An interesting morning’s trading in the forex markets so far today, and the key point that came through during the London open, was the need to be patient. Overnight the capital markets were broadly bullish, and a look at the news announcements for today, suggested that the markets would drift, with little in the way of tier one data, and the only item likely to move the fx markets is a speech by Fed Chairman Ben Bernanke later in the day. The problems in Europe continue to rumble on, and even the German CPI releases from all the various states seem unlikely to inspire much reaction.
It was against this backdrop that we spotted an opportunity in the AUD/JPY pair, first signalled on the fatman indicator, and following further analysis, the tick charts appeared to offer the best trading opportunities on the pair, with the gear changer pointy firmly to the medium term tick speed, clearly signalling a market lacking in momentum. So what were our indicators telling us.
Well first, the trade times indicator was warning us NOT to trade – a simple warning in itself! Second our gear changer was telling us to trade the medium term tick speed, whilst the fast and ultra fast tick charts were both signalling possible long positions, very tempting to take on! This is when it is so easy to forget our trading rules and rush into a position, as we fear missing out on a winning trade. What happened next was a classic example of why we HAVE to be patient.
First, our medium tick chart signalled a widebar in magenta with a volatile move in price. This was followed as expected by sideways consolidation within the spread of the bar for the next few bars, which generally lasts for three to four bars. This is a classic market move, with eager traders rushing in as they fear missing the move, before the market promptly pulls back to reverse almost immediately, trapping them in weak positions, or stopped out on the trade.
So in summary. Our trade times indicator stopped us going in, and our gear changer pointed us to the correct time frame to trade, which in turn failed to give us a clear entry signal, as the markets consolidated sideways in a listless morning of market price action. Had we traded using our emotions, we would almost certainly have entered the position using the ultrafast tick chart, and promptly been stopped out. A salutary lesson of how being patient, and following your trading rules, will make you a more consistent and profitable forex trader.