Thursday, June 11, 2009
Highs and Lows Strategy
This strategy can be an effective counter-trend (consolidation) strategy in numerous occasions. Basically, during the counter-trend period of a currency pair market, the graph moves up and down, like a zig-zag pattern. When you zoom out, it seems that the graph does not slant upwards nor does it slant downwards. It just goes horizontally. Some people would say that it is risky to trade in this condition and it would be better to trade when there is a noticeable trend.
However, some others would say that trading counter-trends can be very profitable. The basic strategy used goes like this:
1. They draw 2 lines, one on top of the zig-zag and another at the bottom.
2. The top line is the high and the bottom line is the low.
3. Traders buy at the low and sell at the high and vice versa.
Yes, it is that simple. The hard thing is knowing when the counter-trend would end. When it ends, you could be making a big profit or a big loss! Advanced counter-trend traders use indicators and systems to help them in analyzing the counter-trend period better, so they are more confident when opening/closing trades.