Trading in the direction of the trend and buying low while selling high are mutually exclusive. Because we recommend you locate the direction of the trend and find a good entry, DailyFX has a new concept for you to consider.
Buy the higher low and sell the lower high. This article will provide you with methods to do just that to prevent you from catching a falling knife. What traders can do is recognize that patterns tend to play out and repeat over and over again which can lead to higher probability entries.
One trader will be right and the other will be wrong if they entered at the same price with similar stops and limits. As stated at the beginning of the article, there is no crystal ball or Holy Grail. However, there are methods that you can use to stay on the likely right side of the big moves.
Pivot Lines are a leading indicator of sort. In short, Pivot Lines are a famous indicator to help you forecast likely future points of resistance and support to limit risk and find profit targets. Rising Pivot levels overtime can help you find a significant higher low to enter a buy trade or lower high to enter a sell trade on.
Combining pivots lines with candlestick analysis is a preferred method of many traders to find strong entries with the trend. A short cut for new traders looking at price action is to fade long wicks highlighted above against the trend as they likely are a rejection of a price test and often end up carrying back price in the direction of the trend. The Relative Strength Index is the utility knife of many traders. When the RSI crosses an extreme level and is making directional moves higher or lower, traders can look for strong entries that favor the RSI bias.
One simple way to find a directional bias on RSI is to add a moving average or trendline to the RSI and find bounces off support or breakouts of the RSI for a high probability entry. Trendlines and channels are nice and simple. The value of a trendline or channel is increased every time it is tested. When markets are moving higher a trendline is a form of support that can be used to identify buying opportunities.
When markets are moving lower, a trendline is a form of resistance that can be used to identify selling opportunities. The purpose of this article is to help you understand that buying low and selling high is not a given trading system. Because price is the ultimate indicator, trendlines or channels can help you pinpoint a higher probability entry as opposed to a cheap entry which could end up costing you a lot if it continues to move against you.
Finding a directional bias through the methods above can help you pinpoint entries. Follow me on Twitter ForexYell. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Move Back Below 1. Click here to dismiss. Foundations of Technical Analysis: Classic Chart Patterns, Part I. Upcoming Events Economic Event.
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