Where is Price Will Go?
There is an old saying in trading: “The trend is your friend until the end,” or “A trend is a trend until it bends” – meaning place your trade in sync with the market direction. Trading with the existing trend, in a trending market, can be one of the easiest routes to profitability. Yet many traders are hesitant to participate in this approach, hence one the reasons why over 95% of currency traders lose all their money.An essential first step in identifying current market direction is to scan the big picture. Very often beginning traders focus on smaller time frames such as 5 minutes charts to shape their trading decisions. The focus on a small time frame may lead to some winning trades but you might find yourself trading against the trend resulting in an accumulative loss overall, therefore the importance of ask yourself:
What are the currency pair patterns on a hourly, daily, weekly and monthly chart?
These charts provide clues as overall price direction and to whether the currency pair is getting close to an importance are Support and Resistance or an important Key Psychological Level of hesitation in the market. By scanning the larger time frames the trader should be better prepared for recognizing whether he or she should be buying or selling the market any given day.
One of the most effective methods for choosing the direction to trade is the price itself. Our standard definition of an uptrend is persistent pattern of higher highs and higher lows or lower highs and lower lows, indicating a down trend.
The key to trading does not lie in following a specific wiggly line, but in recognizing that the prevaling trend represents the underlying momentum of the market, which is the direction your trades should take as well.
If the currency pair price is above its long term moving average, this indicates that global sentiment has been strong for the currency pair. ALWAYS TRADE WITH THE TREND. Do not take trades against the trend shown in the hourly chart unless you are certain the market has turned. Check this by watching a long term moving average (144 EMA). If price is above the 144 EMA and prices are showing a series of higher highs and higher lows, the trader interprets this as being in a bullish mode and can choose to look to place a buy order when the opportunity arises (ignoring any given short entry signals).
A trading opportunity in bullish mode is called a “bullish trade” or a “long position”.
If price is below the 144 EMA and price is showing a series of lower highs and lower lows, the trader interprets this as the market be in bearish mode and can choose to look for selling trading opportunities (ignoring any given buy entry signals).
A trading opportunity in bearish mode is called a “bearish trade” or a “short position”.
