As traders, one thing we love to do is trade. I am not trying to be glib but the thing that we love to do can also be a curse. Let me explain.

Trading is nothing like any other job out there. If someone that works in an office shows up for work and just sits at their desks surfing Facebook©, they still get paid. Maybe not for long, but they get paid. Other jobs are no different. You punch in, do what you do, go home and at the end of the pay period, you get paid. Trading is nothing like that. There can be days where you sit at your desk and perhaps due to mega news releases or big money waiting on news, you don’t trade. No trading equals no money lost or won. This simple fact can lead traders to do some things that do nothing but drain your account. In the quest to lay down a trade, some traders get tunnel vision and only look at the charts they are trading and that, can be a huge mistake.

There is a very simple action you can take that will not only increase the chance of taking winning trades, but can also keep you out of a loser. Check out the higher time frame charts especially the daily/weekly to see if there is something in the way. This chart shows a pretty common trading strategy. We are in an uptrend as shown by the green line. The red line shows a resistance level that is broken and this strategy goes long on a retest of the resistance level which we are thinking will turn into support. In this case, the level holds and we are off to the races. Price rallies and puts us up about 15 pips!

Click on image to enlarge!

There is a problem though. Higher timeframe charts hold a ton of weight. A daily chart, for example, will give traders a lot of time to notice a rejection of the highs. Keeping to technical trading theory, these same trades will place pending orders to short the market when price reaches that level. Above that, they will place their stops. As sure as the sun will rise in the morning, this is a given. A few things can happen at this level when price comes back. Price can be rejected right at the level, can pierce through to take the stops and then fall or blow right through it. You never know what will happen so the more conservative approach is to think that the price will be rejected at that level and you will never buy into these higher timeframe levels.

CHECK THE HIGHER TIMEFRAME LEVELS FOR ROADBLOCKS!

Here is the daily chart of the same instrument.

Click on image to enlarge!

In your excitement to get into a trade, you bought right into a resistance level as noted by the red square. Price then dropped over 70 pips! If you would have checked the higher chart, you would have been able to filter even the best trade signal because at these levels, price usually has a reaction in the opposite direction as the orders at the level get absorbed.

Using a basic technical analysis tool, the horizontal line at support/resistance on higher timeframe charts, you increase the odds that you are getting into a trade with potential. It is a simple strategy that can keep your account from churning into a downward spiral. Trade well.

For more updates from Mark and the team at NetPicks, be sure to visit their trading tips blog at NetPicks.com.