How To Avoid Being Killed By Choppy Forex Markets
One of the reasons why 95% of the people lose money in the forex market is that currency trading is not always trending.
Choppy markets is a major killer to most forex traders because it may look as though it’s starting to trend in the beginning, but the fact is that it is only a false movement of the price. Forex signals may indicate a correct move in your direction for one moment but move against you the next moment and hit your stop loss.
In other words, you have been whipsawed. With the lack of forex trading techniques in the beginning, I have also personally experienced many whipsaws many years back when I was learning how to trade forex. Below are some forex trading strategies I've learned that can help you overcame the whipsaws or false moves and ensure the safety of your forex account.
1. Train your eyes – Again, you need to provide forex training, in this case to your eyes, to look at the forex charts and see if it’s trendy. If it’s not trendy and you do not have much experience in forex trading, it’s advisable to stay away from the forex market for the time being until the market gets trendy again. What you can see in choppy markets is that the past few candlesticks are not really bullish nor are they bearish.
For example, the price may be up for two candlesticks and down for two candlesticks after that. You can’t really see where the price is going and therefore the forex chart is said to be choppy.
2. Indicators flat or steep? – Besides just looking at the charts, I will also use forex indicators like stochastic and MACD to judge whether the market is choppy. This forex strategy may be very simple, but it certainly helps forex traders to filter whipsaws.
For example, if you are using stochastic and/or MACD to generate forex trading signals in technical analysis, you should expect the indicators to cross up/down with some steep angle, this means it’s a trend forming. While the indicators are looking flat, it simply means there is no trend and it’s a no trade zone.
3. Check higher timeframe – This is another one of the good forex tips to help you filter off whipsaws. If you are trading using 1 hourly time frame and there is signal to buy or sell, you should switch to 4 hour time frame to check whether the stochastic is pointing up or down respectively.
The longer the time frame means that in the shorter time frame, you are trading along the direction of the long term trend. Hope I did not confuse you. I use this method vigorously in my forex trading systems.
Though the above 3 forex trading tips can help you filter off whipsaws, but it’s still in your best interest to avoid trading in choppy markets as there are not many good opportunities for you to gain huge profits. I hope you are clearer now on spotting choppy markets. One more thing is that choppy market and ranging market is not the same. I'll cover ranging market in my next article.
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How To Make Money In Ranging Forex Markets?
Like what I have said in my previous article, people sometimes get confused between a choppy market and a range bound market.
Choppy markets give you little chance to have profits while a range bound market is still able to let you gain significant profits, if you know how. So today we’ll look at a short forex trading tutorial on trading ranging forex markets.
Rule #1: You don’t have to care much about trend and a forex trend system don’t work because the price is just ranging between certain levels and you only have to trade in between those levels. You do not expect the price to go far beyond those levels or else it will be considered a breakout.
Rule #2: Range trading is such that the price will return back to its origin no matter which direction the price goes. So what traders do is identify the support and resistance levels that the price can’t break through, and trade between those levels over and over again to gain profits with this forex trading system.
Rule #3: The more times a currency pair reaches a support and resistance level and then reverses, the stronger the level is. This level is also known as pivot because once the price touches the support or resistance, it reverses. The pivot point is also used as one of the widely recognized forex indicators. For example, if the currency pair is near the strong support level and you expect it to reverse, you could buy the pair and place a stop loss just below the support level.
Rule #4: True range traders require a different money management method and of course different forex trading strategies compared to trend traders. Instead of just waiting for a pin-point trade entry, range traders might agree to be at the wrong side so that they can build a trading position.
For example, if a currency pair is trading at 1.5000, a range trader might want to buy the pair for every 50 pips lower and sell the pair for every 50 pips higher. They assume that the price will still go back to the origin. So if the pair goes up to 1.5500 and then comes back to 1.5000 again, he would have made significant profits.
Rule #5: In order to be a true range trader to implement this type of forex strategy, you would need to have good capital in your trading account. This is because if at the same time you are using big leverage, there may be trouble of wiping out the trading account as many trade positions can often go against the trader in a row for short term.
Now you have learnt about range bound trading in the above forex trading tutorial, will you implement this kind of strategy? I guess you will not and must not if you have not gained enough experience in forex trading. I would recommend you going ahead to trade ranging markets when you are confident enough of spotting strong resistance and support levels, which I will include in next my next article. That’s all for now and talk to you soon.
In the meantime, you can learn how to decide and choose highly profitable forex trading system.
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