Simply put, the easiest way to make money as a trader or investor, is trading with the dominant daily chart trend. However, during my time teaching people how to trade, I have found that it almost seems to be human nature to want to trade against the trend, at least in the early-stages of one’s trading journey. When markets are trending, they want to move in the direction of the trend because that’s the path of least resistance. Knowing this, we can look to trade from value in trending markets, because at the point of value in a market, the trend has the biggest chance of resuming.
In the AUDUSD daily chart below, we can see that the path of least resistance was clearly down. Notice there was one good pin bar sell signal in the chart above as well as multiple other opportunities to sell at the moving averages as price rotated higher. Price won’t always respect the moving averages this well, but in strong-trends like the current AUDUSD chart above, we do often see it doing just that. The point of the above example is this: in strong trends, you need to only look to trade with the path of least resistance, i. WITH the dominant daily chart trend. Clearly, he or she would have lost money on any one of the three pin bars shown below. In the USDCAD chart below, we see a clear uptrend has been in place in this market since about the beginning of August 2014.
The blue line is the 21 day EMA and it shows us the trend direction as well as a value area that we can look to buy from in order to trade in-line with the uptrend from value. Note, there have been multiple price action buying opportunities from value near the 21 day EMA in the form of pin bars and inside bars over the course of this uptrend. Even a long-tailed bearish double pin bar setup like we see below probably would have been a loss or breakeven at best, as we can see in the chart below. When there’s a clear path of least resistance in a market, don’t fight it! In the next chart below, we can see the daily spot Gold market earlier this year.
There was a nice downtrend in place and so the path of least resistance was clearly down. Finally, we are looking at the same spot Gold chart as above, except this time we are looking at it from the viewpoint of an unfortunately lost trader who is trying to trade against the trend. Note, in the chart below we can see multiple failed counter-trend pin bars that would have resulted in losses if a trader took them against the trend. Conclusion I hope it’s becoming more obvious to you just how dangerous trading against the trend is. Traders also tend to try and trade both sides of a trend, both with it and against it, and in doing so they typically give back most or all of the profits they made on the trades with the trend.