While we went flat (no positions) at the end of last week, we did leave
the Silver Trigger in place on the AUDNZD chart. You will recall that we identified this as a High Probability
short trade a little while ago.
Late on Friday (GMT) this pair set off to a lower level, a move which
was caught by the Silver Trigger. The result is we come in the morning (Monday)
to find our account approximately 1% higher in terms of equity than it was when
we left on Friday.
We await developments in the other pairs we have been monitoring. The Euro’s move up after Friday’s Non Farm
Payroll report is not convincing. Gold
is still teetering on the verge of major support, while with the USD/Yen (USDJPY) pair it is a significant
resistance that has to be overcome. The Aussie against the USD (AUDUSD) has entered what we believe to
be a countertrend move.
A lesson in trend change
Trends go up and trends go down. Sometimes they go nowhere, which
is to say that the price becomes range-bound. The techniques for trading
ranges are fundamentally different from those for trading trends, but it is trends
we are concerned with here.
While price may go from a low level to a high one, or vice versa,
it will not do this in a straight line. For various reasons there are always
retraces, which in turn gives rise to the idea that a rising trend is characterised
by higher highs and higher lows, while for a falling trend the situation is
exactly reversed.
In the chart above we are looking at the daily record of the price
of gold. At the left hand side, the trend is up. Each time the price falls it
turns around and resumes its upward tendency before it can have an opportunity
to fall below the previous low. This situation exists up until the point marked
“1”. A long trade would then have been stopped out at or near this point.
Trend changes at “2” and “3” are also marked. Going short at “1”
would have been justified, even thought that particular trend did not last long
and such a trade might even have resulted in a small loss. This is the cost of
doing business in trading and it is for this reason that money management
techniques have been developed and must be used.
An experienced trader would be aware that the 200 day Simple
Moving Average (SMA) is falling (Blue line) and that the price is below it.
This means that the dominant trend is down. More conservative traders will only
place trades in the direction of the dominant trend, while aggressive traders
will follow each trend direction as it arises.
Trading styles differ, but for all traders careful attention to
each of the above principles will repay dividends. It is not too much to say
that such awareness will represent the difference between a profitable account
and an unprofitable one.
The following chart shows the dominant trend more clearly:
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