Hello and Welcome To another edition of the bulls vs the bears. Today we are going to learn how to find the best trade entry points for your forex trades. Your trade entry should satisfy two requirements: A reliable stop placement and humongous risk/reward potential.
I can hear someone saying”That’s easy for you to say.” Sure perfect entry points may be as rare as the eclipse of the moon.But it takes a little patience and a hunter’s mindset to spot them. So we’ll do two things. We’ll look at three strategies for finding the best trade entry points.
Two Strategies For Finding The Best Trading Entry Point
First things first, look out for obvious price signals. The price signals should be as clear as day that you’d be blind not to see them. The daily chart frame is a good place to start from. Why? because the signals and patterns are so crystal clear you can’t afford to miss them. Next you are looking for confluence of factors that back up the price signals And by that I mean you look back at the previous trading periods to check whether the signal aligns with other key levels or has formed via a pullback.
For more information on confluence of factors look up Something Called Confluence
Basically make sure the signal lines up with as many supporting factors as possible to constitute the best trade entry point. If you are thinking of tweaking your trade entry, don’t even try it. you will receive severe burns to your trading position.
Now some of are asking:
Why The Wait For A Better Trade Entry?
1) First off, it frees you to insert a tight stop loss which in turn makes you a profit on a substantial risk/reward. This means you can trade for a bigger position size.
2) You reduce the risk of being stopped out for a huge loss because you placed your stop loss out of harm’s way. by that I mean you placed your stop loss in a safer place.
3) You get to wait patiently while the trade forms. patience comes in handy especially if you are not totally sure that the trade is worth risking your precious cash on. While you wait patiently you place your stop loss. In so doing you save your self the heartache of a tsunami-sized stop out no to mention being wiped out by the market itself.
Now that we have gotten the reasons out of the way, let’s look at a few examples of spotting the perfect trade entry
Ladies and gentlemen, here is a clear bearish pin bar signal(circled in red) along the level of resistance via the GBP/USD pair. The tail of the pin bar is obviously sticking out like a sore among the neighbouring bars. This must tell you that the bears are planning their reversal and that they are going to push price further down in the future.
Now let’s look at the factors supporting the sell signal using the AUS/USD pair in the price action below
As you can see the evidence required to make a trade entry is there for you to see. We see a downtrend that has been developing for a month with the signal developing after a pullback to the level of resistance. The signal so obvious that you don’t need a bolt of lightning to tell you that it’s time to make the trade. And of course the risk/reward potential is huge.
Since this is a long term trade you don’t need to stare at your screen like a bodyguard. Just get out of the house and head to the beach while your trade entry racks up the profits.
Now we’ll look to tweak our trade entry and improve our risk reward potential
Here we try to make our entry at the 50% point of the pin bar. There is no way we can get it at exactly 50% as it’s literally impossible. Not even Einstein could have got that right. But you can make your grand entry at the point of retrace just under the the 50% point and with a stop loss just below the pin high. Aside placing a stop loss you could improve your risk potential from RR1 to RR2 as indicated above. Some have been known to increase the risk/reward to RR3.
Now let’s look at another entry example using the daily time frame
Ladies and gentlemen, here is a trade entry in the daily time frame via the EUR/USD pair. We have a bearish pin bar forming as a result of the bears doing a sharp reversal. And just like the previous example, the pin bar clearly sticks out like a peacock. You can’t miss it.
As you can see a pin bar formation is taking place at the level of resistance on the weekly chart. It’s pretty much consistent with the pin bar formation in the downtrend of the daily chart frame.
Finally let’s take a look at a long tailed pin bar setup in the daily chart price action
Clearly we see a long tailed bullish pin bar at the level of support on the right side of the chart. That of course kicks of the bullish charge. With your knowledge of long tailed pin bars, nobody needs to tell you that’s a the perfect entry point to put in your trade. No to mention the huge risk/ reward benefits that you will accrue from this setup
That’s a wrap for “How To Find The Best Trade Entry Points for your forex trades”. What you need to understand from this lesson is that the best trade entries form with the help of supporting factors. Basically you are looking for the coming together of a signal and a level, or a signal and a trend, or even a level and a trend
The trend at the time should be painfully obvious with the signals formed at a key level. With a little patience, training and reliable instincts you should be able to make your entry with consummate ease.
Till next time take care.
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