Trading off a five-minute chart suggests that you are more comfortable taking a position without exposure to overnight risk. On the other hand, choosing weekly charts indicates comfort with overnight risk and a willingness to see some days go contrary to your position. In addition, decide if you have the time and willingness to sit in front of a screen all day or if you prefer to do your research over the weekend and then make a trading decision for the week ahead based on your analysis.
Remember that the opportunity to make substantial money in the Forex markets requires time. Short-term scalping , by definition, means small profits or losses. In this case, you will have to trade more frequently. Once you choose a time frame, find a consistent methodology. For example, some traders like to buy support and sell resistance. Others prefer buying or selling breakouts.
Some like to trade using indicators, such as MACD moving average convergence divergence and crossovers. Once you choose a system or methodology, test it to see if it works on a consistent basis and provides an edge. Test a few strategies, and when you find one that delivers a consistently positive outcome, stay with it and test it with a variety of instruments and various time frames. You will find that certain instruments trade much more orderly than others.
Erratic trading instruments make it difficult to produce a winning system. Therefore, it is necessary to test your system on multiple instruments to determine that your system's "personality" matches with the instrument being traded. Behavior is an integral part of the trading process, and thus your attitude and mindset should reflect the following four attributes:. Once you know what to expect from your system, have the patience to wait for the price to reach the levels that your system indicates for either the point of entry or exit.
If your system indicates an entry at a certain level but the market never reaches it, then move on to the next opportunity. There will always be another trade. Discipline is the ability to be patient—to sit on your hands until your system triggers an action point.
Sometimes, the price action won't reach your anticipated price point. At this time, you must have the discipline to believe in your system and not to second-guess it. Discipline is also the ability to pull the trigger when your system indicates to do so. This is especially true for stop losses. Objectivity or " emotional detachment " also depends on the reliability of your system or methodology. If you have a system that provides entry and exit levels that you find reliable, you don't need to become emotional or allow yourself to be influenced by the opinion of pundits.
Your system should be reliable enough so that you can be confident in acting on its signals. Although there is no such thing as a "safe" trading time frame, a short-term mindset may involve smaller risks if the trader exercises discipline in picking trades. This is also known as the trade-off between risk and reward. Instruments trade differently depending on the major players and their intent.
For example, hedge funds vary in strategy and are motivated differently than mutual funds. Large banks that are trading in the spot currency markets usually have a different objective than currency traders buying or selling futures contracts. If you can determine what motivates the large players, you can often align that knowledge to your advantage. Pick a few currencies, stocks, or commodities , and chart them all in a variety of time frames.
Then apply your particular methodology to all of them and see which time frame and instrument align to your system. This is how you discover alignment within your system. Repeat this exercise regularly to adapt to changing market conditions. Therefore, the art of profitability is in the management and execution of the trade. In the end, successful trading is all about risk control.
Try to get your trade in the correct direction right out of the gate. Evaluate your trading system, make adjustments, and try again. Often, it is on the second or third attempt that your trade will move in the right direction. This practice requires patience and discipline to achieve success. Trading is nuanced and requires as much art as science to execute successfully, which means that there is only a profit-making trade or a loss-making trade. These are available for free, for a fee, or can be developed by more tech-savvy traders.
Both automated technical analysis and manual trading strategies are available for purchase through the internet. However, it is important to note that there is no such thing as the "holy grail" of trading systems in terms of success. If the system was a fail-proof money maker, then the seller would not want to share it.
This is evidenced in how big financial firms keep their "black box" trading programs under lock and key. There is no "best" method of analysis for forex trading between technical and fundamental analysis. The most viable option for traders is dependent on their time frame and access to information.
For a short-term trader with only delayed information to economic data, but real-time access to quotes, technical analysis may be the preferred method. Alternatively, traders that have access to up-to-the-minute news reports and economic data may prefer fundamental analysis. In either case, it does not hurt to conduct a weekend analysis when the markets are not in a constant state of fluctuation. Accessed Jan. Day Trading. Your Money. Personal Finance.
Your Practice. Popular Courses. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate.
You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Articles. Partner Links. A forex signal system interprets data to create a buy or sell decision when trading currency pairs.
It can be based on technical analysis charting tools or news-based events. What Is Technical Analysis? Technical analysis is a trading discipline that seeks to identify trading opportunities by analyzing statistical data gathered from trading activity. Forex System Trading Definition Forex system trading is a type of trading where positions are entered and closed according to a set of well-defined rules and procedures.
Forex Trading Strategy Definition A forex trading strategy is a set of analyses that a forex day trader uses to determine whether to buy or sell a currency pair. Currency Trading Platform A currency or forex trading platform is a type of trading platform used to help currency traders with forex trading analysis and trade execution.
What Is Swing Trading? Swing trading is an attempt to capture gains in an asset over a few days to several weeks. Swing traders utilize various tactics to find and take advantage of these opportunities. Investopedia is part of the Dotdash Meredith publishing family.
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This means that they are usually on the other side of your trade, meaning that when you buy, they are the ones selling to you , or when you sell they are the ones buying from you. Because of this, many feel that market makers have a conflict of interest and they may trade against you to profit from your losses. While in some cases this may be true with illegitimate brokers, most market makers actually do this to remove risk. Some people prefer to avoid dealing desk brokers because they want to trade in real market conditions where the prices can be higher or lower which may prevent more opportunities to enter or exit the market.
However, some people do prefer dealing desk brokers because the price you buy or sell at is more likely to stay the same. These brokers supposedly do not trade against you and do not set their own prices. The line between dealing desk broker and non-dealing desk broker can sometimes be blurred. Often, they borrow features from one another and different account types can further complicate things.
Brokers that provide ECN trading are highly popular because their pricing is based on numerous other market participants liquidity providers who can input the order. It should be mentioned though, that ECN brokers are likely to charge a commission for each transaction. STP brokers are becoming less common, but are still used by many traders.
In some senses, they can be said to be a kind of middle ground between ECN and market maker brokers. This is because they either pass trades via a liquidity provider or it will go through the broker themselves. There are a number of things that can make a good broker stand out. Signing up to an unregulated broker is extremely risky and is a trap some forex beginners fall into. They are not monitored by any governmental or independent organisations, which means that they have absolutely no legal obligation to give your money back.
In fact, there have been many horror stories of naive traders signing up to unregulated brokers and not being able to withdraw their deposit or earnings. Some are also known to offer unfavourable or unpredictable trading environments.
You can usually see which brokers are regulated at the bottom of their website , though bear in mind that international brokers may only display the financial regulator relevant to the country you are located in. If you are unsure who regulates a broker, you can always ask them and obtain some proof. There are, of course, many other financial regulators around the world.
There are many different trading platforms available to use to input trades and view charts that are great for beginners learning to trade forex. Your decision should really be down to the platform you feel most comfortable with. No platform can be decisively said to be better than any other.
MT is short for MetaTrader. Their two platforms, MetaTrader 4 MT4 and MetaTrader 5 MT5 are the most popular trading platforms available and are offered by almost every single broker and have been used since the early s. Many wrongly assume that MT5 is an updated version of MT4 as it is a later version, and, well, 5 comes after 4. MT4 was specifically designed for retail forex traders, while MT5 is more oriented towards CFDs in general , as well as stocks and shares. Further to that, MT5 also has unlimited charts and an economic calendar.
Plus, MT4 is often regarded as easier to use , which makes it more appropriate for beginners trading forex. Most often, MT4 and MT5 are downloaded and used as an application on a desktop computer. That said, it is growing in popularity and is seen as a good alternative , especially for those looking for something more user-friendly and designed for fast execution.
Naturally though, if a platform has been designed to be an improvement of its rivals in some areas, it will likely sacrifice performance in some others. For example, MT4 and MT5, have both been highlighted for their security and reliability , over cTrader. Mobile trading has burst into popularity in the last few years with many brokers developing their own in-house mobile trading apps.
For many traders, mobile trading is very liberating as it allows them to conduct trades wherever they are. It is also developed directly by MetaQuotes Software Corp. Mobile trading apps can vary significantly in how they operate and what they can offer.
Some can be near mirror images of their browser versions, while others can be very limited in what you are able to do on them. Some mobile trading apps can also be used on tablets as well and some very innovative brokers even allow trading via smartwatches. Though when it comes to mobile trading, for many traders it may be better to implement more complex trades from your desktop as it will be easier.
Robots or Expert Advisors EAs are programmes that traders use to monitor the markets using complex algorithms and can notify you when to make a trade or can even automatically make a trade for you. Many of these robots are made for MT4 and many brokers develop their own robots. Before using such programmes, it is important to thoroughly test them out first. The best way to do this is with a real account in a real environment.
Some traders may use mini or micro accounts for this to minimise any potential losses. As a beginner, robots can be great for notifying you when to trade, but it may be best to leave the automated trading features until you are a more advanced trader.
If you do decide to use automated trading, never leave them unmonitored. This is because while they can detect trends, they are not aware of what events are happening in the wider world that can impact the market. For this, they need human intervention to prevent them from making mistakes. Some highly advanced traders with excellent technical skills can even build their own robots. There are also many robot scams out there as well.
To make sure what you are signing up for is safe to use, you can do the following:. Aside from scams, there may also be robots that are made by legitimate companies, but their robots do not work well. Again, it is important here to check out the company and reviews.
When you sign up to trade with a broker, you will usually have a choice of different accounts. Different account types can work well with specific types of strategies , so make sure you have a good idea of what kind of account type will be best for you. Further to that, there are some account types offered by brokers that have additional benefits, such as the ability to earn interest on your balance.
Demo accounts are accounts offered by brokers where traders can experiment with the platform and see if they like the broker or not. While many advise signing up for a demo account before setting up a real account, this ignores the fact that demo accounts do not show you how the platform really operates. This is especially true in regards to how the market moves and how orders are placed.
This is important because not all brokers have the same amount of slippage. Some even let you play around with up to one million USD. For forex trading beginners , this is especially not helpful. A standard trading account is what you will most likely sign up for when you start trading. While trading accounts are usually quite basic, they can also be quite different between brokers depending on the market access they offer. These are accounts that do not charge you interest for holding a position overnight.
They are often referred to as Islamic accounts because those that follow the Muslim faith view such fees as exploitive, which goes against their faith. Therefore, Islamic accounts were made to accommodate Muslim traders. Since then, many of the top brokers now offer this option as well.
Most of the time, you will not see this as an option when looking at a broker. These are accounts that are designed specifically for dealing with small amounts. Many traders enjoy using these accounts because they often require a smaller deposit and they offer more control and precision on the amount you trade. It should be mentioned though that some brokers offer such features with their standard trading accounts. When considering signing up to a micro, mini or trading account, traders should look into whether that account will become a standard account after a certain limit is reached.
Managed accounts are great for those who want to get involved in trading forex, but lack the knowledge to do it themselves. There is obviously a fair amount of risk involved in opening a managed account as you are not in control of how your money is used. You will not learn anything about trading by opening one of these accounts.
In reality, you are not really a trader but more of an investor. This is a feature that is becoming more common among brokers. Copy trading, also known as mirror trading, is where you can copy the trades of other traders. On some platforms, you can even subscribe and automatically copy all of their trades , though this is not normally advised unless you can be completely sure that this trader has a good strategy. You should remain vigilant and not rely on any trader to make your money for you.
Be careful when judging the success of a trader as their ratings on such platforms can often be misleading. Judge them by their overall success, not by their short-term success. A risky trader may make a lot of money one day and then lose a lot of money the next, which you do not want to do.
This is essentially the same as copy trading but incorporates elements from social media platforms , such as Facebook, where traders can create a profile, make posts and like and comment. Social trading allows traders to communicate with each other and discuss trading ideas. It can also be a great place to learn more about trading. Such platforms can also be great for firsthand news about what is happening in the market instead of relying solely on news.
Most traders are also more than happy to discuss their trades with forex beginners and help with any questions they may have. Not all social trading platforms are that socially active, however. Some platforms may be mostly used by traders just to trade and they may not be too interested in talking to each other. If possible, check how active the platform is before using it.
Platforms with more users tend to be more active than those with just a few. Here are some of the top reasons why simple strategies work best:. All this makes a big difference. You can become more profitable and make fewer mistakes without all the stress. This is a surefire way to overcomplicate your strategy and potentially make some humungous losses.
Using it while trading will mean you will need to take into account other factors. Most importantly, you will have to pay back what you used, plus interest , meaning you need to calculate this into your trading strategy. Just bear in mind that it can be very dangerous and perhaps is better to wait until you are an advanced trader to use in it your trading strategy. Trends are important for both long-term and short-term strategies. Understanding how they work can be one of the most beneficial things you can do when beginning to trade forex.
A trend refers to the overall direction a market instrument is taking. Markets do not just move up and down randomly. Trends can be characterised by support and resistance levels. Support is the point where the price will not go any lower and traders start buying, while resistance is the opposite, the market will not go any higher and traders are selling.
Many traders avoid trading when there is no confirmed trend up or down. Though there are some strategies that work in such markets. When implementing a trading strategy , you should place your trade when you are completely sure the trend will work in your advantage. This may mean missing the best possible opportunity, for example, when the market reaches the lowest point to buy or when it reaches the highest point to sell. Unfortunately, you are not psychic and most of the time you will not be able to guess when these moments will occur, and so you may miss them.
You can, however, use them as an indicator of change and start your strategy or change your current strategy and start a new one. The point is to utilise the changes in market direction , not just the highest and lowest points, as they are just a part of it. Trend trading is a great idea as it usually presents opportunities when the market is up or down. As we mentioned earlier in this forex trading for beginners guide, the forex market is open five days of the week, 24 hours a day.
While this means you can trade whenever you want, ideally you should be trading at specific points when there is a good amount of activity in the market. This activity presents opportunities for you to buy or sell. A good way to know when to trade is by using a forex economic calendar. Economic calendars list economic events that may have an effect on the market. However, they do not always impact the market as much as you would expect more on this in fundamental analysis, below.
Ideally, you should have a good selection of news outlets to inform you of potentially good or bad times to trade. Some traders follow the Sell in May and go away approach to trading. This is where you trade during the Winter months November till April , when the market is more active and take a break from trading during the summer months May till October when many people go on holiday and there is less market activity. However, this is used more by traders of other market instruments, such as stocks.
When it comes to forex, this approach is not relevant to all currency pairs and depends on the economy of the currency. Trading signals are used by all traders, beginners in forex trading and advanced. They act as notifications that provide analysis and make suggestions on when you could be the right time to buy or sell an instrument. Signals can come in many different forms and can be received as a text message, an email, or notification via an app on your phone or desktop.
In most cases, you can also set how frequently you want to receive them as well. Some traders may prefer them every 30 minutes, others may only want them once or twice a week. They are particularly useful for people who cannot watch the market all the time because they have other priorities. Instead, they can stick to trading only in certain moments. Finding the right signal service can be difficult as there are many companies that offer such services.
Subscribing to a signals provider requires you to really trust that they are legitimate. Even if they are legitimate, you might not know how accurate they are. They may lack the technical skills needed to accurately predict the direction the market is heading in. The best signals providers use a mix of robots and human analysis. This way they can benefit from the accuracy of machines and be appropriately monitored by expert analysts.
Many brokers also offer trading signals. If you trust your broker, you can likely trust the signals they provide. Here are some of the most common forex trading strategies people are using today. Many of which are perfect for forex trading beginners. We implore you that when you start trading, you dedicate time to learning and trying to implement strategies instead of just guessing and hoping you will make a profit.
You do not have any goals or expectations and you are exposing yourself to significant risk. You can read more about creating your own trading strategy here. An excellent strategy that is simple to understand and great for beginners in forex trading , as well as professionals. It is also a great strategy to use when the market is not very volatile. The carry trade strategy aims to profit from the different interest rates between two different currencies. It works by selling a currency with a low-interest rate and using the profits to buy another currency with higher interest rates.
Ideally, to conduct a carry trade, you will want the currency you are selling the funding currency to have very low or no interest rates, such as the Japanese Yen, as opposed to the currency you are buying which should have very high-interest rates. Before undertaking a carry trade, you need to know which currencies have the lowest interest rates.
Most often, these are currencies that belong to countries that attempt to stimulate their economy and purposely keep rates low. The carry trade is a great way to utilise leverage. That said, with any trading strategy that involves using leverage, there is always a risk and it is best to stick to a reasonable amount, such as at the very most.
Remember, in order for the carry trade to work, interest rates between the two currencies need to stay the same. Scalping is a strategy for traders who wish to make profits by making many small trades. Over time, all these small trades add up and make a nice handsome profit. To implement this strategy though, you really need to have a good live feed and a broker that allows direct access to the market so you can take advantage of the small changes that take place.
More importantly, though, you need to have a good exit strategy and be able to stick to it. The better you stick to it, the more consistent you can be in building your profit. Scalping can also take a lot more time than many other strategies. With scalping, you could spend all day trading and may need to make hundreds before you make a profit you are satisfied with.
In order to use this strategy, you will need to have a broker that allows you to use the Fibonacci retracement tool. Forex beginners with a good understanding of the Fibonacci sequence will have an advantage when implementing this strategy. As we mentioned earlier, many of the best trading strategies require you to have a good understanding of trends and this is one of them.
Traders that use Fibonacci retracements essentially believe that history will repeat itself. They look for points where an ongoing trend momentarily dips and will look to potentially buy or sell at those moments. To work out the right moment to buy or sell, traders who use this strategy will use the Fibonacci retracement tool to identify points in the dip.
These points are commonly These are the points where the trend will likely continue either upwards or downwards , and so traders will set buy or sell orders at those moments in anticipation of them occurring. If the instrument is trending upwards, it is a great opportunity to buy at a cheaper rate and sell later on as the trend continues. When the reverse is true and the instrument is trending downwards, it is a great opportunity to sell at a higher rate before the trend continues.
Before retracing the dip and carrying out your trade, ensure it has finished first by waiting for the trend to continue upwards or downwards as it should. This is vital because if it continues to follow the dip, the strategy will not work.
It may even indicate that the trend you were hoping to ride has ended and a new one has started. It is also a good idea to place stop-losses above or below retracements just in case. Swing trading is highly popular and to those with little trading knowledge as it is easy to grasp.
It is also a trading strategy that can be used for other financial instruments as well. Traders that use this strategy employ analysis mostly technical and to a lesser extent, fundamental to predict which currency pair will rise to a profitable point.
They will also mostly use charts ranging from the last few days. Once identified, they will act quickly to purchase the currency pair and hold the position for a few days before it reaches their desired point and then start selling. Traders that use this strategy need to be aware of swap-fees that may be charged to the trader for holding the position overnight.
Further to that, they are also exposed to any sharp changes that may happen overnight. Even if you do not use any strategies related to moving averages, understanding how they work can be very beneficial for any beginner learning to trade forex. This can be done by selecting the closing prices of a particular time, ten days for example, and dividing them by that same number. This gives your moving average.
However, moving averages are usually identified with tools or indicators that are displayed on charts, so normally you will not have to work it out yourself. Moving averages help traders see the underlying trend in the market more clearly. Specifically, they are useful because with them we are better able to see wider trends as we are focusing on the average price over a period of time instead of the current price. By doing this we remove the minor dips up and down and focus on the real direction the price is heading.
To make use of this strategy though, traders need to view the moving average alongside the current price and compare the two. When the current price is above the moving average, this is seen as an uptrend and when it is below the moving average, it is seen as a downtrend.
If the moving average swaps from an uptrend to a downtrend, this is called a trend reversal. It is at these key points traders seek to buy or sell. When a downtrend becomes an uptrend, this is seen as a signal to buy. When the opposite happens - an uptrend becomes and downtrend - this is seen as a signal to sell. Keep in mind that moving averages only show past prices. Because of this, you cannot solely rely on them , especially in regards to sudden price decreases.
Hedging is a common practice and is used in a number of different financial areas. It is where you trade two instruments that usually counter each other. Think of it as an insurance policy. If your desired pair does badly, then the counter pair that you also invested in will be doing well.
This way you have reduced your risk and minimise your losses. In some cases, you may have even made something out of it. Though, in most cases, this really is a strategy used to avoid risk not make a profit. The Bolly Band Bounce Trade is another one of the few strategies that is suitable for a ranging market. It relies on using Bollinger Bands which outline volatility in the current market. It also assumes that when the market is ranging, it acts like an elastic band - when it reaches highs it will bounce back to the lows and vice versa.
When the market nears the high points of the Bollinger Bands, it is a good point to sell, when it reaches the lowest points, it is a good point to buy. This strategy will, however, be less effective once a trend forms. An advantage of this strategy is though you can identify when a trend is emerging when prices start to rise above or dip below the Bollinger Bands. This should be seen as a signal to change strategy.
Double tops happen when an upwards trend reaches as high as it can go and is about to reverse into a downward trend. When this happens we often end up with two tops , the second of which acts as a signal to traders to start selling. A double bottom is the reverse of a double top. In a double bottom, a downward trend is unable to go any lower and we get to two bottom points and then a new upward trend begins.
This is a good point to buy because you know that the market will not go any lower. For beginners trading forex , this strategy is highly popular because double tops and double bottoms are very easy to spot and occur frequently. You should also use stop-losses and take-profit orders too, just in case.
Intraday is another way to say within the day and focuses on trading the highs and lows of the day. There are a number of other strategies related to this approach. You will not always have a chance to close your position and you can still run into losses.
With channel patterns, the aim is to identify the highest and lowest possible points in a trend and attempt to use them as entry and exit points. Again, using a channel pattern strategy also requires a good understanding of trends. It also requires that you use a broker that offers the ability to view channel patterns on top of charting software.
With your channel pattern, you want to look for the highs and lows of a trend. They can be used to measure downwards trends, upwards trends and when the market is stagnating. What you are looking to do is take advantage of the potential dips between the ups and downs that take place in that trend, when it momentarily dips down or up before the trend continues.
A trend is never completely straight up or straight down. The channel you have made can be used to predict where they are likely to be. The last thing to mention about channel patterns is that you need to be able to spot when the trend is changing or this strategy will not work and it can result in losses.
Do not assume a trend will continue forever. While trading strategies can come in very different forms, some fundamentals always stay the same. One of the most complex things forex beginners can miss out on and often one of the hardest things to learn. There are plenty of types of analysis people can learn. Analysis can take many forms. Some of it is very observational and can be easily seen.
Other types of analysis can be more complicated but can be very revealing. An important thing to remember about analysis is that it is not only about looking for potential opportunities, it is also about knowing when to avoid the market. And others will avoid it if it is too volatile and unpredictable. This is the most basic form of analysis and mostly involves analysing external events that may affect the forex market.
Most of the time, you will perform this kind of analysis by watching and reading the news. Generally speaking, events that can affect the forex market include:. In fact, it largely comes down to if they are expected or not. For example, if it is already known that the UK will announce its yearly GDP estimate and it is likely to be good, it will not dramatically raise the price of the pound because people were already aware of the positive news.
That said, some events, such as natural disasters obviously cannot be predicted. As you can expect, good economic news can mean the price of a currency will increase. Bad economic news can mean a currency will decrease in price. Fundamental analysis is good to give you a broad sense of where the market currently is and where it potentially might be heading.
But it is not accurate, it is only empirical. After fundamental analysis, you should look into more scientific forms of analysis for a real understanding of what is happening in the market. Combining the two will give you the best understanding of where the market is heading. Technical analysis is solely the study of what is happening on the charts in front of you.
It largely involves looking back at the changes that have occurred over a certain period of time and assessing if they are likely to happen again or not. With that information, traders can decide what points will be good to enter the market and what points will be good to exit the market.
As you would expect, technical analysis can sometimes be very complex and can require a good understanding of the charting tools you have. When conducting technical analysis you weed out the abnormalities to see the market for what it really is. By combining technical analysis with fundamental analysis, you can see in detail how certain events affected the market.
Wave analysis or as it is otherwise known as the Elliott wave principle , is a form of technical analysis that assumes that markets go through cycles and that trends can be predicted. The basis of this analysis is that the market moves up or down largely because of a positive or negative outlook by traders.
According to Ralph Nelson Elliott, who invented wave analysis, these cycles occur because of the psychology of traders. By understanding their mentality, we can predict with a good degree of certainty how the markets will move. Even if you dislike this form of analysis and never use it, understanding it can be very useful and parts of it may help you develop a broader understanding of what is happening in the market.
Typically, the price of a currency pair will reach a low point and traders will start to buy believing it to be a good point. This is called the first leg. This is followed by a shorter second leg down of buyers selling and profiting from the initially low entry point from before. The third leg is usually the largest with traders believing they have found a trend and jumping on it, unaware that in doing so they are actually creating the trend.
This is then followed by the fourth leg where traders are selling after the huge rise in price after the third leg. In a sense, this is where most of the profit is made. The fourth leg, however, is still small in comparison to the rise of the third leg, and other traders attempt to jump on the rise at the last minute and again push the price up even further in leg five.
Leg five, though usually very small, is the highest point the forex pair will reach. It means it is a level of resistance when the price is bearish. The price breaches the level later and finds its support at the same level. It produces a bullish reversal candle and heads towards the North. Once the price makes a bullish breakout, the buyers shall wait for the price to make a bearish correction.
If the level produces a bullish reversal candle, the pair may head towards the North by offering a long entry. This is what happens here. Let us see the same chart by zooming out. This is the same chart. We have spotted out two significant points and spotted them with two arrows. I assume this time you guess what I am going to say. Yes, the price makes a bullish breakout and finds its support at the breakout level.
This is the level, which is a level of resistance in this chart. Since it gets broken and the chart produces a bullish reversal candle, the buyers may go long in the pair again. Let us draw a line here. See how the price reacts here. Upon producing a Morning Star, the price heads towards the North with good bullish momentum. The price makes even a stronger move this time. The plan of a buyer should be eyeing on the level to get a bullish reversal candle where the price finds its resistance when it is bearish and vice versa.
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