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How To Find Entry Points In Forex?

How To Find Entry Points In Forex?
16
Dec

Like in many other things we do, the first step is always the hardest. The profit or loss you earn from a trade depends a lot on the price at which you enter it. Only by learning how to find entry points in Forex, can you increase your potential profits while lessening the probable risks. Check out this blog to make steady gains on the world’s most-traded – and most volatile – financial market.

Forex market is among the most-traded and most volatile financial markets.
Forex market is among the most-traded and most volatile financial markets.

What Is A Forex Entry Point?

A Forex Entry Point is the level or price at which traders buy or sell currency pairs. A good entry point is an exact level or price at which a trader enters a trade at the most successful moments in which it is profitable to open a deal. Learning how to determine entry points in Forex is essential to growing your trading profits.

When Is The Best Time To Enter A Forex Trade?

Timing is everything in trading, especially the Forex trading. An experienced trader does not trade whenever possible. Before diving into the best time to enter a trade, take into consideration the best times to (and not to) trade Forex as below:

Best Times to Trade Forex

  • Monday afternoon: Monday afternoons are when the market really does start to warm up, with trading volume increasing.
  • When multiple trading sessions overlap:
    • The European-North American Overlap: 8:00 AM to 11:00 AM EST
    • The Asian European Overlap: 12:00 Midnight to 3:00 AM EST
    • The Australian Asian Overlap: 9:00 PM to 12:00 Midnight EST
  • When high liquidity occurs: The market warms up on Monday afternoons and reaches peak liquidity during the middle of the week, with Tuesday as the earliest.
  • London Session: This is the busiest session with approximately 30 percent of all trades taking place during these windows.
Forex Market Hours (utc Time).
Forex Market Hours (utc Time).

Worst Times to Trade Forex

  • Late Sunday/Monday mornings: everything remains slow.
  • National holidays
  • When major news releases
  • When strange price action occurs
  • Asian sessions when liquidity is lower, especially near end-of-day crossover time

Busy market provides plenty of opportunities to trade Forex. However, to make profits, you need to be selective of when exactly to enter a trade. Don’t ever enter one without having done the following:

  • Use price action, technical, and fundamental strategies to research the asset.
  • Choose the right time to avoid buying high and shorting low.
  • Understand the factors that might affect the asset’s price.
  • When you are ready, mentally.

Note that the best time for a Forex trade relies heavily on the strategy and style of trading. There are plenty of approaches to entering a trade profitably and here are the three most discussed strategies you should consider.

Strategy #1: Trend Channels

Technical analysts use trendlines as fundamental tools to identify support and resistance levels. In the chart below,  the price shows a clear higher high and higher low movement, which indicates a prominent uptrend. This enables us to determine a trading bias of buying at support and taking profit at resistance.

You should be aware of a potential breakout or reversal in trend once price breaks these key levels of support and resistance.

 

Strategy Based On Trend Channels, Weekly Usdzar Chart (source Ig).
Strategy Based On Trend Channels, Weekly Usdzar Chart (source Ig).

Strategy #2: Candlestick Patterns

Traders use candlestick patterns to look for entry points and signals for forex, especially the engulfing and the shooting star. In the chart below, the hammer candlestick pattern acts as a reversal trigger entry point on EUR/USD.

However, identifying the hammer or any other candlestick pattern does not guarantee an entry point into the trade. To make profits, you need to be good at identifying both entry points and the candlestick pattern. Entry points further validate the candlestick pattern, therefore, providing fewer risks and a higher probability of success.

Hammer Candlestick Pattern Trade Entry, Daily Eurusd Chart (source Ig).
Hammer Candlestick Pattern Trade Entry, Daily Eurusd Chart (source Ig).

Strategy #3: Breakouts

This is arguably the most utilized trade entry tool used by traders. This trading method involves identifying key levels and using these as markers to enter trades. To master breakout trading, you need to get expertise in price action as its basis comprises forex prices moving beyond a demarcated level of support or resistance.

This strategy is simple enough for novice traders. The chart below shows a key level of support (red), after which a breakout happens along with increased volume which further supports the move to the downside. A simple break of support prompts entry. In other cases, traders will look for a confirmation candle close outside of the delineated key level.

Strategy Based On Breakouts, Daily Usdjpy Chart (source Ig).
Strategy Based On Breakouts, Daily Usdjpy Chart (source Ig).

Popular Forex Entry Indicators

To choose the best Forex entry indicators, you need to take into consideration your trading strategy and style of trading. Traders regularly use indicators to support the aforementioned entry strategies.

Here are some of the most popular Forex entry indicators as well as how to use them that can help you find better entry points:

  • RSI: Identifies overbought and oversold signals. Most effective within range-bound and trending markets.
  • Moving Average (MA) crossover: Using multiple MA’s, traders look for crossovers between short and long periods to generate entry signals.
  • MACD: Most suitable in range or trending markets. Taking MACD crossover points in direction of the existing trend.

We hope with this article, you have learned how to find an entry point in Forex. To get more knowledge and tools for higher and more steady profits, check out our courses for Forex trading.