Partner Center Find a Broker

This is more of a cautionary set up than one that I would’ve recommend taking. It involves the power of understanding the Directional Bias of the daily and how longer-term time frames (60 and 240-minute) entries should follow the Bias if there is a trend. This is indeed an (fresh) uptrend on the daily GBP/USD which means that any entry that would attempt to capitalize on weakness would be best taken on the five, 15, or 30-minute charts.

1-21-2011 8-28-54 PM.jpg

The “twelve to two o’clock” uptrend on the 240-minute chart is pulling back and notice has even pierced teh bottom line of the Wave. Couple this move with a -100 or greater CCI reading and the result would be a Wave/CCI Reversal entry short. But wait…Isn’t the daily in an uptrend? I talk about this relationship a lot as it pertains to trade and time frame selection each and every morning on Forex AM.

1-21-2011 8-32-13 PM.jpg

The idea behind Directional Bias as it applies to longer-term time frames is to acknowledge that 60 and most definitely 240-minute time frames require more organization of sentiment over a longer period of time for follow-through so it would be best to follow the dominant market psychology (the daily).

So while there may certainly be more “heat” involved with taking a swing BUY it’s following the uptrend (psychology) of the daily. The reversal (short sell) therefore should not even be considered. Had this been a 15 or 30-minute time frame a reversal entry short would be valid but beware of entering longer-term trades that go against the daily’s trend!

Visit my Daily Trading Edge blog for more market updates and insight.

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.