You already know how to analyze losing trades and tackle statistics. In today’s article, we are going to discuss how to open trades correctly.
The main question that puzzles many novice traders is, “How to open a forex trade?” You probably already know how to technically set an order. This question rather implies criteria according to which you can enter the market with a high likelihood of profit.
Today, we are going to reveal how to make more money by opening the right trades.
1. How to Open a Forex Trade: Key Criteria
2. 5 Star Rule
3. Opening Trades Based on Technical Levels
4. Technical Analysis Patterns: How to Read Trade Entry Signal
5. Filtering Off Signals Using Real Market Volume Indicator
How to Open a Forex Trade: Key Criteria
If you are a newbie trader, you need to understand one thing: the best trade is the trade which is opened according to your trading strategy. It, therefore, means that every trader must have one. And most importantly, it should generate profits i.e. the total result of the trades closed in the black must exceed the result on losing positions.
The trading strategy should include criteria for opening and closing forex trades. If you are following these rules religiously, your trade can be considered good. By learning how to make one good trade and a second and third after it, you will eventually grow into a successful profitable trader.
5 Star Rule
Various traders have a very different market approach, understanding of the situation, and position opening rules. However, those who trade profitably have one distinctive feature - they open all of their positions based on the signals given by their trading strategy. Since there are plenty of great strategies out there, the criteria for opening forex trades can differ significantly. That said, there is a clear guide that works for all newbies and will help them not to get lost in financial markets. Here it is:
1. Open all trades in accordance with the signals given by one trading strategy
It obviously must be a profitable one.
2. Do not skip entry points
Profitability demonstrated by any strategy is the result of statistics. It is not possible to close all trades in the black. However, there is a way to cover the losses by the profit gained through winning trades. If you pick signals randomly, the statistics will get ruined and this may lead to the lost profits and even major losses.
3. Learn how to filter off false signals
Each analytical method has errors. It’s inevitable. This is why you may encounter losing trades regardless of the trading strategy you use. That being said, if you use additional analytical tools, a portion of false signals can be eliminated. For instance, Real Market Volume indicator can be easily coupled with strategies based on technical analysis (which we are going to talk about later on).
4. Avoid chaotically made entries
Let’s assume that you are trading support and resistance levels, and then suddenly decided to trade Non-Farm Payroll. After that, you have sneaked a peek at a signal based on indicators on some trading forum and opened a position as your fellow trading pal did. The outcome of such trading will be chaotic and predominantly unprofitable.
5. Losing trade can also be labeled as that “one good trade” if it is in line with the strategy
In contrast, a profitable trade made in violation of all rules is not a smart decision and can lead to losses in the long run.
Below, we shall examine examples illustrating how to open several trades in the forex by using technical analysis strategies.
Opening Trades Based on Technical Levels
One of the popular forex trading strategies is opening positions based on technical levels. The principle that lies at the heart of it is that the big players, who push the market price, leave traces. That’s how they provide insight into price values the quotes will be bouncing between.
Horizontal technical levels can stop the price and that’s when you can trade a level bounce. If these levels are broken out, the price moves to the next strong level. How to open the forex trade when this is the case? The answer is—use a breakout trading approach.
Here’s a short checklist for opening trades in accordance with this strategy:
1. Find key technical levels: start from a higher time frame and gradually move to the one you are working with (e.g. 1H or 4H).
2. Determine where the price is against the level in the chart of the time frame you are working with.
3. Wait until the price behavior against the level becomes clear.
4. If the price bounces from the level, trade accordingly. If there is an upward movement, it makes sense to go long. Go short in the case of a downward movement.
5. If the price breaks out the level, wait for the breakout confirmation. You can enter a long position when the price breaks out the resistance level and confirms it by the rollback as support.
6. When there is a breakout of the support level from top downward, wait for the confirmation of the horizontal line as a resistance, whereupon you can go short.
7. Take profit near the next technical level.
Technical Analysis Patterns: How to Read Trade Entry Signal
The technical analysis goes far beyond just support and resistance levels. Patterns of technical analysis also generate sufficient entry signals.
Below are some of the trading techniques you can use when you spot the head and shoulders pattern in the chart.
1. Head and shoulders is a reversal pattern which means that the trend is about to change its direction.
2. If the pattern is facing upwards (straight figure), the price will reverse downwards and you need to get ready to go short.
3. Inverse head and shoulders pattern signals the reversal of the downtrend, so it makes sense to open a long position.
4. In each pattern, you need to define the “shoulder” line by drawing it along the base points of the "head".
5. As soon as the “shoulder” line is broken out by the second “shoulder”, you need to open a position and place take profit in the amount of 80% of the “head” height.
Filtering Off Signals Using Real Market Volume Indicator
Real Market Volume indicator mentioned in the strategies described above will allow you to filter off false entry points. Based on the analysis of the market volumes, it demonstrates the way large capital is distributed in the forex. Therefore, with its help, you can peep behind the curtain of the market and spot the strongest levels.
Real Market Volume will provide a clue to forex position opening (be sure to watch the video below to learn how to use the indicator) with a high likelihood of profit. Add it to your strategy and you will be able to boost its profitability by simply eliminating false signals.
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