One of the beauties in forex trading is its dynamism and volatility that it creates endless opportunity for traders who knew how to capitalize on these movements.
Nevertheless, most of the time traders are caught buying at the top and selling at the bottom. This is very common. At times, when they did not enter the trending, the market keep on moving like there is no end to it, and they regret for not joining such a strong trend. When they are caught in such situation, they normally join the trend later at the end and hang on to their losses as they are not sure whether those slow (but sure) reversals are corrections or reversals in trend.
The question is; how do we know? Well, there is no exact answer to this as we are always dealing with the unknowns in trading. But of course, there are ways to increase our chances in being correct.
That is why experts always remind us not to jump on a running train. You could survive but it is very risky. Always bear in mind that trading is not an exact science as it is an art that one should continuously learn to understand.
The easiest way to identify this is to refer to the 5 minutes chart of Kuasa Forex and analyse whether it has broken the 5M Bollinger band or not. The moment price indicates reversal signs within the candlesticks stop and wait. Do not enter as timing is everything here. Look at the movement and wait for it to break the 5M Bollinger to confirm. Even if that happens, it is not advisable for you to join the reverse movement as in a strong trend market, temporary reversal is mainly due to profit taking rather than anything else. You could but do not stay there for long, just scalp a few pips and get out. Do not be greedy.
If the price does not break the Bollinger Band and keep on ranging close to it, then it is the best bet for you to enter there (in tandem with the main trend) and setting your SL merely 10 to 25 pips below (if LONG) or above (if SHORT) the band. Set your TP between 20 to 50 pips as these are easy targets. Chances are you get the best results as even if you are wrong, you are risking no more than 25 pips.
Remember the phrase that it is always a battle between buyers and sellers. The best time to join the trend is when you can clearly seen that almost everyone is on the same mode, or so called in consensus. This is normally happened during major news release that generates a strong sentiment that moves the market strongly in one direction than the other.
When this occurs, join the trend diligently with great timing especially if you are scalping. Swing trader with stronger swing absorber (higher margins & SL), then you should go ahead sticking with the trend.
Always use your analytical skills in studying whether this is a profit taking activity or a mode swing. Normally, when profit taking took place, the most it will reverse is 100 pips, depending on the trend. Normally it will not even go beyond 50 pips. So the point here, when you accidentally entered at one of these tops or bottoms, never set your SL beyond 100 pips. The best is to keep it below 50 pips since this will for sure minimise your losses if you are wrong. Or perhaps the best advice is “just get out”.
In my opinion and experience as a part time trader, being either a pure technician or fundamentalist will not do the best trick in your trading. For you to be consistently on the profitable side, you need to have a perfect blend between these two and always take the advantage when opportunities present by itself. We are small traders with vision and hence taking advantage by making intelligent guesses are all that we have as weapons.
If someone tells you that he knows something for sure, he is lying. No one ever will.
Nevertheless, most of the time traders are caught buying at the top and selling at the bottom. This is very common. At times, when they did not enter the trending, the market keep on moving like there is no end to it, and they regret for not joining such a strong trend. When they are caught in such situation, they normally join the trend later at the end and hang on to their losses as they are not sure whether those slow (but sure) reversals are corrections or reversals in trend.
The question is; how do we know? Well, there is no exact answer to this as we are always dealing with the unknowns in trading. But of course, there are ways to increase our chances in being correct.
That is why experts always remind us not to jump on a running train. You could survive but it is very risky. Always bear in mind that trading is not an exact science as it is an art that one should continuously learn to understand.
The easiest way to identify this is to refer to the 5 minutes chart of Kuasa Forex and analyse whether it has broken the 5M Bollinger band or not. The moment price indicates reversal signs within the candlesticks stop and wait. Do not enter as timing is everything here. Look at the movement and wait for it to break the 5M Bollinger to confirm. Even if that happens, it is not advisable for you to join the reverse movement as in a strong trend market, temporary reversal is mainly due to profit taking rather than anything else. You could but do not stay there for long, just scalp a few pips and get out. Do not be greedy.
If the price does not break the Bollinger Band and keep on ranging close to it, then it is the best bet for you to enter there (in tandem with the main trend) and setting your SL merely 10 to 25 pips below (if LONG) or above (if SHORT) the band. Set your TP between 20 to 50 pips as these are easy targets. Chances are you get the best results as even if you are wrong, you are risking no more than 25 pips.
Remember the phrase that it is always a battle between buyers and sellers. The best time to join the trend is when you can clearly seen that almost everyone is on the same mode, or so called in consensus. This is normally happened during major news release that generates a strong sentiment that moves the market strongly in one direction than the other.
When this occurs, join the trend diligently with great timing especially if you are scalping. Swing trader with stronger swing absorber (higher margins & SL), then you should go ahead sticking with the trend.
Always use your analytical skills in studying whether this is a profit taking activity or a mode swing. Normally, when profit taking took place, the most it will reverse is 100 pips, depending on the trend. Normally it will not even go beyond 50 pips. So the point here, when you accidentally entered at one of these tops or bottoms, never set your SL beyond 100 pips. The best is to keep it below 50 pips since this will for sure minimise your losses if you are wrong. Or perhaps the best advice is “just get out”.
In my opinion and experience as a part time trader, being either a pure technician or fundamentalist will not do the best trick in your trading. For you to be consistently on the profitable side, you need to have a perfect blend between these two and always take the advantage when opportunities present by itself. We are small traders with vision and hence taking advantage by making intelligent guesses are all that we have as weapons.
If someone tells you that he knows something for sure, he is lying. No one ever will.
copyright Ó 2009 by shahrul nizam hussin
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