The trend is your friend?There may not exist a more commonly used trading axiom when technical analysis is discussed. When either the buyers or sellers gain control of the marketplace, a trend develops, sending the prices to new highs or lows. When this phenomenon occurs, it can be in our best interest to simply place a trade poised in the same direction as the prevailing trend, and hold on with the anticipation of a continuation to ensue. With that said, there are a number of trains of thought dictating how we may navigate this trend. It is quite easy to simply place a buy stop order above the recent high prices as logic dictates that if the market trades to a new high, the growing buying force will once again overcome the weakening short positions, sending them into submission; a protective stop order or margin call. However the practice of buying new highs and selling (short) new lows can be quite perilous as the (FX) market has the tendency to retrace substationally before accomplishing our expected higher highs / lower lows. Therefore even during those instances that a trending market condition exists, we should make every attempt to identify the trading ranges that develop within these price channels. For example, the following (4-Hour) chart shows the GBPUSD in a clear trend to the upside as of late. However note the trading ranges that develop within the steady climb higher. The moral of the story is as follows: In addition to the identification of the prevailing market direction (trend), we should also use the incremental trading ranges in order to find the ideal buy and sell points on the chart, before placing our next trade?
Best of luck in all your trades?
