Sadly, there is no universal recipe for perfect market entry. Both upward and downward trends bring profit when anticipated. Here are key insights into the perfect entry strategy Forex market can offer to beginners. You can also watch training videos on YouTube.
Keys to Forex Perfect Entry
Experienced traders look at multiple factors, rather than a single sign. There are four elements of Forex perfect entry: trends, moving averages, candlestick patterns, and Fibonacci retracement. Here is a fundamental trader checklist guide to help you get started.
Element 1: Trends
Begin with your objective. Do you intend to go with the trend or against it? For instance, suppose the market has been growing. If you buy the instrument, you will be moving with the trend. If you short-sell, you will be going against it. Experts recommend sticking to long-term dynamics. If a currency has been gaining value, it is logical to buy more of it. Hence, if you see an established pattern, go with it.
Element 2: Moving Averages
Moving average is a commonly used lagging indicator. It may reflect changes over 10, 50, 100, or 200 days. As it shows previously observed dynamics, traders may use this data to predict the most favorable Forex perfect entry point.
One of the most popular systems is the moving average crossover approach. It is common in trend trading. In this scenario, you open a position once the indicator for a shorter period crosses above the one for a longer period or the other way around.
For instance, you could buy an instrument as soon as its 50-day EMA crossed above the 200-day indicator. This point is referred to as the golden cross. In the opposite situation, you will be looking at the death cross. In order for this strategy to succeed, the market must have sufficient momentum. This may be applied to other pairs somehow related to one another – e.g., 10- and 20-day MA, or 30- and 60-day MA.
Element 3: Candlestick Patterns
While there are countless patterns in existence, a few are well-known. Many experts agree that the shooting star and the hammer are particularly helpful. Both demonstrate complete trend reversal. Coupled with another system (e.g., resistance levels), this gives you sufficient grounds for entering a trade. For instance, your shooting star may work along with a popular Fibonacci retracement level.
Element 4: Fibonacci Retracement
Basically, you use a trend like a stair step and go along with it. The strategy is similar for both bullish and bearish markets. In the first case, the Fibonacci line connects the higher low to the higher high. You then wait for the price to fall back to either 38.2 percent, 50 percent, or 61.8 level, depending on the strategy. A long position is opened once the condition is met.
In the bearish market, your Fibonacci will be drawn from a lower high to a lower low. Subsequently, you will aim to enter the market once the price bounces back to the 38.2 percent, 50 percent, or 61.8 percent level. A stop-loss order is placed at the previous low or lower. All that’s left is to wait for the trade to pan out. In conclusion, it is all about support and resistance.
Generally, the system is usually applied after a large upward or downward swing when the market seems to have leveled out at a particular price level.
Identifying Trade Entry
Here is an example of a day trading setup. Suppose you were in a bullish market for a while, but reversal has started. The fall corresponds to the 50% daily Fibonacci level, which forms a hammer on the daily close. The pattern indicates that a trend is running out of steam.
At the same time, you notice the 200-day SMA just below the candlestick. The next day begins with the price breaking above the previous candlestick. In this situation, you have solid reasons to return to a bullish day trading strategy. Your decisions regarding trade entry will be based on the trend, its retracement, the hammer pattern, and the SMA. In this case, the likelihood of profit is higher.
Using Stock Patterns for Day Trading
The described logic works for currencies and stocks alike. Stock patterns for day trading provide useful prompts for traders looking to enter. Keep an eye on your candlestick chart – it gives signals that help you cut through price action noise. Chart patterns are the cornerstone of day trading Forex.
Creating a Trader Checklist
Finding a favorable Forex entry point is not rocket science. However, it does require knowledge and practice. Whenever a position is opened, the probability may interfere. Thus, keep it simple. This means consistently using what works for you personally. For each individual trade, there should be several clear reasons, and these must form your own trader checklist.