the weekend.
USD/JPY rallies to near 157.00 as Yen plunges after BoJ’s policy outcome
The USD/JPY is up 0.85% to near 156.90 during the European trading session. The pair surges as the Japanese Yen underperforms across the board, following the Bank of Japan monetary policy announcement. In the policy meeting, the BoJ raised interest rates by 25 bps to 0.75%, as expected, the highest level seen in three decades.
Gold stays below $4,350, looks to post small weekly gains
Gold struggles to gather recovery momentum and stays below $4,350 in the second half of the day on Friday, as the benchmark 10-year US Treasury bond yield edges higher. Nevertheless, the precious metal remains on track to end the week with modest gains as markets gear up for the holiday season.
Crypto Today: Bitcoin, Ethereum, XRP rebound amid bearish market conditions
Bitcoin (BTC) is edging higher, trading above $88,000 at the time of writing on Monday. Altcoins, including Ethereum (ETH) and Ripple (XRP), are following in BTC’s footsteps, experiencing relief rebounds following a volatile week.
How much can one month of soft inflation change the Fed’s mind?
One month of softer inflation data is rarely enough to shift Federal Reserve policy on its own, but in a market highly sensitive to every data point, even a single reading can reshape expectations. November’s inflation report offered a welcome sign of cooling price pressures.
RECOMMENDED LESSONS
Making money in forex is easy if you know how the bankers trade!
I’m often mystified in my educational forex articles why so many traders struggle to make consistent money out of forex trading. The answer has more to do with what they don’t know than what they do know. After working in investment banks for 20 years many of which were as a Chief trader its second knowledge how to extract cash out of the market.
5 Forex News Events You Need To Know
In the fast moving world of currency markets where huge moves can seemingly come from nowhere, it is extremely important for new traders to learn about the various economic indicators and forex news events and releases that shape the markets. Indeed, quickly getting a handle on which data to look out for, what it means, and how to trade it can see new traders quickly become far more profitable and sets up the road to long term success.
Top 10 Chart Patterns Every Trader Should Know
Chart patterns are one of the most effective trading tools for a trader. They are pure price-action, and form on the basis of underlying buying and selling pressure. Chart patterns have a proven track-record, and traders use them to identify continuation or reversal signals, to open positions and identify price targets.
7 Ways to Avoid Forex Scams
The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?
What Are the 10 Fatal Mistakes Traders Make
Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.
The challenge: Timing the market and trader psychology
Successful trading often comes down to timing – entering and exiting trades at the right moments. Yet timing the market is notoriously difficult, largely because human psychology can derail even the best plans. Two powerful emotions in particular – fear and greed – tend to drive trading decisions off course.