Home » Finance » Currency Trading

Forex Trading - The Perils Of Trying To Find Highs And Lows

Mar 25, 2008
One of the most popular methods of trading when it comes to forex is to identify and trade overbought and oversold positions. However is this really the best way to trade the forex markets?

If you've been a trader for any period of time you will know that it is extremely difficult to catch the top or bottom of a market, and to do this on a consistent basis is even more difficult.

Even technical analysis experts struggle to pick out tops and bottoms of trading ranges on a regular basis, and although they may get lucky occasionally, there will be plenty of other times when they've entered a position too early or too late.

It's important to note that a currency pair, or indeed any financial instrument can remain overbought or oversold for a very long time, and may become even more so. Just because certain technical indicators signal a probable high or low has been reached, does not necessarily mean that this is the case.

For example, there may be several indicators such as RSI, CCI and stochastics, for instance, indicating that the GBP/USD pair is currently overbought and therefore ripe for shorting, but there's still no reason why it couldn't go 200 points higher into even more overbought territory.

Furthermore this is the case whether you're trading short term or long term. Yes it's true that forex pairs do conform fairly well to technical analysis, but there are always exceptions (otherwise we would all be millionaires).

The problem with this method of trading is that you are always fighting the trend, which is why I personally prefer to use methods that follow the overall trend.

However, if you do want to trade overbought and oversold positions, you can still go with the trend to some extent by waiting for a solid confirmation that a reversal is taking place.

This will mean that you don't catch all of a move but you will have added confidence in your trade that a true reversal is about to take place when you do enter a position.

For example you could use crossover indicators like EMAs, MACD and TRIX for confirmation.

Anyway the main point I want to get across is that trying to consistently find highs and lows is a difficult way of trading which is why you're better off either using a trend-following method or waiting for added confirmation if you do want to trade this way.
About the Author
James Woolley runs a blog where you can learn forex trading and read his Forex Trading Machine review
Rating:
Please Rate:
(Average: Not rated)
Views: 193
Print Email Report Share
Article Categories
    • Artists
    • Gambling
    • Humanities
    • Humor
    • Movies
    • Music
    • Photography
    • Tattoos
    • Television
    • Classic Cars
    • Motorcycles
    • Recreational Vehicles
    • SUVs
    • Trucks
    • Vans
    • Branding
    • Business Opportunities
    • Careers and Jobs
    • Corporate
    • Customer Service
    • Direct Mail
    • Entrepreneurship
    • Ethics
    • Financing
    • Franchising
    • Home-Based Business
    • Human Resources
    • Import and Export
    • Leadership
    • Management
    • Market Research
    • Marketing and Advertising
    • Negotiation
    • Network Marketing
    • Networking
    • Organizational
    • Presentation
    • Project Management
    • Public Relations
    • Small Business
    • Strategic Planning
    • Team Building
    • Telemarketing
    • Training
    • Data Recovery
    • Databases
    • Games
    • Hardware
    • Networks
    • Operating Systems
    • Programming
    • Security
    • Software
    • Spyware and Viruses
    • Ask an Expert
    • College and University
    • Home Schooling
    • K-12
    • Languages
    • Online Education
    • Psychology
    • Coffee
    • Cooking
    • Gourmet
    • Recipes
    • Wine and Spirits
    • Acne
    • Aerobics
    • Alternative Medicine
    • Beauty
    • Cancer
    • Cosmetics
    • Depression
    • Diabetes
    • Diseases and Conditions
    • Fitness Equipment
    • Fitness
    • Hair Loss
    • Heart Disease
    • Medicine
    • Men's Health
    • Muscle Building
    • Nutrition
    • Skin Care
    • Supplements and Vitamins
    • Weight Loss
    • Women's Health
    • Yoga
    • Arts and Crafts
    • Babies
    • Collecting
    • Elderly Care
    • Genealogy
    • Hobbies
    • Parenting
    • Pets
    • Pregnancy
    • Woodworking
    • Feng Shui
    • Gardening
    • Home Appliances
    • Home Security
    • Interior Design
    • Landscaping
    • Affiliate Programs
    • Article Marketing
    • Auctions
    • Audio
    • Banner Advertising
    • Blogging
    • Broadband
    • Domain Names
    • E-Books
    • E-Commerce
    • Email Marketing
    • Ezines and Newsletters
    • Forums
    • Internet Marketing
    • Link Popularity
    • Pay-Per-Click
    • Podcasting
    • RSS
    • Search Engine Marketing
    • Search Engine Optimization
    • Security
    • Social Media
    • Spam
    • Video
    • Viral Marketing
    • Web Design
    • Web Development
    • Web Hosting
    • Copyright
    • Cyber Law
    • Intellectual Property
    • National, State, Local
    • Patents
    • Regulatory Compliance
    • Trademarks
    • Buying
    • Selling
    • Baseball
    • Basketball
    • Boating
    • Cycling
    • Extreme Sports
    • Fishing
    • Football
    • Golf
    • Hockey
    • Hunting
    • Martial Arts
    • Running
    • Scuba Diving
    • Soccer
    • Swimming
    • Tennis
    • Dating
    • Divorce
    • Marriage
    • Weddings
    • Astrology
    • Buddhism
    • Christianity
    • Faith
    • Hinduism
    • Islam
    • Judaism
    • Meditation
    • Metaphysical
    • New Age
    • Cable and Satellite TV
    • Cell Phones
    • Communication
    • Gadgets and Gizmos
    • GPS
    • Satellite Radio
    • Video Conferencing
    • VoIP
    • Addictions
    • Coaching
    • Goal Setting
    • Motivational
    • Stress Management
    • Time Management
    • Clothing
    • Electronics
    • Fashion
    • Gifts
    • Jewelry
    • Causes and Organizations
    • Environment
    • History
    • Holidays
    • Men's Issues
    • Nature
    • Philosophy
    • Politics
    • Women's Issues
    • World Affairs
    • Air Travel
    • Camping
    • Cruises
    • Destinations
    • Outdoors
    • Article Writing
    • Book Reviews
    • Copywriting
    • Fiction
    • Non-Fiction
    • Poetry
    • Quotes
    • Screenplay
    • Tools and Resources