THREE BASIC BEGINNER MARKET ENTRY TRADING STRATEGIES
Basic trading strategies for a beginner suggest that they help to understand the essence of the market and its capabilities. 3 convenient strategies, from which you need to start a career as a trader.
The ability to correctly analyze the price chart of a currency pair is one of the key skills for a trader. However, its presence does not automatically make the trader successful.
Of course, trading results are very dependent on technical analysis skills, however, the skill of analyzing charts excludes the participation of any money and emotions of the trader. It is problematic to exclude money and emotions from the process of real trading in the foreign exchange market. That is why two traders with the same knowledge and skills will show completely different results.
YOU CAN’T JUST GO AND ENTER THE MARKET
Every day, trading sites publish a lot of trading recommendations and forecasts for trading in the foreign exchange market.
However, none of the most accurate forecasts will bring profit to the trader if he does not know how to enter the market in a timely manner.
The ability to find on the chart, for example, the “Head and Shoulders” pattern will only be profitable if the trader can realize the signals of this pattern at the right time. The time interval between the formation of a signal to enter the market and the opening of a transaction is the factor without which it is very, very difficult to earn income in the foreign exchange market.
There are many methods for choosing the right time to open a transaction, but the three most universal and, at the same time, effective, are three approaches :
- Entering the market during the breakdown at the price of a certain technical level.
- Entrance to the market at the end of the correction in the direction of the trend.
- Opening a transaction in a narrow price range that precedes a strong price movement.
Consider each of these strategies in more detail.
ENTRY STRATEGY # 1. BREAKDOWN LEVEL
The trading strategy for entering the breakdown of a technical level is very simple and is used by many traders.
Its essence is as follows: a trader determines static or dynamic levels of support and resistance on the chart and enters the market after the price breaks up (buy) or down (sell) levels.
THE MOST COMMON MISTAKE
Along with simplicity, such a strategy of entering the market carries a rather big danger. According to the classical rules of technical analysis, you should open a deal when the level is broken only when the price returns and rebounds from it. That is, a sensible trader will refrain from opening a transaction during the initial breakdown, expecting the price to return to the level and rebound from it. If this does not happen, then the trader simply does not open a deal.
Emotional traders, who, unfortunately, are an order of magnitude larger, know about this rule, but do not observe either the first or second point. And the price continues to fall rapidly, having already passed a fairly large distance from the broken level. Trader No. 2 hurries after the impulse and opens a deal. As a rule, just after a few points, the price turns around and goes against the trader, causing loss.
LOSS INSTEAD OF PROFIT
Since the position is open in violation, we are not talking about any adequate amount of stop loss. Sometimes a trader doesn’t even put it up, because there’s nowhere to put it right, but that’s another story.
Thus, a price breakdown of a technical level can bring good profit only with timely entry into the market. Most traders are in a hurry to “jump into the outgoing train”, often receiving a loss instead of profit.
STRATEGY NUMBER 2. CORRECTIVE ROLLBACK ENTRY
Trend trading is the easiest and most profitable way to trade in the forex market.
Its principle implies that after a strong price movement, the price is adjusted to the technical trend line (the support line for the uptrend and the resistance line for the downtrend), after which it forms the next impulse in the direction of the trend.
Strategy No. 2 involves opening a position at the end of a corrective pullback. The method is very effective since the money of those traders who did not manage to enter on previous trend impulses are used as a “price engine”. Having opened a deal at the right time, it remains only to allow the price to reach the set goal, bringing profit to the trader.
However, here traders are waiting for pitfalls. According to the classics of technical analysis, a deal should be opened only after the price breaks off the trend support (resistance) line.
However, not everyone has the patience to wait for the price to bounce, and why lose the extra points if you can open a buy position right when the price touches the trend support line, reinforcing your confidence in the phrase: “The current trend is more likely to continue than change direction”, “Trend is your friend” and the like.
Here is a good example of what this can lead to:
That is, the trader’s greed and haste led him to not wait for the price rebound, hoping that it would happen, and opened a buy position, which, according to his calculations, should have been at the very beginning of the price impulse, bringing in additional profit. The calculation was not justified – the price broke through the support line, the uptrend ended, the purchase transaction had to be closed at a loss.
A reasonable trader, without waiting for a rebound, would simply remain outside the market without any losses. And the whole difference between the two traders is the time chosen in time for entering the market.
STRATEGY NUMBER 3. NARROW PRICE ENTRY
Opening a transaction when the price is in a narrow price range alarms many traders, although this principle is not fundamentally complicated.
From the point of view of logic, it is precisely finding the price in a narrow price range that is the best time to open a deal. Volatility is low, allowing you to choose the appropriate levels for positions, and the consolidation period, as a rule, is followed by a sharp price spurt up or down.
That is, a trader takes a position when the price is, roughly speaking, in a narrow flat movement, and is waiting for its sharp rise or fall, depending on the forecast made.
This strategy has a significant advantage – if the forecast of the trader is not justified, and the price goes against, the deal can be closed with minimal loss.
HOW TO STRENGTHEN THE STRATEGY?
Most of all for such a strategy of entering the market, technical analysis figures that are based on the principle of price accumulation are suitable. These are such patterns as “Flag”, all kinds of tapering “Triangles”, “Wedge”, “Pennant”, etc.
The price is compressed in a narrow range, like a spring, which increases the likelihood of a sharp exit from the established range. And a trader who correctly predicts this price movement and opens a deal on time will get a good profit.
As a rule, such price breakouts are quite rapid and if you miss the moment, then catching an impulse can lead to the consequences described in the first strategy. If, for example, to place a pending order SellStop at the likely breakout, the transaction work itself.
When the price breaks in the opposite direction, the sell stop order, of course, will not open. If, as a result of a false breakdown, the “delay” is still open, but the price goes in the opposite direction, due to the narrowness of the price range, the stop loss size will be small, minimizing losses.
WHICH STRATEGY IS BETTER AND WHAT TO CHOOSE FOR TRADING
What strategy to choose for trading? There is no single answer to this question. Using the above strategies can hardly be turned into a regular task of repetition.
Fortrader recalls that a successful speculator should plan his positions depending on the situation on the market, risk parameters and trading tactics designated for himself. In addition, the strategies are not mutually exclusive, and in the same situation, one of the indicated strategies for entering the market can be successfully used.