The trend is not always your friend

Opposing the crowd mentality sometimes pays off. 

That´s right folks, following the trend does not always equal money. The first rule of forex is “follow the trend”. If you side with the trend then you´ll end up victorious. While most of the time that´s true, there are times when it can be very harmful to your account. We have followed the Euro downtrend in the last several days and made a sizeable gain in pips during last week and on Monday. But yesterday was a good example of  when the trend does not work in your favour. The Euro reversed, going up 150 pips against the USD and all the other major currencies were pulled up with it, apart from the GBP. We have often seen that the EUR/USD short squeezes have been quite brutal in the recent months and this is a perfect example of one of those squeezes. 

The USD has been in demand recently, but every trend has to make a retrace once in a while, no matter how strong it is. After all, nothing goes up in a straight line. The USD sell-off accelerated after the revised industrial production numbers came out. The production for 2012 and 2013 was revised down by 2.5% and 3%, respectively. The industrial production index was lowered to 107.1 from 110, which makes this sector 2.6% lower than previously thought. Another reason for the retrace was the decline in the US treasuries yields which reached 2.35%. It looks like the retrace is over today, but you can never be too sure when it comes to a short squeeze. Anyway, we opened a buy forex signal in USD/CA last night hoping that the squeeze is over and that it took profit this morning. Right now USD/JPY is just above the 50 MA in the H4 and daily charts, so our forex strategy is to buy this pair if it pushes lower to 123.60. 

ABOUT THE AUTHOR See More

Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.