How to enter the forex market: 7 effective points
Your attention is offered 7 extremely simple, but effective ways to enter the market. They are some of the best, although simple and uncomplicated. These methods work well, confirming effectiveness in the vast majority of cases when other techniques are being passed, giving false signals or making us doubt the correctness of the solution. They are selected as a result of studying ways to enter the market correctly. The points of entry described work equally well in any markets: FOREX, futures, stocks. And whatever the confidence in the success, do not forget about stop-loss orders.
Trade in trend
Trade in the trend is often the simplest thing. We all know the old, immutable truth: “Trend is your friend”. But entering the position not at the very beginning of the newly emerging trend usually looks problematic and dangerous for most investors. The reason is hidden in the psychological barrier that arises in most people from the exchange community who are having difficulty revising their views on the existing trend. With the rise in prices after the downward movement, everyone expects a catastrophic fall, so they are happy to sell, and with any downgrade in an uptrend, it all seems that prices will go higher, and so everyone is ready to buy with each correction. That is why most investors enter into purchases almost at the very top and sell almost at the base of the market. In the middle of the trend, there is often a pacification of investors, they almost completely disappear the concern about the safety of profits accumulated in trading accounts.
Purchases in climbing and sales in a declining trend for most traders do not match the rhythm of the market. Pay attention, we do not consider the cases when trade is created at the moment of the origin of the trend. Now we are talking about how to behave inside the trend. And for this situation, the best ways to enter the market are based on the use of trend lines with the use of support or resistance, determined with the help of the latest completed movements. So, here are the two best points, allowing you to enter the trade with a high probability of success with a relatively small share of risk in the market trend. In each of them, it is proposed to apply limit orders, and only occasionally – market orders, if there are good reasons for this.
Buy from the line of the uptrend at the third contact. An upward trend is determined when prices rise. We have the opportunity to draw a line with an inclination up. It is conducted on two successively increasing bases of price bars having an absolute bottom with respect to at least two previous and two subsequent bars. The best time to enter the market occurs when the third touch of the trend line price. At this point, of course, you need to buy – and only buy.
Using this technique, it is necessary to find out in advance the price levels, which can be different, depending on when the prices come in contact with the trend. The best option is to use daily charts, where for each day there will be a price level. More accurate reconciliations can be made using hourly or 30-minute charts. But at the same time it is necessary to take into account the real possibilities of the software, because poor software quality can greatly distort the forecast, give wrong price levels for the input.
With this orientation on trend lines, false punctures that create the appearance of a break through the trend line negatively affect the trade. Unfortunately, you can not recognize the truth or falsity of a breakthrough until the bar that broke the trend closes and the next one begins to bargain (in Figure 1 this is the case: inside the day, prices fell below the trend line, but the close above confirmed the strength of the bulls ). As a rule, if the trend is strong, then the price of closing back to it, and you can often see that the closing price is almost exactly on the trend line. The chances of a successful purchase only increase: even if a breakthrough into the lower part of the market takes place, it will not happen today, and the market will fluctuate around this point for a while, showing alternately that strength, then weakness. The rate of price movement, developing in the direction opposite to the main trend, is rarely a symptom of a reversal, and, rather, indicate a wait-and-see policy of bulls, confident in their strength and not wanting to enter the playing field ahead of time.
Sale from the downward trend line at the third contact. This point is the mirror image of the trade at point 1. Accordingly, the trader’s behavior is exactly the opposite, opposite to the opposite: he should be sold at the third contact of prices with a downward trend, conducted at two successively lower price peaks reached by the market earlier. The choice of these peaks is simple: we need local vertices, characterized by the fact that the prices reached on them are maximal in comparison with the maxima of at least two previous and two subsequent bars.
The exact price value for entering the market changes every time, over time it becomes ever lower. Of course, it is best to use the daily scale, but the hour and half hour graphics are not bad. Falseness or the truth of punctures, as in an uptrend, is best reconciled after closing the next price bar.
Trade on the breakthrough
Trade strategies on the breakout of prices through significant levels are considered to be the most effective ways to manage trading positions that ensure high profitability. Often, they are associated with stop orders that trigger directly at the time of the breakout and thus provide an opportunity to take a position at the very beginning of the developing price momentum. This is true, but in many markets, stop orders are not very practical, and often even dangerous for a trading account, so this way is not always justified. For breakthrough strategies, the options for entering the market using limit orders provide a great opportunity for profit at a relatively low risk. The options presented here are the most effective ways to trade along with a breakout, while acting best during the subsequent correction.
Purchase from support in the zone between the penultimate peak and the first Fibo levels of the last completed market movement down. In a growing market, we often see prices move upward, developing in a zigzag manner. As a rule, in the first third of the trend, when it has already become apparent and the bulls have moved on to a successive offensive, bears still have a serious force, so they often manage to lower prices after each price surge, so that they drop to the level of the penultimate peak. Sometimes the fall stops here, followed by a new move upward, pushing prices higher. But the market is not the place where all the markings are in their places, so at the last peak level, prices may not find support, dropping even lower. If the trend is strong, then the depth of decline rarely exceeds 23%, even less often – 38% level of the last fully completed market movement down.
It is this area, limited by the penultimate top and 38% level of the last completed downward movement, that is the most favorable place for making a purchase.
Sale from resistance in the area between the penultimate base and the first Fibo levels of the completed market movement up.
As in the case of points 1 and 2, point 4 is a mirror analog of point 3, intended to direct us to trade on the short side with an adjustment of the price return to the top. In the market that is about to fall, breakouts are often determined at the moment of overcoming the levels achieved in the previous price caps. Quite often, especially in the early stages of the emerging trend down, the market recovery raises prices to the level of breaking through support with possible punctures higher. Here – just the place where you need to sell. Determine more precisely the resistance zone will help Fibo levels, of which 38% work best. Sometimes a good support is the level of 23.6%, indicating the obvious weakness of the market and its willingness to go down. Figure 3 shows how to apply the above rules: the A level is determined from the price base of point 1; level В – 23.6% of the segment 1-2; level C – 38.6% of the segment 1-2.
A buy from a countertrend that is a downtrend becomes practical if prices pass from the bottom up, fixing the closing at the chosen time scale above the trend line. The scenario for the development of events for this option is usually this: first, prices pass through the trend line, are fixed higher, and in the course of correction drop to it from above. There is support on the trend line, which previously played the role of resistance. It is on it that one of the most profitable points for buying is located.
Additional confirmation can always be obtained by the method of determining the depth of correction with the help of Fibo levels. This same technique allows you to weed out deceptive movements that create the illusion of changing the trend, and to understand whether to buy on the trend line or better to wait for clarification of the situation.
Sale from countertrend. The sale from the counter-trend, which previously worked as an upward trend and played the role of support, and after its penetration by prices downwards turned into resistance, is a very logical move. This method is very effective and refers to extremely effective ways of taking advantage of a position on the short side of the market.
Confirmation of the truth of the breakthrough can again give us Fibonacci levels. If the uptrend turns into resistance, and correction levels are close to it, the chances for a successful sale sharply increase. Even if we were wrong, there is an opportunity to leave the position without losses, since the market tends to rotate for a while around the breakout point before deciding where to go next.
Trade in the sideways movement of the market seems to many to be quite dangerous and ungrateful. Attempts to apply breakthrough strategies do not work well, and often such a plot develops: after filling out stop orders, prices move for some time in the right direction, and then unfold, bringing the investor as a result of the loss. Buy from the bottom of the trading range and sell in its upper area may be few – too much psychological stress, because for the most part you have to trade against the current trend. But there is one strategy that works extremely efficiently on stocks, futures or currencies that have designated their trading corridor and started movement in it.
The technique is based on a simple fact that in the trading range, with any increase above the border that divides it by half, the market is growing and is prone to growth. Simultaneously, any fall below this line leads to a weakening of the market, which acquires bearish properties. Thus, it becomes possible to use this border zone between the bull market and the bear market for short- and medium-term trade.
Trade from the middle of the range. The rules for the use of the border zone are as follows:
• Buy if the market rises above the middle (50% correction) of the last completed market movement.
• Sell if the market falls below the middle (50% correction) of the last completed market movement. This technique is weakly applicable for trading with a time frame of more than a few days. Rather, it is suitable for intraday trading and for cases of holding a position no more than 2-3 days. But the analysis in any variant should be carried out on daily and even weekly charts.
To reveal the 50% border of one, or even better – two successively traced last completed market movements is usually not a problem, but the question remains: “What can be used to obtain confirmation?” Unfortunately, there is no simple answer to it – usually near this border zone, there is little indication of the uniqueness of future events, and the market as a whole looks ready to move to either side. Therefore, to help understand how to act, one can only view the behavior of the market during the passage of the border separating bull and bearish sentiments, including changing its character at this critical moment. Fortunately, the possibilities of online trading allow you to do all this without even resorting to chart prices. Log into the trade using this technique has a logical exit point, which suggests the identified trading range, where the position makes sense to close. Other options suggest an exit near any of the Fibonacci levels – depending on the types of profit and possible losses.