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.
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This is the second chapter of 9-chapter series about trading forex responsibly.
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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