Rick Wright
Online Trading Academy
Hello traders! This week’s newsletter is about the inconsistencies we find in the markets, and how with a little bit of patience we can make things easier on us…
Have you ever had one of those weeks or months in trading where the pips just wouldn’t stop coming into your account? You are on the internet looking at expensive homes, cars, trips, better colleges for your kids, etc., and then things seem to change. All of a sudden, what seemed like an easy proposition (trading) has turned into a nightmare? Well, welcome to trading everyone!
We can normally define a market as either trending up or down, or moving sideways. Depending on how/where you learned to trade, your initial experience was in one of those markets. Once you started earning a few pips (if you were keeping a trade journal!), you should have gotten an idea of what kind of trader you are. Some traders are great in sideways markets, looking to buy near the bottom of a range and selling near the top of the range. Some are much better in up or down trending markets, selling small rallies in downtrends and buying the small pullbacks in uptrends. The complete trader would have the ability to trade all three ways. But what if you aren’t a complete trader yet?
In the following EURUSD 480-minute chart, I drew in a yellow rectangle designating a sideways channel of about 160 pips. Every few days you could be trading this range bound market, buying near the bottom and selling near the top; then reversing to go short, selling near the top and buying back near the bottom. This would have been a pleasing, consistent strategy for a few weeks. However, at the green 1 on the chart, the price has decisively broken out of the channel. Now, some learn to trade and become proficient at sideways range trading and they might continue attempting to sell SHORT rallies and buy to cover on the pullbacks. In my opinion, this is a very difficult and time-consuming way to make a few pips (countertrend trading).
A more complete trader would have recognized that at number 1 the market has changed. He or she would shift gears from the range bound technique to trading primarily on the long side; buying the pullbacks to demand, selling in supply, then waiting for the next pullback. Notice the uptrending channel lines drawn in. The complete trader would have been able to draw in the lower line when the green candle at 1 broke out of the range. The upper channel line would not have been able to be drawn in until about 10 candles later when the first real pullback in this new uptrend happened.
The inexperienced, incomplete trader who learned in a sideways market was probably frustrated with their results until the next sideways market happened, marked with the yellow box in the upper right on this chart. The inexperienced, incomplete trader who learned to trade in an up or down trending market would be frustrated during the times of sideways markets. Why would they be frustrated? Because they would get stopped out repeatedly using just one technique!
So how do we fix this trading problem? Well, three ways come to mind. The first is to only trade the trend that you are good at; your trading plan and journal should show you exactly what trend you make the most pips off of. If you are good at a sideways market, and the pair you are looking at ISN’T in a sideways market, find one that is! There are several currency pairs you could try, from JPY crosses to commodity pairs. Somebody will be in your favored trend direction!
The second way to fix the problem is to be flexible and learn to trade the other trends. This is much more of the complete trader mentioned earlier.
The third way is to learn options on your forex pairs. There are so many different ways to trade options, in both sideways and up/down trending markets, there is nearly always a trade available.
So, let’s wrap this up. Looking at your trade journal, you should know what type of market you are best at trading. To become a better trader, work at improving your weaknesses, and maybe start trading another asset class (options) to help with making you a better all-around trader!
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Editors’ Picks
EUR/USD looks offered below 1.1900
EUR/USD keeps its bearish tone unchanged ahead of the opening bell in Asia, returning to the sub-1.1900 region following a firmer tone in the US Dollar. Indeed, the pair reverses two consecutive daily gains amid steady caution ahead of Wednesday’s key US Nonfarm Payrolls release.
GBP/USD slips back to daily lows near 1.3640
GBP/USD drops to daily lows near 1.3640 as sellers push harder and the Greenback extends its rebound in the latter part of Tuesday’s session. Looking ahead, the combination of key US releases, including NFP and CPI, alongside important UK data, should keep the pound firmly in focus over the coming days.
USD/JPY drops toward 155.00 as focus shifts to US data
USD/JPY meets fresh supply and inches closer toward 155.00 in the Asian session on Tuesday. The Japanese Yen holds the upper hand over the US Dollar after Japanese Prime Minister Sanae Takaichi led the ruling Liberal Democratic Party to a historic landslide win and on intervention talks. Traders brace for key US economic data that could offer more clues on the Federal Reserve's monetary policy.
Editors’ Picks
AUD/USD meets initial resistance around 0.7100
A decent rebound in the US Dollar is behind the AUD/USD’s daily pullback on Tuesday. In fact, the pair comes under modest downside pressure soon after hitting fresh yearly peaks in levels just shy of 0.7100 the figure on Monday. Moving forward, investors are expected to closely follow the release of Chinese inflation data on Wednesday.
EUR/USD looks offered below 1.1900
EUR/USD keeps its bearish tone unchanged ahead of the opening bell in Asia, returning to the sub-1.1900 region following a firmer tone in the US Dollar. Indeed, the pair reverses two consecutive daily gains amid steady caution ahead of Wednesday’s key US Nonfarm Payrolls release.
Gold the battle of wills continues with bulls not ready to give up
Gold remains on the defensive and approaches the key $5,000 region per troy ounce on Tuesday, giving back part of its recent two day. The precious metal’s pullback unfolds against a firmer tone in the US Dollar, declining US Treasury yields and steady caution ahead of upcoming key US data releases.
Bitcoin's downtrend caused by ETF redemptions and AI rotation: Wintermute
Bitcoin's (BTC) fall from grace since the October 10 leverage flush has been spearheaded by sustained ETF outflows and a rotation into the AI narrative, according to Wintermute.
Dollar drops and stocks rally: The week of reckoning for US economic data
Following a sizeable move lower in US technology Stocks last week, we have witnessed a meaningful recovery unfold. The USD Index is in a concerning position; the monthly price continues to hold the south channel support.
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