The Two-Step Process for Finding a Currency Trade

11/27/2015 9:00 am EST

Focus: FOREX

I’ve seen some new traders have some incredible winning results in a short period of time.

However, quite often, they will lose those gains as just quickly. They don’t do anything differently and will come to us for some sort of insight. The reason is usually the same in that they forget to first identify the mood of the market before finding their trade. What I mean by that is to first identify the direction of the trend on the daily chart and then to find your trade. If the daily trend is up, then only look for buys, and if the daily trend is down, then only look for sells. If the daily chart shows a range-bound market, then look to buy above support and sell below resistance. If you are not sure of the trend, then the play is to move on to another currency pair where the trend seems obvious.  


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I've seen many traders buy the pullbacks on a currency pair that is in a strong uptrend and enjoy tremendous success.  Then when the trend stalls out or changes, they continue to buy and may lose all of those gains. Being on the right side of a trending move can result in some great trades, while trading against the trend can lead to many quick losses. A good way to see if this may be one of your problems is to run a report on your FX trading station to see all of the trades you have made. Then take a look at the daily chart and note where you entered into the trade. Now ask yourself how your results would have been if you had only traded in the markets where you could confidently identify the trend. You may find that adding this simple first step of identifying and trading with the daily trend increases your chances for success.

By Thomas Long of DailyFX.com

DailyFX provides forex news on the economic reports and political events that influence the currency market.

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