by Kwasi Kisiedu

Forex Trading Basics – Top To Bottom Part I

Ever since I started this forex trading blog, I’ve gotten some amazing feedback from you readers. Infact, some of the reviews of my have been so tremendous I’ve felt my head expanding as big as cyberspace itself. Now I don’t want to jump ahead of myself, but I’ve a feeling some of you would like to join the forex trade bandwagon. But you don’t know how. So,being the nice guy that I am, I’m going to do a two part series on Forex Trading Basics-Top To Bottom starting with Part I. It’s my version of Forex Trading 101 where you’ll be fed the fundamentals of forex trading. I basically want to feed you the milk before you start chewing the bones of the forex trade. You’d be crazy to take the plunge without the necessary tools right?

So let’s get started with:

Exchange One Currency For Another

The only motivation behind forex trading is to exchange one currency for another. That’s all!- Nothing sinister going on here. By exchanging one currency for another, you’re hoping that the price will change so that the currency that you bought initially will shoot up in value as against the currency that you sold. Let’s take a look at the little graph below:

Trader’s Action	EUR	USD
You purchase 10,000 euros at the EUR/USD exchange rate of 1.1800	+10,000	-11,800*
Two weeks later, you exchange your 10,000 euros back into U.S. dollar at the exchange rate of 1.2500	-10,000	+12,500**
You earn a profit of $700	0	+700

** EUR 10,000 x 1.25 = US $12,500

What you see here is the exchange rate in action. The exchange rate is simply the ratio of one currency valued against another currency. Per this definition, the USD/CHF shows how many U.S dollars need to buy one Swiss franc or how many Swiss Francs you need to buy one U.S dollar.

You Need To Know How To Read A Forex Quote

If you want to make it as a forex trader,you need to know how to read a forex quote. There is no getting around this one. If you can’t do this,you’re in trouble. Seriously though, currencies have always been quoted in pairs since time memorial. I’m sure you’re aware of famous partners such as GBP/USD AND USD/JPY . They’re perfect examples of a forex quote. Now why’re they quoted in pairs? Because in every forex transaction, you’re doing two things at the same time – buying one currency and selling the other. Let’s take a look at British Pound/U.S.Dollar

GBP-USD

The first currency listed to the left of the slash symbol is termed the base currency(In this case the British Pound). While the second currency on the right is labelled the counter or quote currency(In this case U.S.dollar).

When you buy, the exchange rate lets you know how many units of the quote currency you need to pay to get one unit of the base currency. So going by the above example, you have to pay 1.51258 U.S. dollars to buy 1 British pound.

But it’s a little bit different when you sell. Here, the exchange rate lets you know how many units of the quote currency you get for selling the base. Again going by the GBP/USD pair, you will receive 1.51258 U.S. dollars when you sell 1 British pound.

And please get this once and for all. the base currency is the main catalyst for the buy or sell routine. For instance if you buy EUR/USD, you’re buying the base currency and selling the quote currency at the same time, In Tarzan talk, “Buy EUR, sell USD.” You buy the pair if your trading instincts tell you that the base currency(EUR) will gain in value as against the quote currency (USD). You sell the pair when those same trading instincts scream in your head that the base currency will take a dip as against the quote currency.

Know How To Go Long/Short

You need to know how to go long or short. In other words, you must decide whether you want to buy or sell. If you want to buy(buy the base currency and sell the quote currency), let the base currency rise in value and then sell it back at a higher price. And if you want to sell(sell base currency/buy quote currency), the value of the base currency must drop for you sell it back at a lower price. So remember these two formulas: long=buy. short=sell . Let’s take a look at theAUD/JPY graphic below.

Long-short

This is a classic illustration of entering long/short using AUD/JPY in the 1hr time frame. You go long when you spot engulfed candlesticks. By engulfed candlesticks,when a bull(strong candlestick) engulfs a bear(white candlestick. This suggests the value has risen,and it’s time to buy.This is exactly the case at the lines of support and resistance where the strong bull(white candlestick) engulfs the bear(blue candlestick). The bulls are basically saying the value of the currency has risen,and so they’re putting in a bid to buy. When you see something like this,why waste time?

As the short entries suggest,the value of the currency has dropped enough in value. So it’s time to sell. That’s according to the bears. Since they helped drive the price down,they’re now in the driver’s seat calling the shorts.

Know How To Ask/Bid

Not only should you know how to ask/bid as a trader,but you should know the difference between these two terms. For the record,all forex quotes are quoted with two prices – The bid and the ask. Let’s see the graphic showing both terms.

bid-ask

This EUR/USD graphic illustrates the bid/ask scenario.. The bid is the price at which you’re willing to buy the base currency in exchange for the quote currency. It is the best currency at which you(the trader) will to sell to the market.

Th ask is the price at which the broker is willing to sell the base currency in exchange for the quote currency. It is the best currency at which you(the trader) will buy from the market. The ask is also known as the offer price. After all,if you want something you ask for it.Right? Also,let’s make one thing absolutely clear: The bid price is usually lower than the ask price. Try do it the other way round, and you’re sure to get a massive rejection from your MT4 software.

Wanna know the difference between the bid and the ask price? It’s popularly known as the spread. On the EUR/USD quote above, the bid price is 1.34568 and the ask price is 1.34588 The ten pip difference is known as the spread, which we will be getting to next..

What Do We Mean by Pips In Forex Trade?

A pip is a popular acronym for price interest point. Basically the pip measures the amount of change in the exchange rate for a currency pair.Most currency pairs are rounded up to four decimal places, so that one pip is 0.0001. The only exception is the yen,which is rounded up to two decimal places(0.01). So keep that in mind in case you decide to experiment.

However, forex brokers are getting sexy these days. They’re now offering fractional pips called pipettes to add extra precision when quoting exchange rates for certain currency pairs. Just so, you know a fractional pip is equivalent to 1/10 of a pip.So for instance, you can round EUR/USD currency pair to five decimal places while the yen moves up a notch to three decimal places. Makes life more for you yen traders out there . Doesn’t it?

Forex traders also use pips to make reference to gains and losses they’ve sustained in their trades. So when you hear a trader say “I made 40 pips in this trade,” he’s basically saying “ he profited by 40 pips. However, the actual cash representation of these pips depends squarely on their value.

Speaking of which:

How Do I Determine Monetary Value Of Pip?

“How Do I Determine Monetary Value Of Pip” translates into “How Do I Calculate Profits.”Well, the monetary value of a pip is dependent on three crucial factors: the currency pair being traded, the size of the trade, and the exchange rate. Let’s say a $300,000 trade between the USD/CAD pair closes at 1.0568. Here is how the profit is calculated.

Determine the number of CAD each pip represents by multiplying the amount of the trade by 1 pip as follows:

300,000 x 0.0001 = 30 CAD per pip

Divide the number of CAD per pip by the closing exchange rate to arrive at the number of USD per pip:

30 ÷ 1.0568 = 28.39 USD per pip

Multiply the number of pips gained, by the value of each pip in USD to arrive at the total loss / profit for the trade:

20 x 28.39 = $567.80 USD profit

Seems fairly straight forward isn’t it?

Just to solidify your understanding of the calculation process, let me show you another example using the EUR/GBP pair and using the same steps above.

Currency Pair	Exchange Rate at Close	Pip Change	Trade Amount
EUR/GBP	0.8714	+29	350,000 EUR
Number of GBP per pip: 350,000 × 0.0001 = 35 Per Pip Value: 35 ÷ 0.8714 = 40.17 EUR per pip Trade Profit / (Loss): 29 pips × 40.17 = 1, 164.93 Euros

Hopefully this example helped smooth things.

If you want to find why the forex trade is the biggest industry on the planet refer to Why Forex Trade Is So Popular?

That’s a wrap for “Forex Trading Basics From Top To Bottom Part I.” Hopefully you now have a feel for what you need to know to get started as a forex trader.. Next I’ll share with you more things you need to know to make money as a forex trader in “Forex Trading Basics From Top To Bottom Part II.”

Til next time take care.

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03.28.17

by Kwasi Kisiedu

Let’s Trade the Bear Trap

Last time we learnt about Trading The Bull Trap. Today, let’s trade the bear trap. And no,we’re not talking about a bear trap for eight hundred pound grizzlies. We’re talking about a different kind of bear -The naive selling bear. Basically, the principle behind the bear trap is still the same as the bull trap – Setting us naive bear traders for a major crash. Except that this time it’s naive sellers taking the bait. So we’re going to find out what a bear trap really is, the characteristics of a bear trap to look out for, how to avoid the bear trap, and how to trade the bear trap.

I guess the obvious question is:

What is a Bear Trap?

A bear trap is basically a contraption set up in the bullish trend for naive sellers.Just like their brethren, caught in the bull trap, they fall for the possibility of making a huge profit. except this time, they get baited into believing tha And just like their naive bulls brethren,they’re left holding the bag. To make matters, they’re in a lot of pain. Why? Because all their initial profits are about to go out in smoke and their precious stop loss is about to take a massive hit. Basically these naive bears are about to incur a huge loss. They basically started counting your eggs before they were hatched.

Let’s see a classic example of a bear trap

This is a bear trap in action. The red bears downward slide create the impression of an imminent sale only for the green bulls to set a bear trap, at the support, level jack up the price and head for the hills. Unfortunately the naive bears they face the double-edged sword losing a lot of money and their stop loss order taking a massive hit.

Twos Features To Look Out For In A Bear Trap

There are two features you absolutely need to look out for in a bear trap. The first candlestick must be absolutely bearish. It must be seen to be breaking through the support level and closing after the support level . Even more important, the next two bears in between the bear trap must be seen to be losing steam. When this takes place, shorter candlestick body lengths take place. This represents the formation of a bullish reversal.

The second feature to look out for is the bear trap breaking through the support level. The bear trap breaks the support level and the bulls head for the hills, leaving the naive bears holding the bag. When this scenario unfolds,you have yourself a bear trap.

Let’s see an illustration of this scenario using the first graphic we looked at earlier bear-trap-in-forex-trading

Take a close look a the long red candlestick breaking through the support level and closing after the support level. That’s the first feature of the bull trap. However, take a closer look at the red candlesticks in between the bullish at the base of the support level. They’ve started losing steam and the bullish trend represents the bear trap breaking through the support level. The naive bears are going to be hurting a lot.

If you are still not sure about support/resistance levles please hurry to my Identify Support and Resistance Levels With Price Action Analysis post.

Where Do Bear Traps Occur?

As the purple line suggests, bear traps occur at support levels. Anytime you see candlesticks nosediving towards the support level, start screaming BEAR TRAP! Don’t be a victim.

Now that we know about the monster called the bear trap,What are we going to do about it? Hear are a few tips on how to dodge the bear trap

Place A Large Stop Loss

Just like the bull trap, place a large enough stop loss to get you out of trouble when the bear trap rears its ugly head. . You can place the stop loss at least 2 pips below the low of the bullish candlestick or two pips below the low of the bearish candlestick. Let’s take a look at the following graphic. Bear-Trap-Chart-Forex-Trading-Strategy

The first stop loss is placed right underneath the low of the bullish candlestick(or the short end of the candlestick), as indicated by the number one label. The second stop loss is placed at the long end , or low of the red bearish candlestick as indicated by the number 2 label. As I said earlier, placing a stop loss at either the bearish end or bullish end will save you from incurring huge losses.

If you’re a bit dodgy on your candlestick patterns, go to my post on You Need To Know Ten Of These Candlestick Patterns

Follow The Dominant Trend

If you want to beat the bear trap,follow the dominant trend-in this case the downtrend. If the breakout at the support level is not in the direction of the downtrend,it can only mean one thing -BEAR TRAP! And you know very well that the smart bulls will be only too glad to push the price up and head for the hills, and leave the naive bears licking their wounds. In case you’ve forgotten what a downtrend looks like,take a look

As you can see the breakout is in the direction of the downtrend.It has not taken any detours as you saw with the bear trap. If this scenario doesnt unfold on your screen, don’t bother entering a trade. If you do,you’d live to regret it.

If you’re still not sure of your trend trading, refer to my Trade Trends With Price Action Analysis Post

Trade Retracement Instead of Breakout

Sometimes it makes sense to trade the retracement instead of the breakout at the support level. Some of you are probably wondering “What is a retracement?”Well, a retracement is a temporary reversal of a currency pair against a dominant trend. So instead of taking the risk of being bear trapped, how about allowing the breakout to happen?And then once the price moves down,with downtrend still intact, wait for price to drop a bit and then you make your sale. Let’s see an example of retracement in action.

retracement

As you can see from the GBP/USD graphic, the downtrend is heading towards the support level, which is indicated by the green line. Don’t trade the initial breakout, but watch the price drop and then trade the retracement.

Keep Your Eyes Closely On Two Candlesticks After Breakout.

Keep your eyes closely on two particular candlesticks after the initial downtrend break. Why?Because two things hit these two candlesticks -Loss of momentum and bullish reversal. If these two conditions exist, scream BEAR TRAP! You may also want to start heading for the hills with your profits or put a stop loss to save potential blushes. Let’s take a look at the first graphic again.

As you can see from the graphic, the bear trap has triggered a major bullish reversal after the initial breakout.The naive bears were made to believe they were going to cash in massively, only for the smart bulls to drive the price up and head for the hills. These bears will be seriously hurting.

How To Trade Bear Trap

If you want to put your neck on the line to trade the dreaded bear trap, here are a few ground rules you need to keep in mind.

Wait for the bear chart pattern to form, and then wait for the bullish signal to form.
Buy a stop pending order at least two pips above the high of the bullish stick.
Place your stop loss at least 2 pips below the low of the bullish candlestick. Or place it 2 pips below the low of the bear trap candlestick.
If you want to make a profit, aim for a risk:reward of 1:3 minimum . Or use the previous swing trade high as your “take profit target”

Bear-Trap-Chart-Forex-Trading-Strategy

This EUR/JPY graphic illustrates the bear trap trade. Notice the stop loss 1 below the bullish and the stop loss numbered below the candlestick with the thin end. Of course you see where to take your profit. Don’t get too greedy.

That’s as wrap for “Let’s Trade The Bear Trap.” Just like the bull trap, the bear trap creates the impression of a major trend only to create a huge reversal, leaving naive bears holding the bag. Hopefully none of you will suffer the same fate when you come face with the bear trap this week.

Til next time take care.

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03.08.17

by Kwasi Kisiedu

We’re Moving Averages Part II

Today we finish our two part series on moving averages with “Moving Averages Part II.”Yeah I know some of you don’t want this series to end, but all good things must come to an end. Just to refresh your memory we started off with We’re Moving Averages Part I. We defined moving averages and took a look at the two main averages tools – Simple Moving Averages a(SMA) and Exponential Moving Averages(SMA).

Today we’re going to close the show by learning how to use moving averages to find trends.We’ll then find out how to use moving average crossovers to enter trades, and lastly, how to use moving averages as dynamic support and resistance levels.

So let’s start off with:

Use Moving Averages To Find Trends

It’s possible to use moving averages to find trends. If anything,moving averages help you determine the trend. You can start by plotting a single moving average on the chart. But remember this: When price stays above the moving average it means that price is in an uptrend.And when such a scenario unfolds,,it’s your signal to enter a trade. Let’s take a look at an illustration of this scenario.

moving-trend

As you can see, the blue line represents the moving average. And if the price is higher than the moving average. It’s time to put in a buy trade and laugh all the way the back.

get hairy sometimes. Let’s say USD/JPY goes into a downtrend.But a news report causes the price to surge even higher. You then discover that the price is now above the moving average. So you say to yourself. “Hmmm…How about I put in a buy trade now that the market is hot”? So you put in a buy trade with the confidence of a soothsayer that USD/JPY will surge further upwards. Suddenly, out of no where you get faked out.(Remember the fakey pattern?) Instead, the trend goes downward, and the price keeps getting lower, leaving you holding the bag.. Let me show two illustrations of this scenario.

Change-Trend

The USD starts a downward trend. Then all of a sudden,an uptrend starts taking shape.Of course you gets sucked into believing it’s time to make a buy trade.

As you can see , you get fooled by the market as it continues with its downward slope,leaving you holding the bag.

The moral of the story is that you plot not one, but two moving averages. Why? because with two averages you get a clearer signal of whether the pair is trending up or down, depending on the order of the averages. One thing you need to understand is that in an uptrend the faster moving average should be above the slower moving average.It’s vice-versa for the downtrend. Let’s take a look at a 10 period MA and 20 period MA.

10-20

As you can see an uptrend is developing nicely here with the 10 SMA above 20 SMA. With two trend lines,you should be able to tell whether a currency pair is trending up or down. Assuming you’ve finally figured out how use moving averages,you can combine that with your knowledge of trading trends to decide whether to go long or short on a currency.

If you want to get adventurous, you can put more than two lines on your chart. Just make sure the lines are in order of importance(Fastest to slowest in an uptrend, and slowest to fastest in a downtrend.This way you can tell whether the currency is in an uptrend or downtrend.

By the way if you’re still at sea about trading trends, go back to my post Trade Trends With Price Action Analysis

Use Moving Average Crossovers to Enter Trades

It’s also possible to use moving average crossovers to enter trades. No, I’m not referring to Kobe Bryant’s deadly crossovers. I’m referring to moving averages crossing over each other. How do you discern these signals?Just plot a couple of moving averages on your chart, and hang tight for a cross over. If one moving average crosses the either,it’s a signal that a trend is about to change. This trend switch is your queue to make a solid entry. and a chance to cash in big.

Let’s take another look at the USD/JPY daily chart to explain moving average crossover trading.

. crossover

Between April-July, the pair seems to be in a good place trend-wise. Then it reaches its peak at 124 before before making the downward spiral. By mid-July, the 10 MA crosses below the 20 MA. And what happens next? A nice downtrend takes shape. This downtrend takes shape because of the two moving averages crossing each other.

One thing you need to understand is that yes, a crossover system works wonders in a trending environment. But it flames out in a consolidation environment;when prices start ranging. And when that happens it make take a while before you spot another trend.

Using Moving Averages As Dynamic Support and Resistance Levels

It’s even more possible to use moving averages as dynamic support and resistance levels. If you’re wondering whether you’ve come across this term before, yes you have.You saw it in my Something Called Confluence post. Dynamic support/resistance levels are not like their static horizontals support/resistance brethren. Dynamic support/resistance levels are constantly changing faces depending on current price action.

A lot of forex traders view moving averages as key support or resistance. These traders buy when price dips and tests. the moving average. Or they buy when price rises and touches the moving average. Let’s take a look at the 15 minute chart of GBP/USD for illustration

It seems 50 EMA is holding the line quite well.Whenever the price approached 50 EMA,and tested its mettle, it hit right back and forced price to bounce back down.

But there are times price will elude EMA before reversing in the direction of the trend. And there are also occasions when price will just bamboozle through EMA all together. What you could do in such a scenario is plot two moving averages on the charts You buy or sell only when price is in the space in between the moving averages. This area is also as the zone.

Let’s take another look at this same 15 minute chart using 10 and 20 EMA’s

price-zone

Fromt he look of things, price drifted past price few times, but start heading downwards afterwards. The whole point of this strategy is that just like hrizontal support/resistance levels, the dynamic version should be viewed as zones of interest.Think of the area between the moving averages as zones of support or resistance.

Break Through Dynamic Support and Resistance.

Just like any barrier, you have to break through dynamic support and resistance. As you already know,moving averages at as support and resistance. But they can be brittle at times-causing them to break just like any other support/resistance level.

The 50 EMA on the GB/USD’s 15 minute chart should clarify things

dyna-zone

It looks like it held really well! Every time price approached 50 EMA and tested it, it acted as resistance and price bounced back down.

There are also times when price just bamboozles past EMA altogether. What you do in such a scenario? Plot two moving averages, and only buy or sell once price is in the middle of the space between the two moving averages. You could call this area “the zone.”

Well,that’s a wrap for”We’re Moving Averages Part II.” We learnt that moving averages can be very useful tools in price action analysis. They help forecast prices in both present and future.The trick is trying to choose which moving average to use for your analysis.I hope you’ve had fun as much as I have. I know I have.

Til next time take care.

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03.06.17

by Kwasi Kisiedu

Something Called Confluence

Today we’re going to talk about something called confluence . I’m absolutely positive that some of you have come across the term multiple confluence of factors and wondered “What on earth is this multiple factors confluence term that this guy keeps blabbing about?”Not to worry it’s not a virus. Multiple factors of confluence is a coincidence of scenarios of occurring at the same time on the forex charts. These trade signals usually lead to great opportunities for profits.They’re like several alarm bells going off at the same time. Hope I’ve calmed some nerves.

So here is what we’re going to do. We’re going to define what multiple confluence and then we are going to learn how to trade confluence with price action analysis. Of course, backing all this are charts showing you how it’s really done. So onward we go.

What on Earth is Multiple Factors of Confluence?

A lot of you have probably been wondering”What On Earth is Multiple Factors of Confluence?” Well, multiple factors of confluence is a situation in the forex market where two or more points intersect to form a hot point-another name for multiple factors of confluence. It’s like two rivers coming together to form a super river. So what you’re looking for on the charts is several trade signals along either support or resistance levels given off the same trade signals. And when that happens, this creates great trade opportunities. Let’s see what multiple factors of confluence looks like on the chart below.

This graphic nicely the illustrates the confluence scenario.The three labelled areas all represent trading signals all happening at the same time both the support and resistance levels. No 1 can be seen with the bullish pin bar at the support level.Signal number 2 is just around resistance and number 3 is a the breakaway points. Such signals represent great opportunities to cash in.

I guess the next point will be:

Which Multiple of Confluence Factors Should I Look Out For?

There are certain multiple confluence factors you should look out for when trading confluence. The first one will be

A Trend

This is pretty obvious isn’t it? Both upward and downward trends are fairly straightforward in that the price signals are right along both trends. It shouldn’t be too difficult to spot them. Let’s take a look at confluence in action in a downtrend.

confluence-trend

This is a sweet example of confluence in action in a downtrend. The four red crosses on top of the pin bars all represent trading signals . You’d do well to take advantage of these trading opportunities. The same principle applies to an uptrend. By the way if you want to catch up on how to trade trends, read my post Trade Trends With Price Action Analysis .

Next up is:

Exponential Moving Averages

Exponential moving averages(or EMA’S)are average price calculations with more emphasis on most recent price data. This makes them react quickly to price change. So in relation to price action analysis, you use the 8 and 21 day EMA’S to identify trends abdout dynamic support/ resistance zones. . EMA’S also help add confluence to price action.Please dont get dynamic support/resistance zones confused with static support/resistance levels. The latter stays the same,while the former changes shape. This makes for great trading opportunities.If you want to read on static support/resistance levels, check out my post Identify Support and Resistance Levels with Price Action Analysis . Now let’s see EMA’S in action.

confluence-emas

Here we have three factors at work here including the EMA’S. The 8/21 EMA’s helps identify the support level. through the red arrow. And as you can see, the other red arrows point to the trading opportunities along the dynamic support zones Unlike their static brethren, these support zones change shape-which creates significant trading opportunites. Also at play here is a well defined price action setup- ably helped by a price rejection, which triggers a strong upward surge.

Which brings us to:

Static Support and Resistance Levels

Static support and resistance levels are the traditional support and resistance levels that connect highs to highs and lows to lows confluence-static

In case you’ve forgotten what static support and resistance levels look like, this is. On the uptrend, you see the higher highs and higher lows shaping up. And as we descend, lowerhighs and lower lows take shape. And just like any other confluence setup, you see price signals along the support level as indicated by the blue squares.

Event Areas

Now event areas are levels in the market that have been hit by a price action event. The event could be a strong trend movement as a result of a price signal, or it could be a rejection at the support/resistance levels followed by a strong trend movement. The moral of the story is some game-changing event needs to occur for the area to be considered an event area. Let’s take a look at what an event area looks like.

confluence-event

As you can see, a significant price has triggered a huge directional push through the resistance level.For such an uptrend to take shape, a price increase has to take place. The same goes for a downward trend.Price has to drop for the sellers to break through the support barrier.

Finally:

How Do I Trade Multiple Points of Confluence With Price Action?

Just look for a price action set up at a point of confluence. Look for the factors of confluence that we’ve discussed above. And if at least two of these factors align with the pride signal, then that will be the perfect time to enter a trade. Just keep three things in mind as you trade:

There must be a dominant trend- whether up or down
There must be a well-defined dynamic support and resistance
There must be an indication of static resistance.

That’s a wrap for “Something Called Confluence.” Hopefully , you now understand that multiple factors confluence is not something to give you nightmares at night. It’s just an opportunity to cash in on several price signals going at the same time along multiple sectors on the forex charts. So there is no need to be scared.

Til next time take care.

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03.02.17

by Kwasi Kisiedu

Forex Market Goes Sideways

It’s really fun trading the trends. All you have to do is check whether the market is trending upwards or downwards,then you make your trades. In fact it is said in forex circles that the trend is your friend(Whether it’s true not, that’s another show.). But there comes a time when the forex market goes sideways. By that I mean the market neither experiences an uptrend nor a downtrend. It’s skidding all over the place the way a car skids over a slick road.

This can be very dangerous because you risk losing all your profits from your previous trades in this scenario when you don’t need to trade. So to help you not get caught in this slick sideways trap, I’m going to show you what to do when the forex market goes sideways. But before I do, let me show you what a sideways market looks like. sideways-market

This is a classic example of a sideways market. The is no evidence of a consistent uptrend or downtrend. The chart is skidding all over the place You’d be crazy to risk your money in such a mess.

Now that we’ve gotten the introduction out of the way, onward to the business at hand.

Is The Market Worth Trading?

The first question you need to ask yourself is “Is the Market Worth Trading?” To make that determination, head straight to the daily chart time frame and find out whether the market is trending up or down. If not, then the market is moving sideways. If the market is moving sideways,then the next question you need to ask yourself is “Is it within trading range(Or range-bound)? Or is it chopping sideways? If the sideways market is range-bound then it’ worth trading. Let’see what a sideways market that is range-bound looks like.

This chart is a classic illustration of a sideways market that is range-bound. The sideways market is range-bound because it’s swinging between the support and resistance levels. Also there is reasonable distance between the support and resistance levels. This provides great opportunities for trading signals, and the possibility that the price will edge closer to the range.

If The Waves Are Choppy, Dont Trade

If the waves are choppy, don’t trade. And by waves, I’m referring to the choppy markets.When we say a market is choppy, we refer to a market that has high consolidation. This type of market area is a no go area because the distance between reversals is too small for profitable risk reward.

If you want to test whether the market is on choppy waters, just head to the daily chart time frame , and ask the questions we posed earlier. Let’s see what a choppy market looks like.

choppy-market

This looks ugly doesn’t it? The price action looks choppy and it’s moving in a narrow range. These are definite symptoms of a choppy market. You do not want to risk your money in this mess.

How Do I Trade Sideways Market?

Just look for buy and sell signals at the support and resistance levels of the trading ranges. One great trading strategy for sideways markets is the fakey pattern. Here, you wait for the market to make a false break of the trading range-which of course creates profit opportunities for you.This strategy is quite useful as it creates deadly moves in the opposite direction back towards the other end of the range. Let’s take a look at a false break in sideways/range-bound market.

false-break

As you can see there are pin bar buy/sell signals all over the trading range at both support and resistance levels. You can make a sell/buy entry trade at both support and resistance levels.But make sure you really know what you’re doing or you’ll get burnt.

If you’re not sure about support and resistance levels refer back to Identify Support and Resistance Levels With Price Action Analysis. And If you’ve forgotten what pin bars are, refer to Pin Bar Srategy – How To Trade It

That’s a wrap for “The Forex Market Goes Sideways” It’s possible to make profits from sideways markets. But you need to play your cards carefully, or your trading account will go up in smoke. Til next time take care.

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