A Complete Guide to Finding Entry Points for Forex Trades
Forex trading is all about identifying the right signals and indicators for the best entry and exit points at the right times. It is very important to find the best forex entry points for any trade.
Whether you want to make a buy or sell trade, and irrespective of the Forex pairing you’re using, the correct entry and exit points will make all the difference.
As a newbie trader, finding the right forex entry points for any given FX pair may be challenging – and this is a problem many people grapple with and lose money over. But also, this is why we are here.
So, let’s get on with it and help you out with finding the right Forex entry points that will ensure you have a chance to make a good profit!
What Are Forex Entry Points ?
Forex entry points are the rates or values at which Forex traders want to open a trade, both for selling and buying positions.
There are lots of factors and various inputs that will affect what is the correct Forex entry point for any trade you make. We’ll discuss some of the best approaches and techniques you need to consider when trading.
Understanding entry point criteria
There are some exact criteria that need to be followed to determine the correct entry points for trades. In general, trading by the movement of trend is thought the best technique.
There should also be a price breakout during a consolidation process. And there would usually be no local support or resistance nearby.
You should also do a market analysis to distinguish trending pairs from those that are not.
Finding the right forex entry points is a little more complicated than this, but using this approach is a good starting point.
When is the best time to enter a Forex trade ?
When to enter a trade depends on your trading strategy and style – and there are numerous styles and strategies you can adopt.
Let’s analyse the three most popular approaches.
Strategy 1: Trend channels
Using trend lines is one of the most effective ways to help you identify the best entry points in Forex. Trend lines are excellent tools for doing technical analysis. They also help you identify points, patterns and levels of support and resistance.
When prices hit lines of support a buy trade can be made at a particular price point. When rates hit resistance lines and bounce the situation may be perfect for trading.
A very common and accurate approach is to use the support and resistance lines to define Forex entry points for profitable trades. In addition, it is also fairly easy to use the support and resistance lines to find the right times and points to enter trades.
Strategy 2: Candlestick patterns
The use of candlestick patterns is another popular and time-tested method of seeking Forex entry points for profitable trades. Candlestick patterns are very common and useful tools that can help traders identify both entry points for trades and exit points.
Several candlestick patterns that can be used to mark Forex entry points, such as the shooting star. A hammer pattern is typically used as a reversal signal,; or a sign of a reversal of price trend.
That said, multiple trading metrics and a good deal of experience should be used to define the best entry points for Forex trades with candlestick patterns.
Strategy 3: Breakouts
Breakouts are one of the most common methods to recognise forex entry points. This method of trading involves defining key rates and then using them as markers for entry into a trade.
To make successful use of this breakout technique, what you’ll need to think about is market behaviour. If you are not comfortable with the market activity, it won’t work too well using breakouts to define entry points. Often assisting with this escape technique is being able to use the reinforcement and resistance lines effectively.
Breakout entry points are perfect for both inexperienced and experienced traders as use of this technique is very easy. Entry is normally caused by a simple breakdown of support or resistance. Break-out trades can often generate a good number of pips profits.
What indicators are used to identify Forex entry points ?
There are a variety of indicators that can be used to help recognise trade entry points. Here are the most commonly used ones:
- MACD – This indicator is best used in trending and range markets, by bringing MACD convergence points in the trending direction.
- Moving Average Crossover – Traders can use a sequence of moving averages to search for crossovers between long and short intervals to produce entry signals.
- RSI – The RSI helps traders to recognise signals that a currency is either overbought or oversold and is particularly effective in trending and range markets.
Final thoughts on identifying Forex entry points
Having the best forex entry points is of course very important, but it isn’t the only part of the equation either. Equally important is finding the best exit points. That said, any smart Forex trade begins with a good entry point. Making a successful trade starts with finding the right entry point. That’s just how it works.
Keep in mind that at every entry point, there is a range of criteria that needs to be satisfied. And there are a number of indicators and strategies that can be used to determine the right Forex entry points – which takes us to the next point…
Forex Trading Strategy: What is It ?
The style and methods that a Forex trader frequently uses in deciding whether to buy or sell a currency pair is their Forex trading strategy.
Traders use various Forex strategies based around technical analysis or fundamental analysis when trading. A good Forex strategy helps a trader analyse a market fairly accurately, apply useful risk management techniques and to trade confidently.
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What Forex trading strategies work best ?
Forex trading demands that several considerations be brought together to devise a trading plan that works for you. There are numerous approaches that can be implemented but it’s important to learn and be confident with your chosen trading approach. Every trader has specific priorities and a defined bankroll that must be taken into consideration when selecting the correct strategy.
There are three criteria which can be used by traders to compare the suitability of different strategies
- Time needed
- The frequency of trading opportunities
- Typical distance with which to aim
1. Price action trading
This involves the study of past markets in order to devise plans for strategic trading. Price action may be used as a sole strategy or along with another indicator.
Fundamentals are scarcely used; however, using economic news as a substantiating element is not unheard of with price action trading.
2. Range trading strategy
Range trading requires finding points of support and resistance enabling traders to make trades around those key levels.
This strategy is ideal in markets with no significant volatility and discernible trend. This strategy is used most with technical analysis.
3. Trend trading strategy
Trend trading is a basic Forex technique used by many traders with all levels of experience. Trend trading aims to yield favourable returns by taking advantage of directional momentum in currency pairs.
4. Position trading
Position trading is primarily focused on fundamental analysis and is a long-term strategy. It, however, sometimes uses technical analysis such as the Elliot wave theory. In this strategy, smaller minor market movements are not considered, as they do not impact the larger market view. The strategy can be used on all markets, from stocks to Forex.
5. Day trading strategy
Day trading is a strategy for trading financial instruments within the same business day. That is, before the market closes, all positions are closed. This can be a one-time trade or multiple trades all day long.
6. Forex scalping strategy
Forex scalping is a common term used to describe the method of regularly taking small profits. This is done by looking for many entry points and taking small numbers of pips per trade. IT is all about locking in profits.
This can be accomplished manually or by an algorithm that uses predefined rules on when/where to enter and exit positions. The most liquid Forex pairs are favoured, as spreads are usually tighter, which makes them perfect for a strategy with very short-term positions.
7. Swing trading
This method relies mainly on speculations and is often considered a little risky. The trader simply looks to take advantage of both trending and range-bound stocks. Traders enter long and short positions accordingly by choosing ‘tops’ and ‘bottoms’ of ranges.
8. Carry trade strategy
Carry trades involve borrowing one currency at a cheaper cost, followed by investing in another currency at a higher profit rate.
Ultimately, this will result in a positive carry of the trade. This technique is used mainly in the forex market.
What Trading Style Best Suits Your Personality ?
Trading styles for people who are well organised and short on time
- Swing trading – Swing trades are called medium-term because positions are typically held anywhere between a couple of hours and a few days. The cost in terms of time is small and swing trading is ideal for short-term traders. Open and close orders may be used and will activate automatically once specific price thresholds are reached. (Take profits and stop losses)
- Automated trading – Automated trading is another solution for short-term traders or people trading in their spare time. Traders simply set their entry and exit points, plus the trade volume and then let the market do the rest.
Trading style for cautious people with time to research
- Position trading – This is ideal for traders looking to hold prolonged (month/year) positions, often focused on long-term fundamental factors.
Trading style for decisive people who prefer instant results
- Scalp trading – A Forex trader who uses this style often tries to begin and end a trade almost as soon as it was initiated; that is within a few minutes. The trader simply attempts to take advantage of minor price fluctuations, and usually with large leverage.
Staying Consistent With Your Trading Style
When you stay consistent with a style, you’ll likely experience consistency with your trading outcomes. One of the most common mistakes most novice Forex traders make is to constantly change their trading styles.
Don’t jump to a certain conclusion after a couple of limited trades, as not every trade will be successful and it is about making good decisions, not winning every time. If your adopted trading strategy is sound with good risk management and gives you the desired results over time, stick to it.
No matter your personality and lifestyle, there’s a trading style and strategy that’ll work best for you in the Forex market.
From a position trading approach to a practical longer-term swing trade strategy, scalping approach to a short-term day trading style, and even a hands-off automated trading strategy; Forex trading has something for everyone!