The forex markets are now in a period where increased volatility is found in almost every currency pair that traders have available to trade. Many see this increased volatility as a great opportunity to exploit market moves and there is definitely a lot of truth to this. It is no secret that volatility is necessary for the price to rise and fall in the market. However, many traders make the mistake of believing that increased volatility means that you can now make a profit no matter which way you trade the markets. Many new traders also believe that profits shine easily on any time frame, even down to the 1 minute time frame, with very little risk. Now is definitely one of the best times to be a forex trader, but you still need to be aware of the risks involved. Don’t trade your currency pair randomly and always remember that the trend is your friend.
Trade your currency pair with the trend and not against it. The markets may be making massive intraday moves, but this does not mean that you should deliberately seek to buck the trend. A classic example of this is the EUR/USD. It is currently in a massive sell-off and anyone shorting the market in recent weeks would have made a significant profit. However, this does not mean that some people made the mistake of trying to go long and take a piece of the market out when the price dropped. There is no doubt that I could have been long EUR/USD and made a profit, but a quick look at the chart shows how clear and simple it would have been to make a profit short. Why increase your risk of losing by going against the natural flow of the market? Go with the flow when you trade and you will make much more profit than going against it.
Going with the trend and not against it is obviously not enough to trade. So what else should you look for when trading the forex markets? You need to find an optimal entry point. What is your motive for entering the market? You need a trading plan, but simply put, you need something that will trigger your entry into the market. For some traders, it is a signal generated by one of the many popular trading indicators available today. For others it is something more fundamental, like the interest rate or other related economic news.
Another simple but effective “trigger” to enter the market is to wait for the price to pull back or pull back. This pullback offers an opportune time for you to enter the market because price is now at a level where you can profit much more than other traders who entered at a more “expensive” level. Obviously, this is no guarantee that your trade will be profitable, but what it does mean is that if your trade succeeds, you will make more profit, and if it fails, you will suffer a much smaller loss. This is a great advantage that this method of entering the market has over any other type.