Why Short-Term Market Fluctuations are Almost Irrelevant
Markets ebb and flow, you know this if you’ve observed any market for even a day or two. However, not every ebb and flow is important, and trying to trade all of them will not only drive you insane, it will also cause you to lose a lot of money.
How many times have you found yourself trying to trade intra-day price fluctuations, only to get burned as the dominant daily chart trend resumes and knocks you out of the market? Or, how many times have you exited a profitable trade simply because the market began retracing against your position a little bit, only to then see the trend resume without you on board? These are the type of mistakes that are a result of giving too much relevance and attention to the day-to-day price fluctuations in a market.
Let’s discuss some facts about price action and market dynamics that will help you realize why “less” really is “more” in trading, as well as some ways to avoid giving in to the temptation to find relevance in every ebb and flow in a market.
Fact 1: It’s hard to stop a freight train
Take a look at the recent EURUSD, AUDUSD or USDJPY daily charts right now, you will see long multi-month trends in each of these markets. These are trends with a lot of momentum behind them, and like a freight train, they aren’t going to change direction quickly or easily. Thus, the short-term fluctuations of price against these trends simply don’t matter that much, and there’s certainly no point in getting yourself worked into a frenzy trying to trade them all.
Note, in the chart below, we can see the daily EURUSD chart as of this writing. Daily chart trends behave like freight trains because they will move in one general direction sometimes for long periods of time and it takes a big ‘force’ and usually a lot of time to change their direction…
We’ve all heard the old saying ‘The trend is your friend’. Well it’s true. The trend is indeed your friend, unless you try to fight it by trading against it and trying to take advantage of its every little ebb and flow, if you do that, the trend will chew you up and spit you out faster than you can blink. Also like a freight train, a trend can run you over and crush you if you stand in its way. Traders often get in the way of strong market trends by constantly trying to pick the top or bottom and trading against the trend.
If you let yourself give in to the temptation to trade every little price fluctuation within a trending market, you won’t make any money in that trend. Trends are the best time to trade because they offer the highest-probability trading opportunities, so you want to be sure you’re properly taking advantage of their power by only trading WITH them and not trying to trade every little ebb and flow against them. You don’t want to get crushed by a ‘freight train’ do you?
Fact 2: Losing money SUCKS
If you asked anyone on the street, “Do you like losing money?” they would all respond with a resounding “NO”. Yet, if you put 10 people in front of a trading platform and tell them a little bit about trading, 9 of those people are going to sit there and look at all the little intra-day market fluctuations, probably on every time frame possible. They will do this EVEN if you tell them it’s going to cause them to lose money. Thus, it’s ironic that no one wants to lose money, yet many people trade in a manner that shows they apparently do want to lose money.
Losing money sucks. I hate it. You should too. Therefore, as a trader, your number one goal should be capital preservation, aka, not losing money. The easiest and surest way to not lose money in the market, is to simply avoid looking at, trading or even thinking about every little price fluctuation in the market. You simply cannot trade them all and most of them are meaningless. You need to eliminate the temptation to sit in front of your computer for hours staring at charts, trying to find a trade. By understanding a couple key things, you can do reduce or eliminate this temptation:
- The best trade setups are obvious. It doesn’t take a genius to spot them. If you are sitting there struggling to find a trade, then there’s not one worth risking money on! Walk away! Save your money! If you like your money, you will not lose it by trading when there’s simply nothing worth trading. Otherwise, go ahead and gamble your money away and lose it all if you like.
- You make money in the market by preserving your capital (not trading) when there’s no reason to trade so that you have more money to trade on good trade signals. You need to realize that not every price movement in the market is meaningful, in fact most are meaningless. Learn an effective trading method like my price action strategies, master it, and then you will know what to look for in the market. It’s then up to you to have the discipline and patience to act only when your trading strategy is telling you to. But if you sit there for hours staring at the charts and trying to make sense of every little price fluctuation, you will for sure lose money, and we all agree that losing money sucks.
Fact 3: The long-term dictates the short-term
If you have a multi-month trend like the recent EURUSD down trend we saw in the chart above, short-term price movements to the upside are highly unlikely to last very long. Thus, the long-term trend dictates the short-term price movement.
This is a huge ‘clue’ that we can use as price action traders to put the odds in our favour. It allows us to develop a market bias and then only look for signals in-line with that bias. You can then ignore counter-trend price fluctuations, and instead focus only on trading with the trend. Many traders attempt to trade every little move in the market; they think they can trade every counter-trend retrace, but that never works.
You never know how long a counter-trend move will go, and usually they are a lot quicker than we expect, this is partially what makes trying to trade them so difficult.
In summary, the facts that a strong trend behaves like a ‘freight train’, losing money sucks and the long-term dictates the short-term, are big reasons why short-term market fluctuations are almost irrelevant. If you want to learn to identify and trade the daily chart trend so that you can trade with the dominant market trend and ignore short-term price fluctuations, the price action strategies that I teach in my trading course and members’ area will help you. To learn more, click here.
27 Comments Leave a Comment
In short, always obey the bigger time frames and trade in confluence with what they are saying.
Every thing stated in your article is exactly what happens on me. This means your analysis is evidence based and substantial. As a trader my biggest mistake is not loosing money but visiting your website very late. keep going with your excellent work.
Lovely article nial. Following the trend is the way to go. But following just the daily chart , won’t one be missing a lot of intra day signals. Just thinking any way.
nice article Nial.
Thank you Nial….. your articles have been of tremendous help.
thanks Nial ….
Thanks for this nice article.
Your writing is absolutely brilliant! and my trading more than benefited greatly from it.
Sometimes I feel a bit guilty that you spend so much of your time writing articles that you’ve obviously done SPECIFICALLY for me 8)
That’s a great article Nial thanks so much
Thanks Nial. You say you hate loosing money and we should to. I wonder though if our edge has say a 70% probability of working over a sample size of say 20 trades. Even if we hit 3 losers in a row. Knowing this should we not be excited about our edge playing out and probabilities are now more in our favour of a run of winners. Would that not put our expectations in alignment with the reality of the market?Random distribution of winners and losers. Knowing this we can neither hate losing nor enjoy winning.
Darren, 70% winning edge is not likely in the long term unless your only looking to take on a small risk /reward per trade. The higher the risk/reward multiple you aim to make on each trader, the lower the winning % becomes over a series of trades. Most professional traders will win under 50% of trades taken, but that’s ok because they aim to make 2 to 1 risk / reward per trade on each winning trade… ie: +2R , and on a losing trade they lose -1R. Over the long run, even with a lower % win rate, a trader can still be very profitable. I cover this in more detail my money management article about risk/reward ratios and position sizing here – https://www.learntotradethemarket.com/forex-articles/forex-trading-money-managment-truths-article
Best article ever to help my trading Nial. Just wished had paid attention to it the first time it was presented to me. I like Vladimir above only trade D1 charts.
Thanks for this recent article, Nial. Comforting to know since I work full-time and can’t spend every waking moment in front of the computer. Now I feel like I’m not missing anything; actually probably saving a few bucks. All the best!
” . . . probably saving a few bucks” yep EXACTLY 8)
Nial thank you for sharing your wisdom. Ever since I’ve taken your trading course my profits have doubled. Keep them coming.
Very true. I lost major portion of my capital while stairing at computer screen whole session. Now using EOD charts. Good improvement in account is the result.
Hi Nial, keep up the great work! Reading price on a longer time frame like daily and weekly charts is equivalent to factoring in the fundamentals. Cheers!
Great article. Thanks Nial. My trading has improved dramatically after starting your course. Thank you.
Thanks Nial !!!
Great article, thanks.
Nial, great article.
Nice one boss, this is another eye opener to learn to always trade along the prevailing trend. Thanks
Find out what makes trends (long-term trends), mostly it is based on fundamental. For EURUSD, there is a huge money supply due to QE from EUR side and huge USD demand due to expected interest rate rise, which bring a multi-month downturn on this pair. Knowing what makes trends is crucial part of trading.
I disagree with this to be honest, focusing on the price chart and reading the price action is far more important than trying to understand news, fundamentals and economics.
yes, I totally agreed with you Nial
In my opinion, combining fundamentals together with price action is the way to go. Over the long term fundamentals precedes price and price action (behavior of the participants) precedes fundamentals over the short term.
Fundamentals doesn’t necessarily mean pure economic data but rather what the data implies of the future. Is the price forward looking or is it not? What is important is you choose where your comfort is and not the exact methodology of others.
Thanks Nial by the way for your insights as they add to my arsenal of knowledge.
Nial! Thanks for the article! I only trade daily charts after meeting with you. Reading your blog, thank you.