When’s the best time to enter a trade? If we knew the answer to that question, forex trading would be a lot easier. Unfortunately, the difference between profits and losses is your entry/exit strategy. For example, you might estimate that the value of a currency pair will appreciate, but if you hesitate to enter into a trade, you limit your potential profits.
Typically, finding an entry point starts with solid technical analysis and a plan of action. You want to enter trades for a specific analytical reason – i.e. you’ve isolated a clear trend – and you want to have a plan for potential entry and exit points. But entry and exit strategy is more complicated than that. Here are a few tips for entering trades at the best possible time:
Trendlines Are Your Friend
Trendlines are extremely useful for day traders, and they can provide fast insight into possible entry points. Essentially, trendlines connect a series of higher highs, or a series of lower lows, and they’re extremely easy to use. Plus, they provide a clear indicator of the support levels (uptrends) or resistance levels (downtrends) for a specific currency pair value. Entries can be determined based on the value’s relation to resistance or support level. As the value reaches the trendline, it’s a good indicator that it might be time to enter a trade.
Use Limit Orders for Best Pricing
Limit orders – which let traders enter a trade at a specific value – ensure you enter a trade at the best possible value. Here’s an example: EUR/USD is trading at 1.1225 and you believe the price will dip slightly before trending back up. You set a trade order at 1.1200 – the point you expect the price to drop before rallying – to ensure you will enter the trade nearest to the bottom of the trend. With the speed at which day trading occurs, this forex strategy is extremely useful for locking in the best possible price.
End of Each Day Trading
The peak of the Foreign Exchange Market is during the U.S./London overlap, and the amount of noise in the market is at a high. That’s why, particularly for long-term forex trades, it’s ideal to place entries at the end of each day. Although this might lead to overnight risk for the day trader, it ensures that prices will be most stable and the trends may very likely be clearer.
Finding an entry or exit point for your trades is one of the most important skills to master. These quick tips will help you determine when to enter at the best possible price, enabling your trades to capture more profits.