Broker to Trading

Forex trading could be seen as relatively simple in that a trade consists of, at its most basic, taking a position by buying or selling a Forex pair, that the pair will increase or decrease in value. What is hard about this is that Forex tends to move up and down. So what can easily happen is that positions are taken which may eventually be correct, but for a time may be incorrect, or may move in the trader's favour, but then move against it.

Forex pairs may move in containers, described as support and resistance but when they break these containers is unknown. Forex trading is based to an extent around working out what these containers are, and then finding indications that the pair may or may not break these containers.

Multiple time frame analysis looks for containers nested within containers, and sees if these can add potential strength of weakness to them. Forex trading is about what happens in the future, the containers are about what happened in the past, so projecting a container into the future has the problem of all such projections that it may not be the case at all. As Forex has this tendency to move back and forth, containers can break or hold in complex ways, with moves above, below and back again, bounces off the container and so on.

While Forex pairs do move up and down, they tend to move within support and resistance. So one way of placing a trade is to buy at what looks like support and sell at what looks like resistance.

Support and resistance is really past support and resistance. So by going into the past on the chart, one can look for places where the pair most recently turned up (on support) or turned down (from resistance). But, because a pair did this in the past does not mean it will do this in the present or future.

However it provides a rationale for making a trade, which, with a stop-loss provides a way of working out whether the trade is viable as it progresses. That is, if the pair was at support, bounced but then moved back down through support instead, which happens, then this needs to be considered: to return back up the pair now has to go through resistance, as support which was broken through can turn into resistance.

When a pair is turning up or down, it may show volatile activity, that is moves up and down close in time (for example equal and opposite candles). But if these moves result in a) in the case of a move up, lows higher than the lows the pair was at or b) in the case of a move down, highs lower than the highest point the pair reached, then the pair may be beginning a move.

It may start to move in a more directional way, perhaps with an initial strong set of directional candles. But after these, retracement can be expected opposite to the direction. A pair's move can also be affected by its encounters with numerical value in the pair. This means it may retract one third of the way between big figures, or halfway or two thirds. It may also react as it approaches a big figure.

They can end and enter another volatile region where the trend has ended, but can look like it is still going. It can also continue going as well, as a pair at all times can potentially move up or down. The volatile region may have this characteristic: it will make moves opposite to the direction it was going in, return to the direction but not overcome the initial high or low. So the pair established a high or low ending the trend, but is still trying to overcome that high or low, which it also may.

When a pattern is seen, the question of whether it is valid and remains valid comes into play. In this pattern, it may be invalidated by moving out of the volatile region, opposite to the expected direction. If a position is taken in the volatile region before it starts moving with more direction, then it may be the case that the pair will make a move or moves against the trade, before turning in the trader's favour. This is an issue in Forex, keeping with a trade even though it seems to be turning against the trader, and knowing when to exit.

Defining a case where the trade is invalidated can help with this. However it is still possible for the pair to exceed the volatile region and still turn in the trader's favour. So one way of refining this strategy is to look for how deep the pair goes and how it is moving, for example does it seem to be cutting through the lows or highs, rather than dipping into them. A stop loss, placed above resistance or below support can help provide a hard limit to moves against the trade.

If a position is taken once the pair has started to move with some direction then retracements may be expected, thus the trader may take a position at the point a retracement is about to begin. But having a rationale for believing in the opposite of what seems be happening (the retracement) can help. It is important to note that retracements can turn into moves opposite to the desired direction.

If the trade is entered late in the trend end zone, then the trade can be problematic as it will not tend to continue moving in the trader's favour, and can even reverse all the way down, but it can also become more quiet before making a move later.