Lesson 1: Timing your entries when trading Forex
About fifty percent of good trade is about timing. Enter too early - and you risk being
caught in the wrong direction. Enter too late - and most of your profit is gone.
Wait for the Close. Whether it’s a one-minute chart or a daily chart, the most
important price is the one at which the session closes. False breakouts happen all
the time.
Take a look; when there is a strong resistance level that has been tested plenty of
times, you will see a candlestick like this. Let’s see what happened here.
At the start of the session, the bulls took control and started breaking through the
resistance. At this point a lot of traders thought: “Hey yeah. I’m going in.”
Some others had simply put entry orders at this price. But suddenly, a couple of
minutes before the session closes, the price starts to fall and it falls below the
resistance level. After this false breakout, prices just start falling in the opposite
direction. Does this seem familiar to you?
You wanted to enter on a balance of a rising trend line, but as you were waiting for
the session to close, the price had already made a huge move.
So what to do; should you still enter the market? The answer is simple: Take the
risk/reward ratio.
First, look for where to put your stop loss. Then find the next resistance level.
Now measure the amount of pips of the entry price in both directions. If the ratio is
one to two or better, enter the market. If not, sit this one out.
The feeling that you get right after you see a big move in the market, it’s a feeling of
regret. You start thinking about all the money you would have made if only you had
entered earlier.
Then you start telling yourself those little lies. “If it made the move like this, it must be
really strong. There’s no reason why it wouldn’t just continue to make moves like
that.Maybe, I will just open the position anyway.” But remember one thing; being flat
is also a position. Statistics show that on average, an active trader underperforms an
active investor by about ten percent a year.
What does that mean? It means that you are probably overtrading. If it’s a bad trade
don’t enter it. There will always be another set up tomorrow.
Smart Way of To Make Up for Missed Opportunities
The old saying about trading goes: buy low sell high. Let’s take a look at the last
example once more.
The price just made a huge move up. Because of the risk/reward ratio; it’s not a
good idea to enter straightaway.
But the prices entered the race. In the next couple of sessions, prices pulled back to
create a new higher low.
We measured the risk/reward again. And now, as it’s even a bit more than we
wanted, we can buy the market by following the old saying: Buy Low.