This post is a reminder to all of us trading the forex market. Here is the reminder: Do not look for complex systems to trade the market. Look for simple and proven signals that is timeless and can give you the 90 percent chance of success when you trade based on those signals. These signals will usually be learned over time and requires experience. There is no short cut to trading success and especially so in the forex market. You need to gain as much experience as you can and you need to learn from the observations that you have made that is being played out in the forex market. That is one of the reasons why I am motivated to keep this forex blog alive. I don’t get paid doing this blog up but I am very happy to keep on updating it as it is actually a journal that helps to remind me of the interesting and potentially profitable observations that I have made with regards to trading the forex market.
One of the strongest signals that I would like to share with you is looking out for “Lower Highs in a downtrending Market using the 1 hour time frame”. How do you know that the particular price level is a high? Well, you play on probabilities and here it is bestthat I show you the signal itself on a chart that I have uploaded below.
I have marked 2 main areas as A and B. If you look at the area A, it shows a double top that proceeded with a long red candle after the double top have been formed. However, the market then rose up to test the downward sloping line that I have drawn. It failed to break that line and at the area B, you can see that there a lower high have been formed. Not only is it a lower high, the red candle is a “bearish engulfing” candle that signals to us to take a short position. If you are a disciplined trader, you would only take trades that meet your criterias that you have set for yourself.
Here, the chart is giving me 4 signals to take a short position.
(1) A double top formation have formed. (Bearish signal)
(2) A lower high have formed. (Bearish signal)
(3) Price failed to break above the downward sloping resistance. (Bearish signal)
(4) Price closed just below or on the 50ema (orange dotted line) which is acting as resistance here. (Bearish signal)
Hence, with the 4 bearish signals given to me, I did take a short trade at around 1.315 and I exited at 1.31 (round number) making myself 50 pips from this trade. What I make here is not important, but what I want to share here is that, this is an example of a trade that follows criterias and is not one based on just on emotions. It is these kind of events that make you understand that to be a professional forex trader, you need to be methodological and of course to do that you need a lot of patience. Also, if you notice, you do not have to guess the tops and bottoms of trades, you should wait for signals that will allow you to enter profitable trades. Some traders might critic that if you keep on waiting and not guess the tops or bottoms, you might just miss a few pips. Let me be clear here, I don’t mind being late for a party. I would rather be safe than feeling terribly sorry later.
You want to see how the trade developed after I took my profits? Yeah, you have guessed it right. It went down some more to 1.3074. 😛
Look at the chart below:
The market did go below the round number for about 26 pips before tuning back up. I have explained in an earlier post that prices do have certain reactions around round numbers (Trading around round numbers). I usually take my profits there but observing this particular situation and some others, I think that you can take your profits 10 to 20 pips below the round number.
I hope that you have learned something from this post. Trade with signals to increase the odds of being profitable in your trades.
Till then, good luck to your trading!
Singapore Forex Trading Blog