Forex Entry Signals – When To Enter
Above all other forex trading strategies, when day trading in the forex market you must have precise entries! With longer time frame forms of trading such as swing trading as well as position trading, entries are not as crucial as the overall direction is. Quite to the contrary day trading, because of the use of tight stop losses does require precise entries. Lets examine two simple techniques that can be used to not only provide quality entries but also tight stop losses and then we will tie both techniques together.
The first entry signal that we will discuss is the simple break of a candles high or low, lets explain. As the market continues to move in the direction of the short term trend, almost always there are brief retracements seen on smaller time frames such as 5M charts. These retracements can be 2,3,4 or more candles that are in the direction opposite to the trend. In the case of an uptrend the retracement will be marked by candles that continue to make lower lows as well as lower highs. This is something that is very easy to see in a trending market. In this example as the market retraces down you could enter on a break of the previous candles high. Not only does this provide an entry but also by putting the stop below the low of the previous candle (setup candle) it also provides a stop loss location. Now this is the first step to an entry but to give yourself better odds of a profitable scalping setup lets examine the use of candles in conjunction with this.
Candles are a widely used tool in the forex market, and can be used in day trading strategies to give precise entry signals. Above we talked about the market once it has established a trend and is now retracing against that trend. Using the same example of an uptrend that we used above lets now combine that with the use of a reversal candle. Assuming the market is retracing down each candle also making a lower low and lower high, and then a “hammer”candle forms. If the next candle breaks the previous candles high (the hammer candle) you would go long. Now not only do we have the previous candles high being broken, we also have the previous candle forming a “reversal candle formation”.
Now these are just two examples of triggering an entry and how to combine them. There are any number of combinations that you can use to trigger entries and when you combine them the trade setups becomes more powerful. Try using the examples above but this time make sure the “setup” candle closes at support/resistance depending on the direction of your trade. This adds yet another confirmation that the trend is going to continue and thus increases your odds for success. Below is a chart with 4 setups, the red arrow pointing to the setup candles and the blue arrows pointing to the candle that triggered the entry by breaking the setup candles high/low depending on the intra-day trend direction. You will see that all 4 setups are in the direction of the short term trend and thus present great day trading opportunities. Use the steps below to examine the chart and the entries.
4 Steps To Entry:
1.) Find the overall short term trend direction using whatever method you normally use.
2.) Look for a retracement against the trend into an area of support or resistance depending on the overall direction.
3.) The candle that touches that area of support or resistance should be a reversal candle such as a shooting star, Hammer, or Doji.
4.) Depending on the direction of the trend buy/sell when the candles low/high is broken by 2 or 3 pips.