Picking Your Entry Points

Picking Your Entry Points
 

As a day trader in the forex market your success or failure relies not only on understanding the most likely direction in the market (trend), but it also relies on precise trade entries. Without precision day trading forex profitably becomes nearly impossible. As a short term trader our advantage comes from our ability to place tight stop losses. Without a tight stop you lose your ability to achieve high risk/reward ratios which is key to day trading successfully. Although precise entries are more often related to short term trading strategies, all trading styles (swing traders & position traders alike) can benefit from selecting better entries points. How then can we select better entry points?

Because banks move such massive positions they struggle for liquidity. This struggle for liquidity makes them predictable which is a massive advantage for us….but only if we know how to use it.  To understand this we must first understand how any transaction in all markets actually takes place. If for example you are looking to buy the EUR/USD you must find someone willing to sell an equal amount of EUR/USD. You cannot buy what someone is not willing to sell, and you cannot sell what someone is not willing to buy. Because banks move such large positions they have to create a massive supply to satisfy their demand. Often this is done through what is know as a “false push” or a stop run reversal. Essentially by pushing the market in the opposite direction they can either sell into artificially created buying pressure, or buy into artificially created selling pressure. This is why so many traders feel like they get into the market at exactly the wrong time. This is neither a coincidence nor does it happen by accident, rather it is a well executed plan banks repeat over and over on a daily basis.

Why is that information important in regards to selecting better entry points? It is really quite simple. If you understand where there will be a massing of orders you will have a good indication of where the banks are likely to drive the market, in an effort to accumulate those orders before reversing the price. The beauty is retail forex traders are predictable, and most place not only their stop orders but entry orders as well in very predictable spots. A few of these key price points are covered in the daily market commentary, with the complete list and further detail outlined in the video daily market review. However the entry is not taken blindly as price reaches these levels. It is critical that we see the market break through and then reverse back below or above that price point such as you would see in a stop run reversal setup. Our daily market analysis will point out multiple manipulation points with a high probability of seeing a positive response. Once you spot the manipulation around these key price points covered in the daily commentary it will allow you to take more precise entries, therefore enabling you to maintain a much better Risk/Reward ratio.