If you are new to the forex market then it is important for you to realize, from the outset, that it takes great discipline to make consistent profit from this trading activity. In fact over 90% of newbie traders fail in this activity simply because of human emotion dampening their ability to make the correct decision. In this article I would like to talk about a reverse entry strategy that I developed maximize profit and limit losses.
There are now literally hundreds of strategies published on the internet that can claim to make you fantastic wealth on the forex market, unfortunately the truth is; they seldom deliver. First let me clear up some facts. Successful traders only win around 30% of their trades; what makes them successful is the fact that their winning trades have a much higher return ratio compared to their losses.
This is where most scalping strategies will eventually lose your account. Although a scalper strategy might have a 90% success rate they will only be for small wins; 4 to 10 pips at a time where the losing trades can run into their hundreds. Most traders will tell you that the best time to enter a trade is just before it changes direction, for example you sell the currency pair while it is in a buy trend, giving you the advantage of a prime entry position. The hard part is knowing where this point of reversal will take place.
The market moves in waves and develops trend patterns, however as there are different time framed charts to choose from starting from 1 minute ranged up to 1 week, a trending pattern can look very different from time frame to time frame. For example, on the 5 minute chart a trend might clearly show a bullish bias but on the 4 hour chart the overall trend might be clearly in a bearish direction. It is this kind of pattern we are looking for to execute a reverse trend entry.
You can use moving rates to help you make your decision. Often on long term trends you will find the moving average acting as a resistance or support level for a trending currency pair. It is the reversal to this moving average marker that can instigate an entry point for your reversal strategy.
To illustrate an example of this; let us imagine we are looking at the 4 hour chart with a 30 exponential moving average. The overall trend is a sell, on the 5 minute chart the trend has been bullish (buy) for most of the day. This reversal pattern is reaching the 30 exponential moving average on the 4 hour chart this would now be a good time to sell the currency pair in question.