Forex Trading Should Be Looked at as Episodes and Not Just Trends
Most technical traders refer to momentum moves as trends. I prefer to look at the price moves as trading in episodes.
Like a streaming television show, an episode has a beginning and an end. It is no difference in trading except that is where the similarity ends.
The Forex Market trades in episode
The forex market trades in episodes on all time frames. The longer the time frame, the longer the episode is likely to be and vice versa.
What I mean by an episode is a period on a chart where a currency, for example, is trading in an uptrend, downtrend or in a consolidation range.
Don’t get caught trading an old episode
This is a critical concept to understand for if you are trading an old episode when a new episode has begun then you will find yourself on the wrong side of the market.
Anyone who has traded in the forex market, knows how fickle the price action can be. By getting in sync with the current episode, you can take advantage of this knowledge rather than having it take advantage of you.
With that said, many traders find themselves trading the old episode as it is often hard to switch gears, even when charts tell you it is time to do so. An example is looking to sell a rally after a currency has bottomed or looking to buy a currency after it has topped out.
What a difference a day makes
Look at this chart and ask yourself whether you would have been able to switch gears from a down episode the past 4 days to an up episode today.
It is important to identify when a new episode begins and when it ends. It is also important to be aware of the broader trend as counter trend moves (e.g. retracements) tend to end more abruptly than moves with the overall trend.
So, the question you should be asking is how to stay one step ahead of the market rather than one step behind.
Think if it this way. Getting in sync with the current episode will find you swimming with the current rather than fighting it by swimming against it.
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