I’ve really enjoyed the chat forum these past two weeks, because there’s some thoughtful and interesting analysis going on almost every night. This isn’t always the case, so it’s refreshing and time well spent.
What’s also been going on however is a nightly discussion on ways to short the USD, since after all, it cant go any higher, can it? Unfortunately, these guys are constantly getting their stop-losses blown out night after night as the USD keeps on running. Here are the mistakes I’m seeing from them almost on a nightly basis. Keep in mind this mainly pertains to trading near the end of a big run like we’ve seen this month:
[B]1) Using support and resistance lines on low TFs in an attempt to figure out when the big reversal is coming[/B] – S/R lines on low timeframes work, but not nearly as well as on larger timeframes. And they’re not effective when it comes to finding out when to enter for the major reversal that we all know is coming sooner or later. The people that are quoting support and resistance lines on their 15m chart are getting them blown out every night.
[B]2) Trying to pinpoint the exact moment of the reversal in the first place [/B]-- AKA, lack of patience. The best traders out there rarely enter the market at the very bottom or top of a major trend reversal. I’ve learned the hard way, don’t bother trying to get in at these times! Let there be some real momentum (and by real I mean more than one candle on a 4h chart or greater) going against the trend before getting in. It may not be the perfect entry, but your chances of getting stopped out go way down as well, and this can save you from jumping the gun.
[B]3) Making their entries during the Asian session[/B] – Asian session highs and lows both get blown out more nights than not. Go look. Using these levels as a reason to enter before the London Session even begins is just asking for trouble IMO. Those highs and lows can be useful later, but not right then and there.
I’m far from an expert, but during times like these, I’ve had some real success holding out, dropping down to a daily chart, and waiting for at least a couple of candles to start going the other way before getting serious about shorting the USD, or whatever the charging currency is at the time. I think blindly entering when a pair has kinda sorta looked like it bounced off of a resistance line, especially on a lower timeframe, is asking for trouble. I think traders really overvalue a lot of support and resistance lines when you have a runaway freight train that seems to care very little for them.
I would love to hear your thoughts on this, and any other tips or methods you like to use when we come to what we think is an end of a big run, because it can be a really tough time to trade.
And make no mistake, I hope everyone here banks some pips, lots of them, and on a consistent basis, but I’ve seen some pathological errors in the last two weeks that have put some dents in people’s accounts, and I want to get people’s input on that either way so we can all be better prepared.