This is an important tip as it is easy to fall victim to it and harder to avoid. This is a trap almost all traders have fallen into at one time or another. I know when I think like a position trader and trade like a spot trader, it is the road to losing even if I am right.
As with all my forex trading tips, I am speaking from experience but this is one trap it takes discipline to avoid.
Ask yourself how many times you have seen a currency move that you know will not last but get in too soon only to get stopped out, then sit on the sidelines licking your wounds when the market eventually moves your way.
This often happens when you mix time frames and think longer-term but trade shorter-term. An example is buying into a dip knowing in your gut that it won’t last (i.e. longer-term view) but then getting stopped out when the market overshoots your short-term based stop to the downside.
Another example is buying or selling just because a currency looks too low or high based on a longer-term view, ignoring the current short-term technical risk in the market.
It does not mean you cannot use different time frames in your analysis to gauge the overall risk in the market. I encourage it as you always need to be aware of the longer-term trends even if you are not trading them.
But be careful mixing time frames when trading (i.e. thinking in terms of a daily chart and trading based on a 5-minute time frame).In other words, don’t think like a position trader and trade like a spot trader.
Contact jay@global-view.com with any questions or comments.
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