Peaks and Valleys – The Ups and Downs of Trading Forex

Filed under: Learn Forex Trading |

Screen shot 2013-02-20 at 09.44.03One thing is certain in the forex market – and that is that price will never, ever, move in a straight line. Price always ebbs and flows, regardless of whether it is trending or in a sideways trading range. Even in a very powerful trend, there will be price movements and pullbacks towards a moving average, and these movements are even more pronounced when you zoom in to an intraday chart where you can see the subtleties and nuances of these movements. The same will also go for your equity chart, which will also ebb and flow, and never moves in a straight line. So what can we learn from all of this?

 

Knowing that the market never moves in a straight line can actually help us to enter trades. If a market is trending, we can wait for a pullback to an area of support/resistance, or a moving average, areas that we call ‘value areas’. However, we must also be careful not to set our stop losses too tights, as the ebb and flow of the market can often take us out of a trade.

 

There is a good book by Spencer Johnson called ‘Peaks and Valleys’, and although it is not directly about trading, it is a story that can teach us a lot about trading. It teaches us that if you want to be successful, you have to enjoy the peaks, and accept the valleys; and when you are in a valley, you have to keep working hard and be disciplined, knowing that another peak is just around the corner. This could be applied to your equity curve, where there will be many peaks and valleys. If you can get hold of this book, I would highly recommend it as a motivational trading tool.

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