In many ways, trading in Forex is similar to buying and selling real estate. The end of the game is virtually the same. Both types of deals are struck with the goal of earning a profit somewhere down the line. Profits are best seen when a trader or investor buys an item at a low price and then sells it at a higher price. When choosing the most appropriate entry into Forex, there are a few simple guidelines to lessen your risk and increase chances of profit.
Choosing Currency Pairs
To prepare for the best entry into a Forex trade, begin by selecting the currency pairs you want to go with. Once you have checked the charts and chosen the strongest possible currency, begin watching for trends. Trading with the trend typically provides low risk entries that can result in the highest profit potential. A good pattern to watch for is one that shows high swings followed by low swings, with the price moving forward in a stair-step pattern. You should be able to create a trend line by drawing from the swing lows on the bottom left side of the chart and going up to the right hand side to the highs.
However, keep in mind that approximately 80% of the time currency pairs will range. If you are monitoring the trend but can’t assess which way it’s going, this may not be the right currency pair for you. Instead of following currency pairs that aren’t trending it is sometimes better to follow range-trading strategies. If your currency pair is reversing, consider changing your strategy.
Buying at the Trend Line
Once you are watching the trend and understanding its direction, you are ready to enter the market. For less risk in the trade, try to buy as close as possible to the trend line. If you buy at or close to the trend line, you will have an easier time placing your stop. Place your stop near the trend line as well. If the rates move too far away from support, the amount of risk will increase. At the same time, the number of pips will decrease.
When you book profits, try to make them for at least double the amount that it is safe for you to risk on one trade. By following strong currency rates, carefully monitoring trends and setting your goal with a reward ratio of 1:2, you can be on your way to a high rate of profitability. Take your profits at the top of the market waves, keeping in mind that the market does not normally move in a straight line that you can predict. Watch the movement carefully so you can catch the waves at the top of the range before they take a dive to lower prices. Following this line of trading means that during an uptrend, you should take the profit when it reaches a point that is slightly higher than the previous price high.