One of the most important aspects of Forex trading is choosing the right entry point, the most successful moments in which it is profitable to open a deal.
There are several methods for determining entry points: chart patterns, Japanese candlestick patterns, technical indicators, etc. Let’s look at how to determine Forex entry points accurately.
Trend
In general, a trend is a directional movement of prices during a certain time. However, prices don’t move in one direction only. After growth, there is always a temporary recession, which again turns into higher growth. As a result, prices move zigzag. The peaks of these up-and-down movements form local highs and lows.
There are bullish and bearish trends. The bullish trend is ascending. To determine the direction of a trend, a trader draws a line through the lows. It is assumed that the price will move up the same oscillatory movements. If there is an uptrend in the currency market, you should open a position to buy.
One of the methods based on the trend is to track the movement on different timeframes. A higher timeframe indicates the direction of the price. Then you should explore lower timeframes. If the directions of the higher and lower timeframes coincide, the entry point will be at the beginning of their joint movement.
Price channels
The price always moves in a curve. If the range of fluctuations is wide, so-called price channels with support and resistance levels are formed. The optimal Forex entry points are places at these levels. The trader buys at the support level and sells at the resistance level.
You can open a position after the breakdown of an important level.
Reversal
A good way to enter the market at the time of the trend reversal. In the case of a successful opening of the transaction, we will find ourselves at the beginning of the emerging trend, having received the maximum profit due to the large amplitude of the price movement. Trend reversals are determined both visually and with the help of indicators. There are also situations when a reversal occurs suddenly due to various fundamental aspects. The most common reversal formations are Head and Shoulders; Double/Triple Top/Bottom; Wedge; Divergence.
News and events
Some traders work using the news feed. Forex is very sensitive to economic and political news. During their release, the price makes sharp movements. Economic news is the basis of fundamental analysis. You can independently make analysis, but you can also use the analytics of brokers. For example, JustForex publishes daily market overview with a news feed for a day.
When the chart sharply responds to certain information, the trader opens a position in accordance with the trend. But this approach requires experience. Not always the price behaves exactly as traders expected. News trading is not recommended for beginners, as it is hard to determine the future perspective based on fundamental analysis.
Technical indicators
You can receive reliable signals using the instruments of your trading terminal. Some of the indicators are built-in, but you can also download custom indicators. Here are some of them:
- Moving Averages. Displays sharp changes in the movements of the foreign exchange market. MA is a curve line, which varies depending on the direction of the trend. If the price is below the moving average, the trend is downward, if above – upward. If the price has crossed the curve, it indicates a possible reversal of the trend.
- Determines the level of overbought and oversold. The indicator consists of two lines: fast %K and slow %D. Values range from 0 to 100 percent. By default, the levels of 80 and 20 are set in MetaTrader 4. Oversold is indicated when the line falls below 20. Then traders consider purchases. If the line is above 80, the market is in the overbought zone and it is recommended to consider selling.
- Bollinger Bands. The indicator is represented by three moving averages. The middle line is the moving average, the lower and the upper are the levels at which the price is considered low or high compared to the moving average. You can determine the direction of the trend. For example, the price has broken through the border and entered the oversold zone. The indicator assumes the placement of the buy order.
Experienced traders never enter the market just because the price is actively moving. The main rule of effective trading is to enter only at certain points. Do some practice on Demo account first, it’s free of charge when entering your e-mail address.
