Today I want to demonstrate why it's always more profitable to trade in the same direction as the overall trend, using the USD/JPY pair as an example. I like to determine the trend by simply using the Supertrend indicator on the daily chart - a red line indicates a bearish trend and a green line indicates a bullish trend.
In the case of the USD/JPY pair the Supertrend has been red since August 27th so since that time I have only been looking for short positions on the 4 hour chart.
If you're familiar with my 4 hour trading system (see right for more details), you will know that I use an EMA crossover system to enter my positions. So by looking at the 4 hour chart below you will see the 3 short positions that were triggered when the shorter-term EMA (blue) crossed below the longer-term EMA (green).
With the USD/JPY pair I usually close half the position for 40 points and let the other run for as long as possible (moving my stop loss to break-even). So you can see that each of these positions would have generated a profit of at least 40 points if you had entered a position close to the short-term EMA for maximum value.
Furthermore the final EMA crossover in particular would have been extremely profitable because it's currently around 140 points in profit at the time of writing (although I actually closed my position at 88.50 earlier this morning, which was still an excellent profit).
Anyway the point I want to make is that if you had been looking to trade against the trend and go long when the EMAs crossed upwards, you would have lost out on all 3 trades because none of them managed to reach the initial 40 point target, never mind generate some meaningful profits.
So it always pays to trade with the trend rather than against it.
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