Finding a Trade is a Two-Step Process

Forex Trading | by Dailyfx.com | Wednesday, 02 December 2009 14:32 UTC
I’ve seen some new traders have some incredible winning results in a short period of time. However, quite often they will lose those gains as just quickly.

Since their approach did not change, they will come to us in the DailyFX Course for some sort of answer. The reason is usually the same in that they forget to first identify the mood of the market before finding their trade. What I mean by that is to first identify the direction of the trend on the daily chart and then find your trade. If the daily trend is up, then only look for buys and if the daily trend is down, then only look for sells. If the daily chart shows a range bound market, then look to buy above support and sell below resistance. If you are not sure of the trend, then the play is to move onto another currency pair where the trend seems obvious. I see many traders buying the pullbacks on a currency pair that is in a strong uptrend and enjoy tremendous success. Then when the trend stalls out or changes, they continue to buy those pullbacks and lose all of their previous gains. Being on the right side of a trending move can result in some great trades while trading against the trend can lead to many quick losses. A good way to see if this may be one of your problems is to run a report on your FX Trading Station to see all of the trades you have made. Then take a look at the daily chart and note where you entered into the trade. Now ask yourself how your results would have been if you had only traded in the markets where you could confidently identify the direction of the trend on the daily chart. Below are two current examples of strong trending markets.

two step

two step 2

The AUD/USD has been moving up for most of 2009 while the USD/CHF has been moving down. These trends are obvious and because of that offer some good trading opportunities. We want to look for buys in the AUD/USD since it is trending up and look for sells in the USD/CHF since it is trending down. You may find that adding this simple first step of identifying and trading with the daily trend increases your chance of success.

Written by Dailyfx.com


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