News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
EUR/USD
Bearish
Oil - US Crude
Mixed
Wall Street
Bearish
Gold
Bearish
GBP/USD
Mixed
USD/JPY
Bearish
More View more
Real Time News
  • USD/JPY IG Client Sentiment: Our data shows traders are now at their most net-long USD/JPY since Mar 08 when USD/JPY traded near 103.93. A contrarian view of crowd sentiment points to USD/JPY weakness. https://www.dailyfx.com/sentiment https://t.co/svVkPPHfph
  • Forex liquidity makes it easy for traders to sell and buy currencies without delay, and also creates tight spreads for favorable quotes. Low costs and large scope to various markets make it the most frequently traded market in the world. Learn more here: https://t.co/5uSWKoLkd6 https://t.co/ZcSPE0xkvX
  • Join @PaulRobinsonFX 's #webinar at 5:30 AM ET/9:30 AM GMT for insight on London #FX and #CFD trading. Register here: https://t.co/AoM3UvLtcF https://t.co/zKfTmM2Lvn
  • Germany's IFO forecasts - Upgrades 2020 GDP outlook to -5.2% from -6.7% - Downgrades 2021 GDP outlook to 5.1% from 6.4%
  • BoE's Bailey says while negative rates is in the toolbox, this does not imply the BoE would use negative rates $GBP
  • BoE's Bailey says negative rates have been a mixed bag in other countries $GBP
  • BoE's Bailey says the BoE have looked very hard at scope to lower rates further, including negative interest rates $GBP
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 97.45%, while traders in NZD/USD are at opposite extremes with 69.03%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/xwIu29Mfxl
  • The Federal Reserve System (the Fed) was founded in 1913 by the United States Congress. The Fed’s actions and policies have a major impact on currency value, affecting many trades involving the US Dollar. Learn more about the Fed here: https://t.co/ADSC4sIHrP https://t.co/qy92JdlDpt
  • BoE's Bailey says labour demand is weak with unemployment higher than its reported number $GBP
A Classic "Trade Off " Scenario

A Classic "Trade Off " Scenario

2011-07-05 22:27:00
Richard Krivo, Trading Instructor
Share:

In our Trading Room webinars we offer a variety of trading plans each week. One of our key rules in trading (if not THE key rule) is that we only want to take trades in the direction of the trend on the Daily chart as they will have the higher probability of success.

That being said, there are two ways represented on the 4 hour GBPCHF chart below to enter the trade in the direction of the trend: 1) on a break of support at the previous low; and, 2) as an indicator signals that momentum has shifted in the direction of the trend.

The inevitable question that is asked then is…which way is the best?

Take a look at the chart below for a visual…

A_Classic_Trade_Off_body_Picture_1.png, A Classic "Trade Off " Scenario

Either entry would be considered a technically valid entry. As far as which is the BEST one will depend on the perspective of the trader in question.

While a break below the previous low is a compelling reason to enter a short position, the placement of the stop above the previous high, can entail taking on a significant amount of risk.

On the other hand, when the RSI moves below 70 signaling that momentum has shifted to the downside on a pair that is in a downtrend on the Daily chart, that can be an equally compelling reason to short the pair. Also, with the stop placed above the previous high on this trade as well, we are taking on significantly less risk since our stop is closer to our entry.

So, in one instance (the break of support) we enter later with more risk but a greater probability of success. With the other, (the RSI breaking below 70) we enter earlier with less risk but with a lower probability of success. No pun intended, but the trader is definitely presented with a classic “trade off”.

Which strategy suits your trading style and personality the best? It is up to you…

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES