We all want to capture the big forex trends that yield the big profits.
It’s great to be in at the start and hold them for weeks and even months, but how do you do it?
Here is a simple method to help you.
The weekly chart
Start with the weekly chart and you will see the big picture and look for important areas of resistance that have been tested several times.
Now you have the big picture move to the daily chart.
See if you can see resistance in the same areas.
Make sure you only look for valid support with tests that have occurred several weeks or months apart.
You know then that these breaks if they occur will be significant and will trigger new buying.
Also these levels will see stop loss selling, as stops behind the resistance levels are hit.
This means that if a break occurs the odds of the price moving in the direction of the break are high.
Most significant price breaks and trends develop from new market highs, not market lows.
What you are going to do is enter on the break and place your stop below resistance.
The important point here is to trade with price momentum - If the currency breaks to the upside.
Wait for the break and watch these indicators for an indication of the strength of the break.
This should not be in overbought territory and the lower it is when the price breaks the better and it should be rising as the break occurs.
Watch on the break for both lines to be pointing up with bullish divergence.
This is simply the best momentum indicator you can use and if you don’t know how it works read our other articles.
Before the break it is best that they indicate low volatility.
You can see all the above indicators on free chart services on the net and one of the best is futuresource.com
Providing price momentum is with the break, go for a long trade at the close of US hours if it closes above the resistance your in.
Waiting for the close will help you filter out false breakouts.
Following the trend
As you have traded on a significant break of resistance and you have momentum in your favour odds are the trend will continue.
New buying will be triggered as resistance is significant and trend followers will move in and anyone holding shorts will have stops behind resistance and have to cover their positions, this will cause further price rises.
Move your stop or trail it in the first few days of the break.
Volatility could stop you out, you very often have a test of the breakout point after prices breakout.
Keep your stop behind the breakout point and be patient.
If a significant trend is developing it could last for weeks or months and you don’t want to be bumped out early.
The really big breakouts only occur a few times a year and you want to make sure you are in for the long term.
This may sound simple but.
Most traders cant do it.
They hate buying breaks – they want to buy the pullback i. e. “buy low sell high” and the fact they have missed a bit of the move means they are reluctant to get in.
They want to get a “better price” but on most big breakouts prices simply keep going with no pullback.
You may have missed a bit of the move (the initial break) but as the trend is odds on to move up quickly that won’t matter, as there is plenty of profit ahead.
If you wait for the pullback you will be waiting in vain as these breaks tend not to come back.
Do the above and keep in mind that most big trends develop from new market highs and they move quickly.
If you “buy high and sell higher” you can make a lot of money and you will never miss a major trend.
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