New Highs

My approach to trading is somewhat basic – I buy new highs and I sell new lows. It certainly could not be considered rocket science by any stretch of the imagination and for me it seems to sit in my sweet spot of ability and intelligence. I find there is an issue though with the psychology of buying new highs that prevents people from doing so. Consider the chart below of EUR/YEN

I am currently long this pair and have been for awhile. This issue with this trade is that when most people look back and see the move out of congestion to a new high they automatically regret not buying this pair at below 100 and holding for the run up to 142. Unfortunately, whist hindsight is the worlds best investing technique but it is also forbidden. The breakout from just below 140 to a new relative high is in my view a valid signal and is one I used to add to my position since it told me a compelling story. Price had gone sideways for four years and then decided to move beyond this old psychological barrier – at this point the market is telling you something very important. A similar pattern could have been seen a few weeks ago with the breakdown of the AUD. Price had moved beyond certain established psychological safe points – once these points had been breached then price was free to continue on its trajectory.

Following these does sound ever so easy but I acknowledge that it is not – it is very hard to buy or sell a position that has been running for some time. It is quite natural to look back and question why you didnt get in earlier, all traders ask the same question at some point in their trading career. But if you or your system didnt see it then you didnt see it and there is not really a lot you can do about that other than get involved at the next available signal.

Inevitably though breakout trading or really any form of trading revolves around the question of whether you are listening to the market or yourself. I try to solve this problem by accepting that the market knows everything and will tell me everything I need to know whereas I dont know anything.