To trade any market requires knowledge and practice, but you know more than these two when it comes to Forex trading. Forex depends on a lot of factors other than the ones included in technical analysis. These are fundamental factors, and they vary extensively from one country to the other. This makes predicting price movements in the Forex market more difficult. However, with the help of specific tools and indicators, it can be made possible. In this article, you will get to know all about Forex and how to predict forex movement.

How to predict forex movement?

To predict forex movement, traders use past market price data,  trading patterns, market sentiment, and fundamental analysis. However, the future price is tough to predict accurately, so professional traders create several possible price movement scenarios and analyze basic price levels. 

Foreign exchange, or Forex, is one of the most traded assets in the world. Even though it is banned in many Asian countries, currency worth over $5 trillion is sold every day. The majority of this trade comes from big corporations and banks; however, even small and individual traders collectively move currencies worth trillions of dollars every day.

Two driving forces have a significant impact on Forex: demand and supply. There is one more thing that influences these driving forces. We call it sentiment, which innumerable factors can mold. Investors’ moods depend heavily on the news and data received from official sources. They also keep an eye on the development in different countries, especially in the countries where the Forex market operates 24/7. 

 This is called fundamental analysis. The strength of a currency depends directly on the development and socio-economic stability of its respective country. Therefore, every positive or negative effect of a country has the power to appreciate or depreciate the value of the said currency. Since it is almost impossible to predict all these events, investors use various tools and indicators to remove most risk factors. Fortunately, compared to the initial days, the tools and indicators available today allow traders and investors to make better trading strategies. They can implement a range of approaches and employ different methodologies to help them stay ahead in the game.

We have created an outlook in this article on using different tools and indicators to make different approaches.

What Approach is Ideal to Predict Forex Movements

Before we discuss the types of approaches and decide which one is perfect for you, it is always better to brush up on the basics. First, you should know all about the currency pairs. Forex is only traded in two currencies where the first currency is known as the base currency, and the other currency is called the counter or quote currency. For example, in the pair USD/GBP, USD will be your base currency, and GBP will be your counter currency. It is essential to choose a pair wisely because most of the trading strategies depend on it. The most popular currency pairs are EUR/USD, USD/JPY, and GBP/USD. These are major currencies, but you can find good opportunities by trading less popular currencies as well.

Along with the choice of currency, you also need to give due importance to the time frame as it impacts the trading approach. Since the Forex market operates 24 hours, seven days a week, many traders open and close their position on the same day. This is called day trading. Traders open a new position every day when the market opens and close it at the end of the day, irrespective of their stand. This is done to avoid any drastic price fluctuation that may happen overnight. Some traders believe in holding a position for a slightly more extended period. This period is up to 14 days, and this type of trading is called swing trading. The strategies adopted by swing traders are similar to those that long-term traders, who hold a position for even years, use. Swing traders, like long-term traders, also refrain from acting to every price movement.

Other than these proactive tradings, there are different types of Forex trading strategies that focus on the bigger picture. Take momentum and range trading, for example, where traders look at price movements and analyze them to find long-term trends. In momentum trading, traders pay attention to an unusual price movement, whether up or down, to see if there is a scope for the beginning of a long-term trend. In range trading, traders lay stress on the levels of support or resistance. They spot these levels in the past data with the expectation of seeing these levels again in the future. Range trading is suitable for currencies that show noticeable price movements, but there is no clear long-term trend.

Using Fundamental and Technical Analysis to Predict Forex Movements

There are two types of analysis that traders do to see where the Forex market is heading and which currency pairs are more profitable. These two analysis types are fundamental analysis and technical analysis. Let’s read about the significant differences between these two before dissecting them in detail in the next section.

Fundamental analysis is based on the external and internal events that can influence the value or strength. These include the country’s financial markets and economic state and various government and monetary policies.

On the other hand, technical analysis is solely concerned with patterns and trends. It predicts all the price movements based on the data that is available in historical price charts. The aim is to predict future Forex trends based on stats, facts, and figures.

To conclude, we can assert that fundamental analysis aims to identify either undervalued or overvalued currencies and find their real value in the process. Traders consider external factors that can potentially drive price. On the contrary, the technical analysis thinks of the laws of supply and demand as its principle. It focuses only on the currency price. The aim is to check if the market trends will repeat themselves by studying previous stats and data. The rest of the unquantifiable data is neglected in the process.

Practical Example how to predict forex movement

To enter into a trade, traders need to have several triggers based on technical and fundamental analysis. For example, a trader can enter into the trade after a strong bullish trend, for the example above yesterday high, during multi weeks bullish trend (price above EMA200), and when Industrial production has excellent results. See the example below:

Forex Trading and Fundamental Analysis

Fundamental analysis takes into consideration all the factors that can influence exchange rates. This method is all about studying the fundamentals like government policies, monetary policies, housing markets, rate of interest, and more to predict a currency’s strength. The main focus of fundamental analysis is identifying a mispriced currency that will correct itself over time as the external factors lose their power. Fundamental analysis is not particularly short-term trading, although it is used in various strategies. It predicts long-term price movements. 

There are so many external factors that can influence the price of a currency. Some of these, like natural disasters or medical emergencies, cannot be predicted. However, there are some key economic indicators that you can learn about, as these are important in terms of fundamental analysis. The key economic indicators are:

1. Economic Growth: As a general rule of thumb, it is seen that a country’s economic growth directly impacts the value of its currency. If the country is performing well, it will drive its respective currency’s prices up and vice versa. Traders analyze a country’s overall economic state by considering its GDP (Gross Domestic Product). It tells the traders if the economy is expanding or shrinking and at what rate. An improvement in economic growth assures that investments will remain safe, thus attracting more investors. An increased number of people will be willing to buy a developing or developed country’s financial assets or stocks.
2. Inflation: Inflation refers to the rise in the prices of goods and services produced in a country over an economic period. This rise is good for the economy but in a controlled manner. It affects the monetary policies as the central authorities will like to maintain their control over it. Inflation weighs on the exchange rates. For fundamental analysis, the crucial inflation measures considered are the RPI (Retail Price Index) and the CPI (Consumer Price Index).
3. Interest Rates: Here, we are talking about the interest on savings given by the government. It has one of the biggest influences on the Forex market. If the interest rates are on the higher side, more investors would be eager to invest as their investment will fetch a higher interest rate. They will hold more money in savings accounts or in the form of other instruments to take advantage of the higher savings rates. This will increase the demand for the local currency, which is always beneficial for the economy. 
4. Trade and Capital Balances: To maintain the currency’s value, every country strives to achieve trade balances, that is, the balance between imports and exports. More imports mean more outflow of the currency and vice versa. Countries that rely heavily on exports need to be careful at all times. Since the primary source of income for them is an investment from foreigners, the currency value will drop if their exports drop. For example, if more investors are taking their assets out of the country, it shows that the market sentiments have changed. There will be more outflow of currency than inflow, and it is not a good sign.
5. Employment and Wages: Employment and corresponding wages are essential determinants of a country’s economic growth. If a country has been dealing with a lack of vacancies and unemployment, it proves that the economy is not growing. Additionally, a constant increase in employment is also not an assured sign of growth. If the vacancies are rising, but the wages remain stagnant, there is disguised unemployment in a country. Therefore, employment and wages both should increase.
6. Geopolitics: You cannot see a country and its currencies as two separate entities. A currency represents the state of its respective country. It is natural to presume that a politically stable country will have a stronger currency. If there is political instability or estranged foreign relationships, the value of the currency will suffer. This is why a currency sees a slight fall every time there are important elections of war-like situations between any two countries.

How to Use an Economic Calendar for Forex Movement Prediction

When it comes to fundamental analysis, it isn’t easy to track all the significant events. Fortunately, most events are scheduled. Traders can check that calendar and stay in the know. An economic calendar includes all the essential political and economic events that are likely to happen in a country and can affect the currency, the financial markets, or the Forex in any way. These economic calendars are essential guides to traders and investors.

Various brokers offer economic calendars on their platform, including important central or federal banks like the Federal Reserve, the Bank of England, the Bank of Japan, and the European Central Bank. These calendars also tell you about international political meetings’ schedules or when the world leaders will be coming together to declare something important. 

Which key drivers are essential for you will be subjective as different external factors affect other economies. Not every key driver is equally important for every country. Therefore, you need to be careful while selecting your indicators. For example, the service sector dominates the UK economy. This makes the service sector’s overall performance a crucial determinant in finalizing if the UK economy performed well or not. Another example would be China, which is a manufacturing economy. Even if the service sector remains stagnant, but the manufacturing unit shows steady growth, we will consider the Chinese economy to be expanding.

Forex Trading and Technical Analysis

Technical analysis doesn’t concern itself with the future of exchange rates or the reasons behind it. This is because the technical analysis does not revolve around price movements. It is centered around the concept of demand and supply. Traders rely on technical analysis using various price charts with data regarding the historical performance and exchange rate. 

Traders and investors use various tools and indicators to find past patterns and trends. It is done with the belief that these patterns will repeat themselves. Technical analysts are of the view that one can gauge crucial information from even a single chart. With these patterns’ help, you can detect the market’s mood and predict if that will change soon. Technical analysis aims to let you know in advance when the mood might change and how you can leverage it for your benefit.

While fundamental analysis is more competent for finding long-term trends, technical analysis is majorly used for short-term plans and strategies. Day traders and swing traders rely heavily on technical analysis. 

There are various ways in which you can conduct technical analysis. But, there are a few historical data points and references that occur repeatedly. For example, the opening price, the closing price, the lowest price, and the highest price. These are some of the standard parameters that technical analysts refer to while conducting the analysis.

Technical Tools to Predict Forex

One of the most critical technical analysis practices is to predict future exchange rate movements by using past data. Traders look deep into the market data and look for similar signals and patterns. With the help of the past patterns that emerge in past data, traders analyze where the market is headed next. This may not sound very easy to you, but traders use many tools to identify these patterns possible.

Spot the Trend and Predict Forex

A sequence or similar occurrence of patterns creates a trend. It tells you that the most recent exchange rates of currencies will start a long-term trend. The length of this trend is stipulated by studying how an identical or similar trend panned out earlier.

Forex traders need to pay attention to three types of trends – Downtrend, Uptrend, and Sideways Trend. All the Forex trends are explained below:

A rising trend is an overall move higher in price, created by higher swing lows and higher swing highs. If you spot a rising trend or uptrend according to your technical analysis, you should see the exchange rate heading higher, and it will continue to climb up.

The downtrend is an overall move lower in price, created by lower swing highs and lower swing lows. You do not need to spot a different trend to spot a downtrend. Since currencies are traded in pairs, if one currency gets stronger, the other one gets weaker. This means that if one currency shows an uptrend, the other one will automatically display a downtrend. 

Sideways Trend: A sideways market or a  sideways drift occurs when the prices of investments remain in a tight price range for any period.

Manually, it is not easy to identify trends. The data is limitless, and the movements in the market are quick. You cannot get lost in the data because you always have to act quickly. To make technical analysis easier, traders use several tools. The most popular ones use moving averages as their principle. Moving averages, in simple terms, identifies Forex market trends. Let’s read more about moving averages and other tools.

• Moving Averages (MA): The moving averages aim to smoothen the historical price data and calculate an exchange’s average rate over a defined time. The tool has a default setting, but you can change the time at your convenience. For example, let’s assume that your moving averages are set for 20 days. Then, it will provide you with the average exchange rate of this defined period. This rate is recalculated each day. On the next day, that is the 21st day; the tool will drop the first day and accept the 21st day as the last day. The MA helps the traders in comparing the current exchange rate with the averages. This allows them to filter out any unexplained or sudden movements that hold the potential to distort the previous price data.
• Moving Average Convergence Divergence (MACD): The MACD uses averages in two ways, the MA for a short period and the general average for a long time period. Traders keep an eye for the moment when the Ma will cross over with the other average. If the MA surpasses the general average, it is a sign that the exchange rate will be moving higher.

Both these tools are based on averages and are used by the traders to predict stability and strength. It is crucial to know these two aspects when predicting Forex, but traders should understand these trends better. Instead of using only one of these tools, you should use them in conjunction with other tools and indicators. The result will clear your doubts regarding the volatility of a currency pair along with its trend. The following tools are also widely used by Forex traders and investors:

1. Ichimoku: It is a club-based tool that is also called Ichimoku Kinko Hyo. Along with identifying these trends, the Ichimoku Cloud also helps traders test the momentum or the strength of the trend as it defines the places where the levels of resistance and support sit. In addition to defining these levels’ present place, the Ichimoku Cloud, unlike other tools and indicators, also defines where these levels are expected to occur next or in the future. It is, without a doubt, a valuable Forex tool.
2. Relative Strength Index: The relative strength index or the RSI is a momentum indicator. It compares your average losses and average profits made for the same time period; let’s assume for 14 days when the exchange rates rise. It tells the traders if a currency is likely to become over or undervalued in the future.
3. Average True Range: Also known as the ATR, the tool does not identify the trend but helps measure its volatility. It is another type of MA that compares an exchange rate’s highs and lows over a defined period of time. The comparison is drawn near the most recent closing, thus, giving you the five current trading price ranges. This is finally averaged, producing the ATR.
4. Standard Deviation: This tool measures the movement of a price size. It hopes to identify if the rates will be more or less volatile shortly. Like the Average True Range, this tool is also concerned with volatility rather than finding the trend.
5. Bollinger Bands: Two Bollinger bands set the upper and the lower exchange rate, and the trade generally happen within this set of bands. The width between the bands may increase or decrease, thus defining volatility. If the rate goes outside the bands, you can tell that it will either break lower or higher depending on its direction.

Different approaches use these tools. Let’s read about some of the most popular ones:

1. Econometric Approach

All the tools explained above facilitate traders in making profitable trading strategies. However, it must be focused that every tool serves a different purpose, and none is without any limitations. This is why traders are always advised to use these tools in conjunction to get a more defined picture of trends and their volatility. 

The most technical approach possible in Forex would be the econometric approach. As every trader puts trust in different variables, they create different strategies using different tools. This is why the econometric model differs a lot. Many variables influence Forex, and it depends on a trader’s individual perspective, which they consider more important or influential. And everything about this is subjective; thus, models are different. 

The econometric model is a good technical model as it allows traders to use different tools for different currencies. For example, if you are trading GBP, it would be better to use a tool that focuses on the service rather than the production of goods as the UK is a service sector.

2. Relative Economic Strength Approach

While every data report has something different to offer, everything is truly interlinked. The central banks create monetary policies after considering the economic data, especially inflation. Wage growth, and GDP. When you predict in which direction the exchange rate will be heading after considering the country’s overall economic health, you are using relative economic strength as your primary approach.

 3. Purchase Power Parity

This approach is different from the previous approach as it is not focused on predicting the direction of the exchange rates, but it tries to figure out the actual rate. This approach is based on one assumption – prices of services and goods should be equalized everywhere.

4. Asset Market Model and Balance Payment Theory

The two models focus on the flow of investment and trade of different countries. The import-export balance has a huge impact on the exchange rate. There has to be a trade balance in the country. If the country is importing more goods than exporting, its value is likely to depreciate and vice versa. It is also better to have a trade surplus. 

Similarly, there has to be more foreign investment in the country as well. Not only does it increase the value of the currency, but it also shows that investors have faith in its economy, which, in turn, invites more investment.

5. Market Sentiments

Understanding market sentiments is essential as it influences demand and supply. Demand and supply can push the exchange rates in either direction. While with other instruments, like stocks, you can look at the volume traded to assess the market conditions, it is not applicable in Forex. The trade is made over-the-counter. Traders should focus on the Forex futures market. This will tell us about the sentiments that are there in the market regarding the current exchange rate. 

Most traders use the reports by Commitment of Traders for this purpose. It is an official report and completely reliable. However, do keep in mind that this market is still a tiny entity compared to the spot market. Therefore, the mood of the future’s market cannot always be accepted at its face value.

Conclusion

To predict Forex movements can be overwhelming, especially for new traders. Both fundamental and technical analysis are important parts of this journey, and it is easy to get confused. Keep in mind that you should focus on one of these analyses without completely neglecting the other one. 

Some many tools and indicators can guide you. Before you begin trading, make yourself aware of all the things that can aid you. Every trader will have a different strategy. Since the currency and the country are conjoined, you must read the official authorities’ financial and geopolitical statements to confirm the stability. Always remember to start slow and gradually increase your investment.

Never try to shoot blind arrows in the Forex market, as you will not get any profits. It is important to educate oneself on different tools and their functions. Instead of relying on just one tool, find the ones that are compatible with each other and your trading strategy.

The only way to leverage the opportunities available in trading markets, particularly in the Forex market, when you are disciplined in your actions. It is effortless to say this but difficult to follow. How can you make sure that you remain disciplined when you make any decision, from selecting a broker to closing a trade? One of the best ways to remain disciplined is to follow one trading strategy. Although the strategy is not tested and tried, it would be better to find a suitable one and stick with it. Once you find well-reasoned strategies that work and get you good results, it will be easier to remain disciplined.

Effective forex trading strategies are usually simple, the most common tried and tested strategies described in many trading books. All effective forex trading strategies follow strict rules regarding risk management, position-sizing, entry and exit position determination, technical and fundamental analysis.

It is important to look at the bigger picture when talking about trading strategy, as most people generally refer to one facet of the Forex trading strategies. A trading strategy is more than just finding the entry point. It is important that traders also consider the following:

• Risk management
• Position sizing
• Define entry and exit points

Risk in trading implies future uncertainty about deviation from expected earnings or expected outcome. Usually, the greatest risk for traders is uncontrolled loss of capital. High risk in the trading cause that around 95% of forex traders lose money. 

What is position sizing?

Position sizing represents the procedure that determines the number of units invested in a particular security. In simple words, position sizing calculates how much capital traders or investors allocate to a given trade within a particular portfolio. Optimal position sizing reduces the portfolio’s risk, and it is a crucial procedure in trading risk management.

Forex Trading Strategies Types

Let’s begin by stating the obvious; there is no ‘best Forex strategy.’ You can search the whole world, and no trader or investor will ever tell you that a particular trading strategy is the key to all your answers. Different individuals have different FX strategies. So, to coin the right strategy for yourself, you need to align in with your personality and thought process. One Forex strategy does not work for every individual. Therefore, do not aimlessly copy someone else’s trading style.

Every year there are certain trading styles and strategies that become the rage. These may be destructive for you, while some long-forgotten strategy may become lucrative. You might have to experiment for a while in the beginning. Start with small investments and eliminate the ones that do not work for you in any case. During this process, focus on the time-frame that you feel the most comfortable with.

Many trading strategies have proved their mettle. Some are good for a short period of time, while the others are good for a longer-term. Traders and brokers have been relying on these strategies for years, and they remain relevant and popular to this day. If you want to be the best at your game, you need to be aware of these and other strategies. Only after understanding and experimenting with these styles and strategies, you would be able to find your right fit. Let’s take a look at these strategies:

• Scalping: Scalping is a trading strategy where the trader makes a profit after small price changes; generally, after a trade is executed and becomes profitable. Scalping is regarded as one of Forex’s most advanced trading strategies because a person has to be very quick to take advantage of it. Scalping refers to making short-lived trades that don’t last for more than a few minutes. A scalper quickly beat the offer spread or the bid and use a few pip movements to make the profit and exit the trade quickly. Traders who use this strategy employ a low time-frame chart, which can be found on the Supreme Edition package of MetaTrader 4 and its likes.
• Day Trading: Day trading represents the short time frame practice of buying and selling various financial instruments within the same day or even multiple times over the course of a day. This trading strategy is perfect for beginners as they get to avoid overnight exchange rate fluctuations. As the FX market operates 24 hours a day, there are always chances that a currency may become volatile. While you are sleeping, things can go in the opposite direction, changing everything overnight. Day trading lasts for a few hours where a 1-2 hour time-frame is used.
• Swing Trading: Swing trading is a trading style that attempts to capture gains in any financial instrument over a period of a few days (more than 1 day) to several weeks. You can make profits using short-term patterns created by prices. For this, you need to hold a position for several days. This is known as swing trading. Swing traders keep a constant eye on the bars, revisiting them after every half an hour or so.
• Positional Trading: Long term trading or position trading refers to trades that can be opened for days, weeks, months, or years. One needs to be really patient and disciplined to reap the maximum benefits of this strategy. This is a long-term trading strategy where the trader chases trends for a long time to maximize their profits by leveraging major price shifts. A trader is required to look at the charts when the day ends. This strategy is not ideal for beginners. You need the immense fundamental knowledge to speculate if holding a position for a prolonged time is beneficial or a waste of time. 

Here is a list of tested Forex trading strategies. You can read about them and give the ones that you feel comfortable with a try.

1. Half Daily ATR  Strategy

Buy currency pair if the price is above the last 24 hours High. Stop loss is Half the Daily ATR value, target Half Daily ATR value. 

Sell currency pair if the price is below the last 24 hours Low. Stop loss is Half the Daily ATR value, target Half Daily ATR value. 

For the last 14 days, the Daily ATR value represents the average distance from daily high till daily low based on the ATR indicator.

This is one of the latest strategies in the world of Forex. It aims at leveraging the early market pip movements of some currency pairs that are highly liquid. The most popular currency pairs that fall under this category are GBP/USD and EUR/USD. Traders mostly use the Half Daily ATR for these two currency pairs.

  This is all the input that is required from the trader’s side. Once it is done, everything else is played out by the market. This technique is used in scalping and day trading as both are short-term. But, one must keep in mind that greater risks are involved in short-term trading. Therefore, do not forget to enforce a risk management tool like the stop-loss.

2. Daily Chart Strategy

Experienced Forex traders prefer daily charts over any short-term strategy. Daily market charts are very different from those one-hour trading charts or any other lower time-frames as there is less noise from the market. Since daily charts cover a longer time-frame, you can even see even 100 pips move in a day, not possible in short-term charts. This can increase your chances of maximizing profits in just a single trade. 

Trading signals given by daily charts are more reliable than other lower time-frame charts, which gives them their profit-making potential. Although it needs to be highlighted, even daily charts cannot guarantee anything. This strategy tilts towards fundamental analysis, which makes following daily news and looking out for random price fluctuations an important part of it. There are three main principles on which this method is based:

• Trend Location: there is a continuous cycle of new market trends, which then consolidate. The first step of using this trading style is identifying long drawn moves that prevail within the market. One way to do that is by going through the Forex data worth 180 periods. You need to identify the swing lows and highs next. You have to use this data to find references on the current price chart. This will help you in identifying market direction.
• Staying Focused: long-term strategies always demand patience. You need to hold your horses and get rid of the temptation of getting into the trading market. It would help if you stayed put and wait for bigger opportunities. Stay focused because patience is a virtue here.
• Larger Stop Losses and Less Leverage: there are large intraday swings that you need to be aware of. It would help if you used larger stop-losses, but larger capital investments should not accompany that.

3. 1-Hour Forex Trading Strategy

This strategy is perfect for making the best of the one-hour time frame. While you can use this strategy for many currency pairs, it is more suitable for EUR/USD, GBP/USD, AUD/USD, and USD/JPY. Talking about the resources required for this, the MACD (Moving Average Convergence Divergence) is the most suitable for this. You can find this tool on both MT4 and MT5.

4. Weekly Trading Strategy

Intraday trading is the most preferred trading style because it allows you to capitalize on the market volatility that appears for a short period of time. Since the market remains volatile is short, traders prefer shorter time frames. This weekly strategy, however, offers more stability and flexibility. Weekly candlestick charts have extensive market information to offer. These strategies avoid help you avoid excessive risks as they are based on lower position sizes.

Engulfing candles and hammers are some of the most common price action patterns used for this trading strategy.

How to backtest forex trading strategy?
Forex trading strategy can be backtested using an automated expert advisor program or manually backtesting process. On various freelancer websites, traders can create freelancers’ tasks and order expert advisors with entry and exit rules. Then, strategies can be tested for various time frames, currency pairs, indicator values. The best forex trading strategies can be chosen based on profitability, profit ratio, shape ratio, and various metric.

The Importance of Price Action in Forex Trading

What is Price Action?

Price action trading is a way of trading at the moment when price creates a strong move around important price level. For example, price action is in the moment when price breaks support or resistance in strong movement, or when price touches an important price level and make a sharp, strong reversal.

Price action forex trading strategy:

Watch strong resistance level or strong support price level. If price breaks a strong price level in a short time frame very fast, it is a signal to enter into trade and follow the main trend.

Fundamental analysis is an important part of Forex trading as certain conditions prevailing in and around a country directly or indirectly impacts its currency. When it comes to fundamental factors, every trader uses them differently. However, the use of price action remains constant in all trading strategies. Using price action is a part of technical analysis. Technical analysis for currency trading involves two major styles – following trend and counter-trend. Both styles aim to recognize and exploit price patterns to increase profits.

To use price patterns accurately, one must understand a few other related concepts, for example, support and resistance. These two terms represent a market’s tendency to bounce again from previous highs and lows.

• Support shows the tendency of the market to rise from the previous low.
• Resistance shows the tendency of the market to fall from the previous high.

Just like demand and supply, support and resistance also supplement each other. Support and resistance are played out on the judgment formed by comparing subsequent prices with recent lows and highs. Consider the following two situations:

• If the market approaches the recent low, more buyers will be interesting as the currency will be available at a cheaper rate.
• The opposite will happen in the case of buyers when the market is approaching the recent high. In this situation, sellers will look for opportunities to lock in their profits by looking for currencies that they view as too cheap. This makes the recent lows and highs the yardsticks against which the evaluation of current prices is done.

 Let’s talk about the self-fulfillment aspect of these two levels. This plays out because traders, investors, and other participants continuously anticipate price action to behave in a certain way, and then they act accordingly. This can influence the market to behave in a way that mirrors their assumptions. 

Note the three points given below:

• Support and resistance are based on the market participant’s natural behavior. It is a common sequence of actions rather than an ironclad rule.
• A trend-following system is beneficial when these two levels break-down. It makes a profit off that.
• Counter-trending is the opposite of trend following system. These participants buy when a new low occurs and sell when a new high is reached.

Following Trends in Forex

Support and resistance are two levels that form the two ranges between which the market operates. Sometimes, the market moves above or below these levels, thus starting a trend. But how? When the level of support breaks, the market approaches a new low. Now, the buyers will begin holding off because they are constantly looking for lower prices. They will wait to make any purchase till they still see the opportunity for the price drop. From the other point of view, there will be traders selling because they would either be in a panic mode, or the other case would be that they are forced out of the trade by their tool.

This trend will continue till the selling gets depleted. This will lead to the consolidation of prices, and the buyers will start to believe that the prices will not drop any further. These trend-following strategies aim at encouraging traders to sell when the market has fallen through the support level and buy once the market has broken through the level of resistance.

It may not be as straightforward every time because trends tend to be dramatic and prolonged. Taking from the magnitude of moves, this system is deemed as one of the most successful systems in Forex trading. For this kind of strategy, indicators are used by the traders to keep themselves updated regarding which new trend is rising. Again, nothing is set in stone here as well.

But there is good news; if an indicator has established the time for better chances for the beginning of a trend, the odds might be in your favor. This indication of the formation of a trend is known as a breakout. In simple language, when the prices go beyond the highest high or below the lowest low for several days, this is called a breakout.

For example, if you see the prices move above the last 20-days’ highest high, there is an upside breakout. Traders need to have a different mindset when they are relying on trend-following mindsets. They have to witness the movements for a long duration of time. During this period, market swings can even make their profits disappear. Psychologically, these trades can be quite taxing. When the market is volatile, it would be difficult to spot trends as greater price swings usually disguise them. Therefore, this kind of system works its best in quieter and trending markets and when the trader is patient.

The Donchian Trend system can be considered as a good trend-following strategy example. Richard Donchian, a futures trader, invented the Donchian channels. It is an indicator that a trend is being established. The Dinchian channel comes with a default setting that you can customize at your convenience. For this example, we are following a 20-day breakout. One of the following two things are suggested by  the Donchian channel breakout:

• If the market price moves above the last 20-day high, you should buy.
• If the market price goes below the last 20-day low, you should sell.

How to use 200 ema indicator?
200 EMA or 200 SMA is moving average with one of the most used long term forex trading indicators. Price above 200 SMA or 200 EMA line on the daily chart usually implies the bullish trend and below line bearish trend.

How to set up 200 EMA?

To set up 200 EMA indicators on the chart, go to the Metatrader platform, choose Indicators>Trend>Moving Average. Instead, a simple moving average, please add exponential moving average EMA and set the period to be 200.

It is widespread to find it difficult to differentiate between long and short-term trends. Many traders, especially the new ones, find it difficult to filter out the trends. If you want to be sure about it, you should consider the 25-day moving average. In addition to that, you can also look at the 200-day moving average. The former will determine the permitted direction. If you use this system, the rule dictates that;

• If the 200-day MA is higher than the 25-day MA, go short.
• If the 200-day MA is lower than the 25-day MA, go long.

You can follow a similar pattern to find the right exit also. This is possible if you are looking at the 10-day breakout. It means that if the market starts going lower than the previous 10-days low when you have opened a long position, it is time for you to either sell or exit the trade.

4-Hour Trading Strategy

The 4-hour strategy is also a trend following strategy that is beneficial and profitable for swing traders. As the name suggests, a 4-hour base chart is used to find the location of trading signals with some potential. In this strategy, the 1-hour chart is employed for signals. It helps in determining where the actual position will be assumed. 

You can also signal charts other than the 1-hour chart. However, it would help if you kept in mind that it has to be at least one hour below the base chart. You need two sets of MA (moving average) lines for best results, with one of them being the 34-period line and the other one being the 55-period line. To determine if the trend is worthy or not, trades see if the price action and the MA lines.

The following conditions must be fulfilled if there is an uptrend:

• The MA line is below the price action.
• The 55-MA line is below the 34-MA line.
• There is an upward slope of the MA lines.

The following conditions must be fulfilled if there is a downtrend:

• The MA line is above the price action.
• The 55-MA line is above the 34-MA line.
• There is a downward slope of the MA lines.

Forex Trading Using Counter-Trend Strategies

It is a fact that most breakouts don’t turn out to be long-term trends. The counter-trend strategy is based on this fact. Traders who follow counter-trend strategies try to take advantage of the fact that prices tend to bounce off the highs and lows that were previously established. In theory, these strategies seem to be the most profitable strategies that work in favor of traders.

Before you follow this route, understand that you need to be extra careful in risk management with these Forex trading strategies. The foundation for these strategies is the capacity of the support and resistance to hold their positions. There is a greater risk involved with these two level breakdown. Traders need to keep a constant eye on the market. This makes these strategies unsuitable for those who cannot invest a lot of time in trading. You will find healthy price swings in this market but within a set range.

For example, while being stable, a quiet market may start trending. It becomes volatile with the development of the trend, but how the market’s state changes remain uncertain. You must look at its current state to understand if your trading style will align with it or not.

Finding the Perfect FX Trading Strategy for You

The advancement in the world of technology has made Forex trading more accessible and reliable. Many new technical indicators allow you to identify trends and keep your risks at the minimum level. These technical systems and indicators can be easily customized to fit individual trading styles. 

Before you begin trading, understand that both winning and losing are parts of it. Irrespective of how successful your trading strategy is, you can never completely avoid the risk. There is no strategy out there that can guarantee overnight success or keep you protected from limitless risks. It would help if you stayed away from those quick money-making schemes that are always basking in false glory.

There are many well-established trading strategies, but to find the one that suits you the most can only be made visible after several trials and errors. You can sign up with different traders and open demo accounts to test your strategies. This will allow you to gain real trading experience but without risking real money.

Support and resistance levels are the key thresholds where the market trend is most likely to pause and potentially change course. This may be a particular price/price field. Interpretation of support and resistance depends on the time span of a dealer. To support the price pattern, it is better to use it in combination with other metrics, such as Fibonacci retracement ratios, moving averages, trendlines, etc. However, based on price alone, assistance and resistance levels may be traded.

In the previous article, we defined support and resistance levels in forex:

What is the support level?
Support level represents a hypothetical price level or price area supporting, or holding up, prices and signifying more forex buyers than sellers. Support is often viewed as a “price floor” because traders hypothetically expect that price change direction and begin to rise based on past performance.

What is resistance level?

Resistance level represents a hypothetical price level or price area consolidating, declining new high prices,  and signifying more forex sellers than buyers. Resistance is often viewed as a “price roof” because traders hypothetically expect that price change direction and begin to fall based on past performance.

A support level is when consumers move in and get more competitive, thereby stopping the price from falling. Because of the lower price, selling pressure reduces as price drops for support, and consumers become more competitive because of these lower rates. The support mark will inevitably be breached, and the price will fall below it. Then the price will become the potential standard of resistance. A resistance level means sellers move in to become more competitive and prevent rates from soaring up. Buying demand reduces because of higher costs, and sale pressure rises as price rallies against resistance. Ultimately, a resistance barrier will break out, and the price will climb above it. This price would be the potential support level.

The Best Time Frame for Support and Resistance

The best time frame to draw support and resistance is M30 for day traders, H4 and Daily for swing traders, and Weekly and Monthly for long-term traders. However, professional traders use all chart time frames to add important levels for any trading asset.

Let us analyze one example using forex charts with support and resistance levels.

On the EURUSD chart using the H4 time frame, I added daily low, daily high, monthly low, and monthly high.

On this chart weekly high is almost equal to the daily high. Usually, in trading, one price level can be high or low for several different time frames. For example, if the current price is the highest high for the last 30 days, this level is at the same time daily, weekly and monthly high.

The higher time-frame means the higher impact of support or resistance level. For example, a monthly high has a higher impact on trading than a daily high. In that case, if the price breaks monthly price high, then we can expect a bigger movement than if the price breaks the daily high price.

Professional traders use all chart time frames to add important levels for any trading asset. For example, famous trader Michael Boutros on his chart adds all kinds of previous highs and lows, Fibonacci levels, Andrews Pitchfork indicator, channels, and trendlines. See chart below:

Gold price analysis – chart created by Michael Boutros intraday trader

As you can see, this professional trader added high and low prices for 2016 and 2018 (a few years ago) on the same chart. On his chart (analysis for 18. February 2021.) are yearly support and resistance levels, weekly support and resistance levels, and monthly support and resistance levels. He added important levels using multiple time frame analyses. So, all time frames are important for this trader, although he is an intraday trader.

At every time period, there are several degrees of support and resistance in traders’ charts to enter and exit the market. The meaning of the importance of support/resistance is all about the trading time span, whether the deal is long/short, and the number of times the graph indicates the importance for a certain price or region.

As a trader, you must decide which thresholds are most crucial for your trading plan and for particular time frames. For instance, it would be more relevant than a daily chart to recognize support/resistance on a weekly chart, which would be more useful than an intraday chart. There is generally not much relevance to intraday support and resistance ranges if you are a short-term swing trader.

Note, perception is rather arbitrary, and market actions can help decide the move at various stages. Indicators promoting the understanding of the levels establishes the primary and minor levels of support or resistance.

How to identify key price levels in forex for support and resistance?

The key support and resistance levels can be:

1. Previous low and high (previous daily low, daily high, monthly low, monthly high, etc.)
2. Trendlines
3. Fibonacci levels
4. Pivot point levels
5. Price channel
6. Andrews Pitchfork channel
7. Supply and demand areas
8. Moving averages
9. Custom indicators

People are surprised when they see that moving average can be used as a support level or resistance level. A widely used analytical measure is moving averages. It helps in smoothing the uncertainty and assist in understanding and validate price behavior perception. Moving averages can be implemented to validate or facilitate the understanding of support or resistance levels and evaluate main levels for continuity and reversal of patterns.

Simple and exponential are the two common moving averages being used. 

• Simple – It takes the closing rate over a fixed time duration and calculates the moving average offered to every rate point with equal weight. It gives a late signal than a moving average of exponentials.
• Exponential – It takes the closing rate measured for a particular time; the moving average is calculated by assigning greater weight to the existing price points. It gives a signal earlier than a simple moving average.

Moving averages can be used, just like any other technical indicators, combined with other indicators. Usually, traders use Moving averages with periods 10, 20, 50, 100, and 200 as support and resistance levels. The longer the duration, the greater the future value of it. A moving average of 200 periods would have a greater impact than a period of 10.

A change in signal from the 200 moving average would be less important than a daily chart on an intraday chart. Markets are dynamic, and history does repeat itself. Just like that, moving averages are dynamic with their usage at any given time or chart.

It would help if you decided about the time span you are attempting to trade– short, moderate, or long term to determine which period you can choose. The short-term intervals are 25 or fewer days, the mid-period is 25 to 100 days, and last but not least, long-term periods are said to be 100 to 200 days.

With practice and persistence, you would soon master the concepts and will be able to trade with confidence. 

Conclusion

The main idea is not to describe ways of how we can determine and draw support and resistance levels. The main goal of this article was to explain that all time frames were important for trading decisions.

If you are an experienced trader, you would know what entry and exit points are, but you must learn about the importance of these two terms if you are starting. One cannot open a trading position as they please. You have to consider the price movement, the market reciprocity, and other factors too. You have to find the perfect entry point with indicators, oscillators, or other tools. An entry point is the price point at which a trader opens a position. This is your first step towards successful trading. Many traders, especially Forex traders, use this point to buy or sell securities as well. Similarly, you should also know when you should exit. If you do not have an exit strategy, you can easily lose whatever you have gained so far. An exit point is a price where the trader has the perfect opportunity to close the trade. Traders do not purchase securities at this point but sell them. 

For an overall successful trade, it is necessary to know your entry and exit points. These do not appear as prominently as you might think. Even veteran traders have to use many indicators and oscillators to find exit or entry signals. In this article, we will discuss how to find the right entry signal.

How to Find an Entry Signal in Trading?

To find entry signals in forex trading, traders need to define several fundamental and technical triggers. Usually, traders define previous support and resistance levels, important price levels based on Fibonacci levels, Pivot points,  trading indicator oscillators (RSI, MACD, Volatility), or moving averages, etc. After fundamental analysis, traders decide if the current trading period is good for buying or selling some asset based on major economic indicators such as GDP, Industrial production, NFP report, etc. If several triggers show that time and price level are right for trading, an entry position can be made.

It is effortless to get overwhelmed by several tools offered on the trading platform to help you find an entry signal. Some traders do not even rely on any indicator to identify an entry signal. There are many ways in which this can be done.

Trading indicators examples:

1. The Money Flow Index

As a technical oscillator, the Money Flow Index or the MFI uses volume and price data and lets the trader know whether the market is overbought or oversold. You can use the same oscillator to identify divergences. Its scale is from zero to a hundred. By incorporating the positives and the negatives of the money flow, it helps you in identifying entry signals.

2. The Moving Average Convergence Divergence

Also known as the MACD, this is another technical indicator on our list that effectively recognizes the change in the price pattern of a stock. Thus, telling the traders about the entry points. It also helps in determining the simultaneous bullish and bearish crossovers.

3. Breakouts

Volume and price are closely related. When the latter is trading in a range, the former can help in recognizing the breakout direction. A breakout shows whether the trend is strong or weak or when a trend can potentially happen. When a breakout reaches above the resistance level, it is time for the trader to enter the trade.

Entry signal example

Some traders can analyze charts and economic impact for GBPUSD. Their analysis can be:

Technical triggers:

1. Today GBPUSD has broken 7 days high level.
2. EMA 200 is broken on the Daily GBPUSD chart
3. The trendline shows a bullish trend.

Fundamental triggers:

1. The GDP report showed GBP good projection.
2. Industrial production of GBP is better than last month.
3. US NFP report is worse than expected.

After technical and fundamental triggers, traders, for example, decide to create GBPUSD buy order.

Of course, sometimes triggers can be mixed. Using experience, traders need to decide they will buy or sell assets or maybe be flat – outside trade.

How to Eliminate False Entry Signals?

It is not uncommon for traders to enter a trade on the pretenses of false or premature signals. This can be easily avoided by using trailing stops. Trailing stops offer some respite to the traders by automatically enforcing entry and exit points. Traders can fix at what price they would want to exit the trade. In this way, even if they have entered the trade using a false signal, they can exit without losing a major part of their investment. This takes away mental stress from traders, and they can devise better trading strategies.

How to find stock entry and exit signals?

To find stock entry and exit signals, traders need to define several fundamental and technical triggers related to particular stocks. In the first step, traders need to determine a stock’s real or “fair market” value using stock fundamental indicators such as The Income Statement, balance sheet, Statement of Cash Flows, Price-to-Earnings Ratio, etc. If fundamental analysis allows buying or selling the stock, then traders define price entry-level using previous support and resistance levels, or important price levels based on Fibonacci levels, or Pivot points, or/and trading indicator oscillators (RSI, MACD, Volatility), or moving averages, etc. The previous important price level is the best entry price level.

Moving Averages (MA) facilitates technical analysis by smoothing the price data constantly updated after a set time interval. The second-generation traders, Alan Hull, developed a Moving Average. The fund manager, writer, I.T. expert, businessman, speaker wanted to create an MA that could respond to the current price activities and maintain the curve’s smoothness. Thus, the Hull Moving Average was created in 2005. This Moving Average claims to be more competitive and accommodating than the other MAs as it strives to eliminate lag while improving curve smoothness.

What is Hull Moving Average?

The Hull Moving Average (HMA) represents an extremely fast and smooth moving average developed by Alan Hull. HMA minimizes the lag of a traditional moving average while retaining the smoothness of the moving average line.

Please download the Hull Moving Average indicator for MT4.

Alan Hull moving average formula.

HMA= WMA(2*WMA(n/2) ? WMA(n)),sqrt(n))

To calculate the HMA moving average, it is necessary to do the next five steps:

1. Calculate the Weighted Moving Average for a period of time.
2. Reduce the time period into two halves by dividing it by 2. Now, use the value to calculate your second WMA.
3. Multiply your second WMA by two and subtract the first one from it. 
4. Find the square root of the new time period and take its integer value. 
5. The final integer that you found in the above step will be used to find the third WMA.

Alan Hull used the three Weighted Moving Averages (WMA) formula to develop his Moving Average. The WMAs are difficult to build, but they are more comprehensive and reliable than the Simple Moving Averages. Consequently, you can expect more conducive results from the Hull Moving Average.

The Best setting for hull moving average

The best setting for Hull moving average for long term trades is on 16 weeks long MA. For the hourly and daily charts, the best setting is the default 21 period long settings.

Many believe that considering a 13-week average would be better as it makes a quarter of the year, but Alan Hull explained the set-up of his Moving Average with the help of a 16-week long MA. Let’s take the same route.

When you are on your trading platform, you will see a column with a list of indicators. Scroll down and select the ‘Moving Averages’ option. This will open another box with various options. You will see a dropdown menu with options like Exponential, Simple, Wider, and more. Choose Hull. You will also get options to set the time period.

Once all this is done, you can add this indicator easily to your chart. You can edit the indicator by simply opening the indicator panel. You can change the settings, save everything, and close it. You can delete the indicator as well using the same panel.

If you wish to change the indicator’s colors, you can click on ‘L’ that could be found on the toolbar. You can do the same by typing the same letter on your keyboard. You will find several color options that you can select by clicking on the desired color patch.

Using the Hull Moving Average for Trading Signals

The Hull Moving Average creator recommends that traders use his creation for directional signals only as crossovers could face distortion due to lag. You should hold a long position when the Hull Average turns up and opt for a short position when it turns down. You can introduce a longer-term MA in the direction of a signal and then trade in the same direction.

How to trade using the Hull Moving Average

Hull Moving Average Strategy

Hull moving average strategy is based on the crossover technique applied on two moving averages to a chart: one longer and one shorter. The trader can enter into a position and exit from the position when a longer and shorter moving average cross.

For example, we can check a 13-period cross 52-period example or 16 and 32 cross example.

The green 32-weeks Hull MA is our source of trend directions in the above graph, while the trade signals are taken from 16-weeks Hull, MA. The latter is possible only when the 32-weeks slope is in the same direction.

In the above graphs, the green line means to go long, the red one means to go short, and the gray one gives exit signals. These colors can be changed. Read to know-how.