I like a trend as much as the next trader, they give you the most bang for your buck, and you have the crowd on your side. Trading a trend after it established however requires you to ensure that you are getting “fair value” for your trade entry.
You don’t want to buy something too expensive or sell something too cheap just as a trend leg is exhausting, but how do you judge fair value?
The text book answer is to buy dips in an up trend and sell rallies in a down trend. While there is no one answer for where a dip or a rally might end, if you can at least make a judgement on if the retracement is entering an area of fair value, you will have a much better chance of jumping onto that train until it’s next stop.
A great tool to help you do that is the 20SMA. Throw this little guy on a chart and look for retracements to move to and beyond that level and you are now in a zone of fair value. If it hasn’t, then you’re a greater chance of jumping on that train just as it reaches it’s next station.
This does not mean you use the 20SMA as an entry level, that is what your price analysis is for. If you are buying into a dip, have a look for previous buyers, to back you up, and previous sellers to buy off, and you will find more accurate entry areas. Just make sure you are getting fair value.
Here’s the concept in action on the 5M AUDUSD from yesterday, test it yourself and see if it stops you chasing trades. Timing is not always about the esoteric.
Like all things trading, it doesn’t mean your trade will be a winning one, or the trend will continue, but at least it gives you a running shot.