The AUD/USD has been headed consistently in a downward direction since the beginning of February. . .
Well, it was anyway, until a bounce off the bottom trend line catapulted it up over 300 pips in 3 days. After the third green bar in a row, which was also the monster bar you see on the chart, it looked like the Australian dollar was making a comeback… But this is the Forex market, and things just aren’t that easy. Just when traders began building confidence in the renewed Australian strength and loading the market with heavy long positions, price began to stall. But notice what happened here.
Price didn’t just reverse and crush all of the heavy longs. No, that would reward all the longer term traders with fat shorts, who were probably adding to there profitable short positions during the retracement.. No, the market cannot let people win that easily. Instead, it stalled and dipped enough to hit some long stop-losses and get rid of a lot of buyers who wanted an immediate northbound rocket AND it stalled enough to make the long term sellers second-guess their bearish confidence.
And isn’t that just what the market does?
It moves in ways that shake people out. The more traders it can shake out, the better… The only way that the Forex market can continue to be a market is if it continually yields more losers than winners–it only makes sense. It makes sense because the winners are big winners, and in order to feed the big winners, you have to have a lot of little losers…
So, now we are at the familiar place where price is hanging in the middle.. It is at a point where it could steam roll South, continuing its momentum-filled downtrend, or it could launch to the upside and re-familiarize itself with the 1.07 and 1.08 levels.
And, of course, the question is what is always is in these situations: Where is it gonna go?
Now, I am not going to predict a bearish rally based on the weekly resistance level price is touching. I am not going to predict a bullish charge based on some past news that Tony talks about in his fundamental update.
Instead, I am going to suggest that price will go in the direction that will shake the most people out of the market. It may break some key levels getting buyers to jump on board and then reverse just far enough to hit their stops and gain some sellers before turning back to the North with fewer buyers and crushing the sellers all the way up… or it may give a perfect daily sell tail bar, assuring traders that the bearish AUD trend is back in season, then whip around and cruise a few hundred pips to the North, without any of the previous buyers along for the ride.
That is how the market works.
Remember, if you won a trade every time you predicted the market correctly, you’d be rich, and so would everyone else… The market thrives on taking peoples money, even when they forecasted its direction accurately!
We have to not only be wise with our analysis and forecasting, but also be patient and precise with our entries and trade management, THAT is what makes the money!
With the AUD/USD, wait for it to break a level and do a reversal, let it take off without you, let it take other people’s money, then get into the trade with precision when it is showing definite direction… Even if you wait for all of that and you are patient and you are precise; you will still lose trades. But you won’t lose as many, and you won’t be the dumb money. And the less often that you are getting tricked into being the dumb money, the more often you will be making money.
And that is what being a trader is all about!
Now go watch that AUD/USD, and crush it when the time is right!!!
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