How to find trade entries in forex trading is a common question. In this post we try to explain how to get started if you are new to forex. When to enter the markets and how to determine a good entry point.
- How to start
- What is the best time to trade
- Which indicators should I use
- Manual or automated?
How to start
It’s 08:00 hour and you are all prepared in front of your screen, prepped with a cup of coffee and watching the pre market news….ready to enter the most liquid market where there is not much room for winners.
so now what?
First try to create some kind of routine. For example; read some interesting blog posts, tweets and try to identify the market trend.
Some useful links you can try;
www.seekingalpha.com
www.forexfactory.com
www.myfxbook.com
As you know we are strong supporters for trading only one or two pairs and to specialize in them before hopping to other currency pairs. Trade entries are different for each pair therefore to make it easy for our readers, let’s focus on the EURUSD pair. Once you have an idea about the trend (up, down or sideways) you can pick your favorite pair and should decide in which time zone you’d like to trade.
What is the best time to trade
I like to split the market in 2 trading sessions,
the European session
the North American session
Europe starts around 07:00 London time and North America at 14:30 London time. Some traders also like to trade during the Asian session, however if you are asleep during that session, you better use a good robot or don’t trade at all.
Typically the hours before the market opens in North America, many traders halt trading, since markets tend to be very volatile, mainly because of the liquidity pooring into the forex markets.
So best to use the hour before 08:00h am London time to identify the trend and make a plan and start to trade no sooner than 08:00h am.
or
trade from 14:30 pm London time when the NA session starts.
The best trading entries can be found when there is volume and these two moments are the ones where there is most liquidity.
Which indicators to use
Not all indicators are suitable to find the best trade entry. Basically because an indicator shows you what already occured and not what will happen in the future.
But if we would have to pick we’d go with the Simple Moving Average (SMA) and the Relative Strength Indicator (RSI). More about how to use indicators you can find in other posts. Price action traders use candles to pick an entry point. More about this topic you can find in other posts.
Now that you have knowledge about the market and news events, you have a general idea of the trend you can zoom in on the price, starting from 08:00h London time.
If the consensus of EURUSD is long, then focus on an entry to go long and not try to make a ride short. If the market goes down, simply wait until it retraces.
Many swing traders prefer to enter the market when SMA levels are crossing. For example, when the 20SMA crosses the 50SMA. Most day traders use the M15 time frame to spot these crosses or to see price action (where candles suddenly start to move fast).
To trade on the day, you can use the M15 chart and enter when for example the 20SMA crosses the 50SMA (see chart)
The Scalprobot can help you with finding entries and feel free to join a free webinar where we explain how this trade manager works.
Manual or automated?
Although this looks like an easy question for me, I’d like to remind you that EA’s also need monitoring and trend spotting. Robots do not read newspapers and are subject to big news events. So make sure you always get the big picture of that specific trading day.
Obviously a robot can be programmed to make entries based on SMA so in case you have a dayjob, this would be the best way to seek for entries. Also you will protect yourself from becoming emotional.
Whoever has the time to trade themselves do not need a robot in most cases. Only when you trade 8 pairs at the same time where a human cannot calculate as fast as a robot.
Conclusion
To find a good trade entry is very hard and therefore we use the following steps to simplify things:
- trade when there is volume
- trade when you are confident about the market direction
- don’t use too many indicators
- check news events during the session that can cause high volatility
- make sure you have time to monitor your trade
In case your time to trade is limited, be aware that your odds will decline. Contact us for more information about how to automate you trade entries.
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Risk warning: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.
Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particularly trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk. Variables such as the ability to adhere to a particular trading program in spite of trading losses as well as maintaining adequate liquidity are material points which can adversely affect actual real trading results. Currency trading involves high risk and you can lose a lot of money.
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