In the article below am going to discuss a way in which any Forex trader can predict the change market sentiment with over 80% accuracy. The method follows a three step process which are summarized below.
- Trend line is broken
- Retest and failure
- Price falls below the prior low
The method in detail...
Step 1: Trend line Gets Broken
In most cases when a trend line gets broken it symbolizes a possibility of the end of the previous trend. Most of the time the trend is over and in other case, the trend line will get broken and the market will continue in the prevailing trend. Thus in order to avoid entering the market prematurely and registering a loss, you will need to go to step 2.
But first is an illustration of a trend line getting broken on a USD/JPY 4hr time frame chart.
2. There Is A Retest And A Failure
When a currency pair is trending upwards, it will make higher highs and higher lows. However when the market does not continue this way, its an indication of the end of the trend.
Below is the same USD/JPY 4hr chart showing the pair retesting the prior high but failing to continue to make higher highs.
Step 3: Price Falls Below The Prior Low
The third step is to wait for the price to fall below the prior low. When the price does so, its a confirmation of the trend being changed the reason being the the pair is now making lower highs and lower lows.
The same USD/JPY 4hr chart below illustrates the scenario described above
How This Knowledge Can Help You As A Forex Trader?
- sometimes, you have to be careful about trading trend line breaks (thinking that the trend). Its not that you should not trade trendline breaks. In fact you can trade trendline breaks.
- But after a trendline break, it is good to sit on the side and wait to see if price retests the trendline that was broken and then if that fails then the next step would be to….
- watch if price breaks the previous/prior low.
- now, the real advantage of this knowledge is that its better to trade a currency pair at the very beginning of the trend change…why?
- Because you get in early at the start of a trend, then there’s a great chance of the forex currency pair making big moves which means more profit for you. That’s the great advantage of you getting in early.
- And the 3 steps of predicting trend change can allow you to do that.
- Finally, don’t be a jerk, for all this free forex trading tips and information I am providing, can you at least say thankyou by clicking the like button and leaving a comment below?