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 declines toward 1.1700 on solid USD recovery
EUR/USD turns south and declines toward 1.1700 on Wednesday. A solid comeback staged by the US Dollar weighs heavily on the pair, as traders look to USD short covering ahead of US CPI on Thursday. However, the downside could be capped by hawkish ECB expectations.
GBP/USD slides toward 1.3300 after softer-than-expected UK inflation data
GBP/USD has come under intense selling pressure, eyeing 1.3300 in the European session on Wednesday. The UK annual headline and core CPI rose by 3.2% each, missing estimates of 3.5% and 3.4%, respectively, reaffirming dovish BoE expectations and smashing the Pound Sterling across the board.
USD/JPY jumps higher to near 155.50 as US Dollar outperforms; BoJ decision eyed
The USD/JPY pair gains 0.55% and jumps higher to near 155.50 during the European trading session on Wednesday. The pair strengthens as the US Dollar outperforms its peers, following the release of the United States Nonfarm Payrolls report for October and November.
Editors’ Picks
GBP/USD slides toward 1.3300 after softer-than-expected UK inflation data
GBP/USD has come under intense selling pressure, eyeing 1.3300 in the European session on Wednesday. The UK annual headline and core CPI rose by 3.2% each, missing estimates of 3.5% and 3.4%, respectively, reaffirming dovish BoE expectations and smashing the Pound Sterling across the board.
EUR/USD declines toward 1.1700 on solid USD recovery
EUR/USD turns south and declines toward 1.1700 on Wednesday. A solid comeback staged by the US Dollar weighs heavily on the pair, as traders look to USD short covering ahead of US CPI on Thursday. However, the downside could be capped by hawkish ECB expectations.
Gold clings to modest gains above $4,300
Following Tuesday's volatile action, Gold regains its traction on Wednesday and trades in positive territory above $4,300. While the buildup in the USD recovery momentum caps XAU/USD's upside, the cautious market stance helps ithe pair hold its ground.
Bitcoin, Ethereum and Ripple extend correction as bearish momentum builds
Bitcoin, Ethereum, and Ripple remain under pressure as the broader market continues its corrective phase into midweek. The weak price action of these top three cryptocurrencies by market capitalization suggests a deeper correction, as momentum indicators are beginning to tilt bearish.
Ukraine-Russia in the spotlight once again
Since the start of the week, gold’s price has moved lower, but has yet to erase the gains made last week. In today’s report we intend to focus on the newest round of peace talks between Russia and Ukraine, whilst noting the release of the US Employment data later on day and end our report with an update in regards to the tensions brewing in Venezuela.
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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.