Today I want address one of the fundamental issues with the FX market and that's when to trade and when not too. As many of you know I like the fundamentals of any market but you can't trade them per say, they are nice to work out what might happen in the future and a big picture view especially if you position trade, but for the active trader this is not enough.
Buying and selling is the answer and where to do that, now I hear you saying yeh sure Simon everyone says that and this is true they do, but basically understanding where to buy and where to sell is the key, and there are some really simple things we can do with a chart to understand this.
As many of my readers know I am not a fan of indicators as nearly all of them are lagging and by the time they give you the signal the move is over or nearly done. If you need proof of this then go back through any FX chart, any time frame and see how much of the move was done before the indicator told you to get in.
The answer is simply to identify on your charts where the imbalance in price is as this will nearly always tell you where you need to be. For many traders they know this already but patience is there undoing when it comes to trading they just can't wait long enough for price to get into the zone for them.
Lets have an example:
This is a 1 hour chart of the AUDUSD, my reading of this is that buying at these levels is risky, there is a huge block of buying/selling from 76 to 77 which has been going on for the last week, because price has been unable to trade higher or lower this means that the market is pretty much in balance for every buyer we have a seller, and whichever way you dice it thats a receipe for loosing in FX if you try and pick tops and bottoms if you were to trade this. This is because by the time the range forms the market will be ready to break out of it.
I can't see an upside here, traders always tell me that you need to see both sides and to some extent I would agree with that but clearly I don't see this pair going up at the moment, if it does then I will stand aside and wait for a confirmation that we have broken 77. I clearly see this pair going down, from 0.7600 to 0.7530 there is a lot of clear air so there should be a lot of buying and selling that will step this pair down in a stair pattern through this area where again the buyers/sellers will wrestle for control.
There is a nice buying level at 0.7530 but if you look to the left of it there is a lot of noise which has probably taken out most of the buyers/sellers here already. I want my trades to move from my level quickly I dont see this happening at that level, I see congestion.
I personally like the level of 0.7436 this is clear and the move out of this level last time was decisive meaning there should be lots of buyers waiting here for a Pull back into the mid 0.75's. A stop below 0.7515 is advisable as a clear decisive break here would dismiss this level.
As always patience is the key, tight stops and money management keep in you the game.
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