By: Charley Warady
Every potential rock star dreams of reaching the top of the charts. It might be in their particular genre, or even in a broad category. The problem with being on top of the charts is that, once you're there, the only way to go is down. So, they sit and wait for the inevitable to happen. It might be a day; it might be a week; but it is going to happen.
Forex traders, feeling like the rock stars that they are in the speculative world, often look at Forex market trends in the same way. If the Forex market is sustaining a trend upwards, the Forex trader is immediately guessing "how high is too high"? The word "guessing" is the key term here. Everyone likes to think they can pick tops and bottoms. They can't. This market right now is in an upward trend. There may be a bit of a sell-off of profit taking, but that doesn't take away from the fact that the Forex market is still in an upward trend.
Watch the weekly chart. Just for kicks, notice how the weekly chart contradicts the thirty-minute chart. It's the difference between a long-range view and a myopic view. The weekly chart will tell you that this trend is far from over. Of course anything could happen at any given time to change everything. If it was easy, everybody would be doing it. But it's no reason to leave money on the table and miss riding this for as long as the market lets you.
One way of playing your position is to get out before there's that inevitable profit taking sell-off that is going to change the direction of the market. In other words – picking a top. It's a fool's game, but on the other hand, nobody should ever complain about a profit. So, as long as you're selling to get out of your long position with a tidy sum; good for you. However, if you're looking to pick a top to race the sell-off with a short position; good luck. You may take a beating, and deservedly so. Selling into an upward trend doesn't look good on paper, and it looks worse in practice. Try telling your Forex trading friends, "I thought it was the top," and take note of their reactions. It won't be congratulatory.
The best way to protect your profits is the same formula you would use to limit your loss. That nearest and dearest friend, the stop-loss order. If you get stopped out in one of those situations in which you're sure the Forex market was specifically reaching for your stop-loss order and then turns around again, do not fret. Get back in with a new order and don't wait for the Forex market to come back to you. The Forex market waits for no one and certainly doesn't turn around to pick up stragglers.
We have been sitting on these bottoms for some time now. To question "how high is too high" at this point is unfounded. When the Forex market is making contract highs or ventures where no Forex market has gone before, it might be time to tread lightly. But right now this rock star isn't quite at the top of the charts. Worry about that when the time comes.
By: Charley Warady