Timing Your Entry

Filed under: Learn Forex Trading |

There are many methods of entering the market, and even when you have decided on a particular strategy or method for trading, you still have to make a number of decisions regarding when you should enter the market.

 

Figure 1.

Take a look a Figure 1. This was a possible trade setup on the EUR/JPY pair (the pair for the euro and the Japanese yen). A horizontal line marks in an area of resistance. What you can see is that price struggled to break through initially, with two pin bars rejecting the area. However, price did then make a decisive break, which coincided with the 8-day exponential moving average crossing above the 21-day exponential moving average; signalling that the market had moved from bearish to bullish.

 

I personally put an order in here to go long at a 50% retracement of the bullish candle, with a stop loss just a few pips below the low of the bullish candle, and target of two times our risk of 1%. However, this order was not filled as price only retraced a little way, and price has subsequently moved up. If our order had been filled, our target would already have been met. This is the benefit of entering on a 50% retracement. However, the downside is that many orders are not filled, plus you are going against the very short-term contrary momentum. So this is also something to think about.

 

The alternative would have been to go long on the break of the high of the bullish candle. The upside to this is that we are going with the current momentum. The downside is that because our stop is wider, then our profit target is also further away. One way around this could be to place stops at a 50% retracement of the bullish candle, but this could be a dangerous strategy; especially if market volatility is relatively high.

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