Forex trading does not trend all the time. In fact, we will
experience choppy markets or some called whipsaws markets for quite a
number of times. Choppy market is where the price moves dramatically up
or down and may look identical to start of a new trend in early stages.
But instead of continuing the trend, the price may suddenly dive back
down to your entry price or trigger your stop loss. I believe it's
a challenge for most people trading forex, particularly those who are
new to forex trading. Why is it so? The reason is they may not be able
to identify what kind of market is that and may be unable to resist the
temptation of false fast price movements. So how to trade forex in this
kind of situation? Below are some of the forex trading tips:
1.
Don't expect a long swing plan or any sustained price movements if you
are already in an open position, get some profits out when you have made
some from the forex market or shift it to the breakeven price as soon
as possible. This will reduce the risk of losing that position.
2.
When the forex markets are choppy and you really need to trade, it is
safer to trade those currency pairs which are highly correlated.
Examples of highly correlated forex currency pairs are EUR/USD with
USD/CHF, and EUR/GBP with GBP/CHF. This means if EUR/USD falls, USD/CHF
will climb, and vice versa. It usually happens 95% of the time on hourly
charts. So you should look at the support and resistance levels
pertaining to EUR/USD and USD/CHF if you are to trade either one of the
currency pairs, to assist you in making a decision.
3. You should
refer to the calendar of economic announcements every now and then in
forex trading. Sometimes a choppy market occurs when there is two or
more economic data releasing at the same time or within a few hours. A
particular news may trigger an up movement while the other one may
trigger a down. Therefore it is a bad time to trade forex as you do not
know exactly where the forex market is moving.
4. Sometimes when
the forex trading market is choppy, it forms range-trading channels,
which sets one up for a breakout. If there's is no indication on which
direction the market is moving, forex traders may go long when it's at
the bottom range, and short when it is at the top range. This may earn
you some pips, but again, it is better to wait for price to break out
from the range-trading channels so that ideally you will be able to
catch the breakout trend.
Although those above can help you to
counter choppy markets, I still must say that when the forex market is
particularly ruthless, it is best that one simply walk away and wait for
another good trading opportunity. Here is another tip for you that may
help: Unless there are some fundamental reasons to drive the currency
markets, such as news release etc, probably you will be looking at a
market that is not trending at all.
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