Finding the right entry points is a challenge beginners and experienced traders alike face on a daily basis in the forex market. Imagine this familiar situation: You are sitting in front of your screens and looking for set-ups or chart patterns to take advantage of. You then see the perfect trading set-up that matches your strategy, and feel excited about jumping with both feet into the market. But when exactly should you enter your order? That’s what we will show you in this article.
The Importance of a Trading Plan
The first thing to ask yourself when you are taking a critical look at your own trading is whether you are making the appropriate preparations for each trade. After all, trading is by and large like many other things in life; we get what we deserve. Poor preparations and sloppy planning will, over time, translate into equally bad results.
A proper trading plan should detail everything about the trade you are about to make in an organized manner. This includes specific details such as the exact trigger that is needed before you enter your order. Likewise, it should also include the exact event that would trigger an exit from the market. And just to make it clear: The plan should be written down, and not just exist in the trader’s mind.
The Trend is Your Friend
Although it is one of most used clichés in trading, the saying “the trend is your friend” works as well for finding entry points as it does to guide a trend-following trader all the way to the finish line.
The interesting thing with price trends is that they tend to move in waves, which is something we as traders can learn to take advantage of in our trade entries and exits. If you can learn to draw trendlines, you will see that more often then not, price bounces up and down along that line in a rather predictable pattern.
Sometimes, technical indicators such as moving average lines serve as support lines for the price trend as well, with price bouncing up every time it hits a certain moving average line during an uptrend. This works particularly well for trends that are accelerating, as we saw in the bitcoin market in 2017 for example.
As a result of this wave-like movement, the perfect entry point during a trend is whenever the price is at or near the supporting trend line. That way, you will have little downside on your trade, and a large upside – exactly the type of risk:reward you should be looking for.
Use Limit Orders for Best Pricing
Learning how to properly use limit orders to get in on the price you want is another skill that will pay off in the long-term for forex traders.
The truth is that most new traders simply choose the easy way, and use market orders for their trades. While this ensures that they get the trade they want right away, they are likely paying more than they need to. And when all those cents add up with large volumes, and over hundreds or even thousands of trades, many traders end up giving away a significant amount of money just because their orders are not optimised.
Limit orders, on the other hand, is when you enter the specific price you are willing to pay for an asset manually into the trading platform. While there may not be someone who is willing to take your trade right away, the market will come to you eventually if it is behaving in accordance with your plan. And if it isn’t, then you shouldn’t be taking the trade anyway, right?
Candlesticks as Entry Triggers
Another common strategy is to use candlestick patterns as specific entry triggers, after the other criteria for your trading strategy have been satisfied. As an example, some traders like to place their order only after seeing a clear “pin”-shaped candlestick – a typical sign that buyers are taking over and reversing a downtrend into an uptrend.
There are countless other strategies for finding good entry and exit points in the market, including many other candlestick patterns or indicator-based strategies. The point, however, is not to learn them all, but to find one that works for you, and practice it over and over again until you truly master it, ultimately enabling you to trade better and capture more profits.