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 treads water around 1.1900
EUR/USD edges a tad lower around the 1.1900 area, coming under mild pressure despite the US Dollar keeps the offered stance on turnaround Tuesday. On the US data front, December Retail Sales fell short of expectations, while the ADP four week average printed at 6.5K.
GBP/USD looks weak near 1.3670
GBP/USD trades on the back foot around the 1.3670 region on Tuesday. Cable’s modest retracement also comes in tandem with the decent decline in the Greenback. Moving forward, the US NFP and CPI data in combination with key UK releases should kee the quid under scrutiny in the next few 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
EUR/USD treads water around 1.1900
EUR/USD edges a tad lower around the 1.1900 area, coming under mild pressure despite the US Dollar keeps the offered stance on turnaround Tuesday. On the US data front, December Retail Sales fell short of expectations, while the ADP four week average printed at 6.5K.
GBP/USD looks weak near 1.3670
GBP/USD trades on the back foot around the 1.3670 region on Tuesday. Cable’s modest retracement also comes in tandem with the decent decline in the Greenback. Moving forward, the US NFP and CPI data in combination with key UK releases should kee the quid under scrutiny in the next few days.
Gold loses some traction, still above $5,000
Gold faces some selling pressure on Tuesday, surrendering part of its recent two-day advance although managing to keep the trade above the $5,000 mark per troy ounce. The daily pullback in the precious metal comes in response to the modest rebound in the US Dollar, while declining US Treasury yields across the curve seem to limit the downside.
AI Crypto Update: BankrCoin, Pippin surge as sector market cap steadies above $12B
The Artificial Intelligence (AI) segment is largely on the back foot with major coins such as Bittensor (TAO) and Internet Computer (ICP) extending losses amid a sticky risk-off sentiment.
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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The challenge: Timing the market and trader psychology
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