Episodes or Trend
Euro to Dollar Trading Tip
We all watch TV Series, waiting for the next Season …is it similar to trading?
Trading Tip: Think Episodes, Not Just Trend
Most traders love trends. It feels easy, identify the direction and ride it. In theory, all you need to do is wait for a correction and enter.
But reality is different. Markets aren’t that simple, especially in forex trading. Price action can be unpredictable, often shifting within the same day. A currency pair might look strong in the morning but turn weak later in the session. That’s why focusing solely on trends can put you in trouble.
Why Trading Works in Episodes, Not Endless Trends
Markets don’t move in one straight line. They move in episodes, or phases, of buying or selling. Each episode has a start and an end. The key is recognizing when one episode finishes and a new one begins.
If you keep trading as if the previous episode is still active, you risk being on the wrong side of the market. In other words. You might find yourself buying when a market is selling or selling when a market is buying. It is like fighting the last battle when a new one has begun. This is one of the biggest mistakes traders make.
This EURUSD 30 minute chart illustrates the point. On August 26, there have so far been three trading episodes, UP, DOWN, UP all within a 1.1602-60 range. This followed a strong DOWN episode the day before which did not follow through (i.e. 1.1602 double bottom) into the new trading day.
Euro to Dollar Trading Tip: Think Episodes, Not Just Trend
Trading Is Like a Game of Musical Chairs
Imagine trading like playing Musical Chairs. While the music plays, everyone is moving confidently around the chairs. When the music stops, there’s a scramble with someone ending up without a seat.
The same thing happens in the market. Prices keep moving in one direction until something, like new orders, economic news, a surprise headline or a shift in sentiment stops the momentum. That’s when the “music” stops, the current episode ends, and a new one begins.
If you’re still dancing when the market has already changed, you’ll be left standing on the wrong side of the trade.
How to Spot When the Music Stops
Identifying episodes is crucial for staying aligned with market conditions. Tools like my Amazing Trader (AT) charting system help confirm when an episode ends and a new one starts, using clear decision rules. This gives traders a structured way to adapt instead of guessing. Sign up for a free 30 day trial.
Trade With the Current Episode, Not the Last One
There’s no worse feeling than being caught fighting the market. The smarter approach is simple: trade with the current episode. Buy during an up episode, sell during a down episode. It is up to the trader to decide whether an episode is with the broader trend or part of a retracement.
It sounds like common sense, and it is, but while it is more challenging in real-time, executing this approach can dramatically improve your results.
Want to learn how to sync with the current market episode? Email me at [email protected]
