Monday, May 15, 2006

Consolidating What We've Learned.

I’ve been scratching my head this weekend, looking for interesting candlestick formations and clusters to write about. I came to the conclusion that I was entering a consolidation period. Every instance I looked at, when the market opened on Sunday evening, was a situation that had been covered – more or less – by one of my previous posts. I have a couple of trades running at the moment and I will post them up tomorrow, they just reinforce the information and analysis techniques I have already talked about with one exception.

I was looking at the EURUSD charts today. I noticed a possible short term trend (down) developing. As usual, I check this info on other timeframes, and noticed that as I went out to 1hr, 4hr and 1day timeframes different trades present themselves. As I am concentrating on short term trading (hours rather than days) I was more interested in the 30min 1hr and 4hr timeframes. As I said above the 30minute chart showed an emerging downward trend. (although as I write my trade is in negative territory) This was possibly confirmed by a head and shoulders chart emerging in the 1hr and 4hr chart. However if we go out to the 1day and even monthly chart the trend becomes reversed to a clear upward trend – still well within the trendlines. When the trade closes out, later today I’ll post screenshots of these charts.

It’s a well known fact that as you increase the length of the timeline the decisions become easier to make, as the information becomes clearer and more reliable. – But, LARGE margin, and stop loss is required to trade this way. The upward trend on the EURUSD has a resistance and support gap of over 180 pips for example (Trade has just turned around and gone into profit again – exciting!) Check back tomorrow, when all will be revealed.

But to continue my point about consolidation. In my opinion, sometimes MORE information and MORE indicators, knowledge and technical analysis can lead to information paralysis. A simple set of indicators and a clear strategy for how to implement those indicators WORKS. Let's not try to fix what isn't broke. As someone wrote on a forum recently when discussing my trades "The old ways (candlesticks) work - and work well"

More tomorrow - Good Luck!
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