Throughout the month we’ve given you a few Forex profit hacks to help increase your profit potential, and we’ve finally reached the end of our journey! If you haven’t checked out the previous installments you can do so here:
Our final installment will help increase your chances of a winning trade. Each tip is a good tip on its own, but when you combine all three, you could really take your trading to the next level!
Tip 1: Recognize the Top Candlestick Formations
When you see pictures of the Forex market, you see the price fluctuations as the infamous up-and-down squiggly line. But if you were to zoom in on that squiggly line, you will see that it’s actually made up of something called candlesticks.
Candlesticks are what the market uses to determine things like high price and low price, as well as the direction the market is trending.
Here’s a closer look:
A group of candlesticks is called a candlestick formation, and depending on their direction and relationship with each other, they can tell different stories about the market.
Some candlestick formations to take note of are the Bullish Morning Star, the Bullish Piercing Line, the Bearish Engulfing Candle and the Bearish Tweezer top. Each of these names gives an indication of the market direction and makes some connection between the candlestick and its wick.
Spotting these formations early allows you to get into the market right before a major move occurs, thus increasing your profit potential and allowing you to strike while the iron is hot.
Tip 2: Stick to 2 or 3 Strategies Max.
A phrase we like to use is “simplicity leads to pips.”
When you come at the market with 20 different strategies, you end up stretching yourself too thin and you miss out on profits because you’re trying too hard.
So, why three? It’s because there are three types of market movements, and it helps to have a strategy for each.
You need a strategy for when you day trade, a strategy for when you are in a swing and/or a position trade, and a strategy for sideways movement.
Having a trusted strategy for each of these market conditions means you will be prepared to trade the market at any point in time.
Tip 3: Use Multiple Time Frames to Trade
The number one question new traders ask is what time frame they should trade within. The answer to this varies, but the bottom line is this:
You should always be trading on more than one-time frame!
Time frames don’t work in a vacuum. Each one has an effect on the other, and patterns that appear in long-term trades make appearances in short-term trades, and vice versa.
For example, if you’re looking to enter on the one-hour chart, you’ll want to begin your analysis on at least the 4-hour chart or any larger time frame’s chart.
The rule is to always have your secondary, larger time frame be at least four times the size of your initial time frame.
Think of time frames as having a parent-child relationship. The larger time frames will have an effect on the smaller ones, much like parents have an effect on their children.
The larger time frame sets the scene for the smaller time frames. Once you’ve established the overall direction of the market by the larger time frames, you can trade the smaller time frames for the specific entry and exit points.
For example, look at this 4-hour EUR/GBP chart:
Notice how the market started to trend bullish before eventually evening out and trading sideways.
Now, look at the same currency pair, only in the 1-hour time frame:
It’s the same story. The market started off bullish and then eventually evened out to trade sideways.
With the larger movement identified, traders can better determine when the market’s tides are preparing to change for a full movement in one direction, as opposed to the natural, wave-like movements that make up a sideways market.
For more information on how you can replace your current income by trading the Forex, click here to attend a FREE webinar.
This is the fifth and final edition of the Forex profit hacks series.