Forex war zone

7th October 2010, Thursday, one of the typical day that most of the traders get confused on the break through of the highest calculated resistance line for the day for Aussie vs USD.  Some friends rang me up on query whether the price will goes up to another high?  Or will it reverse base on the highest resistance level?  It seems like a break-out in price as it keep forcing up with no limits that we can anticipate!  Base on the chart below, any trader should be in short position once the price reach the resistance point, but price still shoot up further especially when the US announce their initial claims data when it was less than expected in numbers.  I recalled where similar case occurred before.  And this is what my husband called it the Forex war-zone.

He told me that as long as the highest level had been conquered, and everything else have an indication of overbought situation from chart of different time frame, chances are it will not be able to sustain for long even though some data may come out to be positive. At these point, some traders will enter a trade for long believing that the price will be pushed up further and on the other side, some traders will go for short position relying on their technical analysis.  With the crash of the two forces, price become uncertain especially when it comes to electronic trading when we have all sort of traders with different knowledge base as well as different categories that they belong to.  
There's one thing that my husband keep reminding me about is that there will always be a force of gravity.  No matter how high the price goes up, it will still subject to retracement or reversal!  WHAT GOES UP MUST COME DOWN!  At this particular scenario, where we could not see any price ceiling it is heading, even if there is, it is much too high for the Aussie to attain as the market cannot sustain too much of the overbought situation.  Couple of new traders got caught on early entry for hours without evaluating it carefully.  Therefore, the possible solution will be to avoid this WAR ZONE if you are not too sure or you have no confidence about.  Another point to take note of will be to liquidate your position after your profits or calculated losses before the announcement of any important data.  Experience traders know it best to take advantage of these situation, a strategy that I had wrote on my previous blog post.  If you have queries on technical analysis, you may visit http://forexoceanview.blogspot.com/ for more information.  Cheers!
    

Why does the market moves against me?

Have you ever encounter the market went opposite way once you enter a trade position?  You start to wonder if you are the target in the trading market where the big players are trying to squeeze you out of it!  You also start to query on what you had learned and you start to get suspicious if there is any new theory on trading strategy or some astronomic indicators have being invented for the big time players!  
Recently when I sit down with my husband to discuss on the current situation where some traders faced, it seem to them that there's a change in the pattern as compared to the past.  "Haha!  The rules never change, but the strategy did!" my husband explained.
Can you imagine during ancient time that there are thousand of people who studied Sun Tze art of war, some won great victory but most got defeated.  Why is it that when all of them study the same theory produce different result?  
In forex market, it function the same way.  If people think trading is easy, then they are making a very BIG mistake!  For example, some expertise from other field may have achieve extra-ordinary result that they may think trading it's just a matter of putting the extra cash in and let it run.  When it's time for harvest, they just liquidate their position and happily leaving the capital behind in hope that they will ripe the profit again.  WRONG! 
Many profitable traders are also good observer!  They had realized how the pattern of the market have normally works.  They will come up with a plan to capitalize the market first!  When most traders are going into a position to long or short, they are out of the market with profit pocketed.  For example, when we look at the resistance or support level for an entry of a trade, you may probably face the situation where it suppose to have gone to the direction that you may anticipated according to the theory but it went opposite!  "How annoying!"  That's how you may feel, but the worst is that it headed to the direction that you are looking at not long after you have liquidate your position.  

Possible solution

• If you have encounter a string of losses from the similar situation, then you should start to slow down on your entry.  Test different methods that you had learned and observes! (for more understanding of technical trading please visit http://forexoceanview.blogspot.com/ for more info) There will be some indicators that will able to produce more accurate signal!   
  
• It wouldn't be possible for the market to change the rules overnight!  When it is at oversold or overbought level, price must retrace or reverse.  You can be slightly late to enter a trade, as price start to shift towards one direction, that also mean more players are coming in and it is a safer time where you can go in and harvest it.  
• If you are not comfortable in using a live account to trial, use a demo account then.  Until you are confident again, then get back in to the market.
• Always update yourself with the latest data or reports release!  Market normally react according to it.  With the latest information, it sure help to get you out of trouble!  There's really nothing much technical traders can do about data and reports, but there's always a telltale sign to be spotted technically! 

• Avoid trading if you are confused by the indicators!  It is either there is a market uncertainty or it maybe you who are not sure which indicators to use at difference market condition. (market always change, indicators can only used as guide-line) 

Never expect market to stick to the strategies that you may have proved success in the past!  If it is really that easy, there will be million of billionaires around!  But it is also not that difficult!  You just need some times to really understand how financial market really works!  As my husband said, if everyone can execute the ideas of the art of war then all our lives will be very difficult!  Hahaa!   \(^o^)/