You Have to Look at a Chart from West to East
Many begining traders fall into the easy trap of looking at a chart from south to north, instead of the more realistic west to east. North to south is exciting…it conjurs up the emotions of a trading windfall, and of how smart we are. It’s also misleading.
Once you take a signal based on a short-term trend shift the market will generally do one of 3 things. Follow thru in the direction of the shift, go sideways before following thru, or fail. Most people will lose money on 2 out of 3 of those occurences as they mistake the sideways price action for failure and exit at the wrong end of a range. To get to where they want to be, students need to recognize that it’s common for markets to give more sideways action and steeper corrections early in a trend — i.e. earlier in the trade. What will help the trader recognize that the trend shift is still likely to yield follow thru is a lagging indicator. The lagging indicator will often record that the momentum is still in favor of the original trend shift even as price pauses or corrects back against the shift.
This happens on all time frames and you will get better at recognizing it as it is occuring by first going back and seeing how it unfolds day in day out on the shorter-term charts. By doing so you will also start to see the value of reading a chart form west to east, and not north to south.
To attend a complimentary tutorial on one tool we use to help us identify a trend shift e-mail me at jnorris@brewerinvestmentgroup.com or call 800-971-2154.
Jay Norris
www.trading-u.com
jnorris@brewerinvestmentgroup.com
DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. Risks include the potential that changing political/economic conditions may substantially affect the price/liquidity of a currency. Investors may lose all or more than their original investments.
I am interested in the tutorial on identifying a trend shift.
Thank you,
Peter Horn