Forex Trading Strategy – The Proven Formula For Locating Winning Opportunities

By in Trading Tools on October 11, 2018

The “secret formula” for identifying just the best opportunities for the forex trading strategy

Ok there’s no one formula better than the market, but we all know that every trade you are making is precious, and each little edge matters within this highly competitive market. The important thing to maximizing your odds is not to visit after every opportunity, but instead to realize once the probabilities tip to your benefit after which take action. Once the remaining marketplace is displaying a weakness or sentiment is shifting (which we determine objectively), then we pounce on the opportunity just like a Cheetah does after stalking its prey to ensure that we are ahead and may ride the wave for optimum profit. Here is the formula I utilize when looking for trade opportunities:

Imbalance + Sentiment Shift = Predictable Price Move

There you have it. If you can satisfy the two requirements on the left side of the equation, you have maximized your odds of success. Exactly what does this formula actually mean? Have you ever heard the terms, “market correction,” “recovery,” or “pullback?” These terms represent when the market makes a proceed to correct something that has gone fundamentally wrong or out of whack. Since the forex market consists of different types of traders with various objectives, imbalances will invariably develop. For instance, the Pound may be rising due to investor optimism, yet economic indicators may show that bank lending can always be terrible and therefore signal a stagnant economy. Or, commodity based currencies such as the Australian Dollar might be confined inside a range, yet correlated assets such as gold happen to be climbing fast. In each of these descriptions, one thing doesn’t trust the other. It becomes an imbalance and it is a valuable clue to trade forex successfully. One must identify an imbalance in her own forex currency trading strategy and decide on the direction on her trade, that is the direction that prices are likely to correct toward.

Sentiment is a expression used to explain the market’s general “feeling” of the currency. You may have heard people describe themselves as either “bullish” or “bearish” on a currency. This can be a reflection of the sentiment. The key reason why I stress sentiment in forex so much happens because the chaotic nature from the market suggests that in the temporary, it doesn’t move with fundamentals like it should, but instead using the ebbs and flows of sentiment. Sentiment may be influenced by news releases, rumors in the market, and technical levels, also it can be recognized typically by observing price reactions to surprises in scheduled economic numbers released every week, COT data, media headlines and bank reports, as well as clues from other markets like the VIX and Eurodollar futures.

The objective of using both of these components within our above formula is simple: We want in our forex trading strategy a strong driving force, or reason, to support our direction, so that if our timing is off, it doesn’t matter. A lot of forex systems emphasize obtaining the timing right with all of these special technical indicators, but in the end, nothing can fully describe the chaotic nature of the market in the short term. Rather than timing the market, place the advantage by waiting for an imbalance to happen (you don’t need to wait long-these happen almost monthly). We utilize the second component, sentiment, by aligning ourselves with the immediate directional swing from the market. Lots of people spot imbalances however they enter when the market moves the wrong way, thinking it might reverse. Economists are famous for this-have you ever heard the old saying, “economists predicted 8 from the last 3 recessions?” My point is, wait for a market to start correcting in your direction before getting in. Don’t fight the marketplace. Move with it.

Keep these steps and also the formula in your mind for the forex trading strategy. Over the next number of posts we’ll go over the strategies at length so that you will eventually be prepared to trade with this pro forex method successfully.

Hope that helps.

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