When to Enter the Forex Market

Market Entering and Direction

Perhaps one of the most important lessons in trading involves knowing when to get into the market and initiate a trade.

Along with knowing when to get out of a trade, making good decisions about when to enter into a trade makes up a large percentage of the success of any forex trader.

Signs for Direction and Entering the Market

Most successful forex traders will admit that they seldom pick a bottom or a top. Instead, they usually get in on a currency move once the move is well underway.

The reason for this is that most savvy traders get into the market once the overall direction has been confirmed by a combination of indicators.

Professional traders usually take the time and have the patience to wait to get in on a move at suitable levels once they have developed confidence in the signals they are receiving. Waiting for optimum conditions helps them avoid trading on false signals.

Basically, knowing what signals to watch for and then taking action promptly once your trading conditions are met make up a key part of being prepared to enter the market at the right time.

Bullish Indicators

Several key bullish indicators provide useful criteria for a trader to establish a long position. By observing them closely, traders can find optimal entry points for establishing a bullish trading position in the forex market.

Basically, using one indicator for determining direction and establishing a trade does not suffice. Therefore, most seasoned traders prefer to use a combination of technical indicators which act to confirm each other in order to get an accurate bullish call on the market.

Such bullish indicators might include:

  • Trend lines which break out to the upside – Often, when a downward slanting trend line drawn through major declining highs breaks to the upside, breaking a key resistance level in this process, this indicates a good chance that the bullish move will continue.

Upside Trend Lines

Upside Trend Lines

  • Bullish divergences in the RSI and MACD – The Relative Strength Index or RSI and the Moving Average Convergence Divergence or MACD indicator make up two key technical indicators which signal a change to the upside in the overall trend when showing regular divergences versus the price after a period of overall downward price action.  On the other hand, bullish hidden divergence indicates that a continuation of an upwards trend may soon resume.

Bullish divergences

  • Strong nearby levels of support in the price chart – if the price chart shows a long sideways trend with strong levels of buying at certain prices, especially when near to the current price level, these indicate a likely move to the upside.

strong support & resistance levels

  • Bullish engulfing pattern on the candlestick chart – this bullish candlestick chart pattern consists of a short black day followed by a larger white day which completely engulfs the black day.

Bullish Engulfing Pattern

Individually interpreted, these indicators could give false positive results. Nevertheless, when taken in combination, they provide a much more solid basis for establishing a long position.

Of course, when such bullish indicators are observed, they also need to be followed up on.  Pulling the trigger and taking a long position is the next step.

Bearish Indicators

Several key bearish indicators provide useful criteria for a trader to establish a short position. By observing them closely, traders can find optimal entry points for establishing a bearish trading position in the forex market.

Basically, using one indicator for determining direction and establishing a trade does not suffice. Therefore, most seasoned traders prefer to use a combination of technical indicators which act to confirm each other in order to get an accurate bearish call on the market.

Such bearish indicators might include:

  • Trend lines which break out to the downside / Descending trend lines – generally, when a trend line begins to slope downwards and breaks key support levels, gives an indication that the bearish move will continue.

Descending trend lines

  • Bearish divergences in the RSI and MACD – The Relative Strength Index or RSI and the Moving Average Convergence Divergence or MACD indicator make up two key technical indicators which signal a change to the downside in the overall trend when showing regular divergences versus the price after a period of overall upward price action. Indicator divergence is when an oscillator or momentum indicator, such as the moving average convergence divergence (MACD) indicator, doesn’t confirm the movement of price. For example, a stock price makes a new high while the MACD or relative strength index (RSI) indicator makes a lower high. On the other hand, bearish hidden divergence indicates that a continuation of a downwards trend may soon resume.

Divergence in Forex RSI MACD

MACD Hidden Divergence 

  • Strong nearby levels of resistance in the price chart – if the price chart shows a long sideways trend with strong levels of selling at certain prices, especially when near to the current price level, these indicate a likely move to the downside.

Support & Resistance

  • A bearish engulfing pattern on a candlestick chart – this bearish candlestick chart pattern consists of a short white day followed by a larger black day which completely engulfs the white day.

bearish engulfing pattern

Individually interpreted, these indicators could give false positive results. Nevertheless, when taken in combination, they provide a much more solid basis for establishing a short position.

Of course, when such bearish indicators are observed, they also need to be followed up on. Pulling the trigger and taking a short position is the next step.

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