Analyzing The Trading Day - Part I

If you’ve ever gambled at a dice table you know there are two types of action. Most of the time the dice are “choppy.” You win for a short while, then you lose. Then you win, then you lose. You can’t seem to get ahead. You become bored or frustrated. And just when you think it’s time to quit, the dice start to win over and over.

They begin a long roll where only the steel-nerved gamblers bet up the table. The weak are pulling back because they’ve been conditioned to losing. When the roll is finished, the winners have made up all their losses and then some. The losers have won a few dollars but go home broke.

It’s often the same way with the Forex markets. Small up-down moves that are pretty difficult to make any money with. Then large, sizeable moves that seem to come out of nowhere where you just can’t believe they keep going and going and going.

That’s why we have to analyze what type of trading day we are having. That’s when our charts give us an edge. That’s how we adapt our trading to the type of day we are having – a long roll, or a choppy one. If we can just do all that we can make our five percent and go home!

So, let’s get down to business. I’ve shown you how to make money trading the latitude lines. This type of trading is more in tune with a choppy market. Let’s see how this works again.

First, I’m going to show you what a choppy day looks like. Then I’ll show you what I call a long roll day. Lastly, I’m going to show you how to blend them together to suit your personality.

Take a look at the choppy day. Notice how many latitude lines are crossed up and down, but at the end of the day prices are just about where they started. How many lines would you have caught? I’ll bet more than enough to make five percent.

Chart 1

Chart 2

Look at the choppy day chart again. Later, we’ll look at all the tools we use to determine the direction prices might be moving. But in this chart notice the movement from the left hand side of the chart. Prices are rising, but stochastics are slowly moving down.

This is called a divergence and we should anticipate that a decline will follow. Sure enough, prices fell from 1.3885 down through six latitude lines! In a choppy market we have to be on our toes. We have to watch the screen almost constantly.

Now look at the “long roll” day. There are wide swings up, then sizeable swings down. If we can catch just one of those swings we could make our five percent in one trade.

But, here’s the problem. Most traders are afraid to hold a trade for that long. They’ve been told, “You can’t go broke takin’ a profit!” They simply can’t believe prices will keep going their way. They get out too soon when they should actually be adding to their position. As I said earlier, they turn around at San Francisco instead of flying on to LA.