Intro
In the last couple of weeks, we've reached out to multiple experts to add their thoughts to our Who is a Swing Trader? series.
One particular topic was about how technicals & fundamentals are used to determine entry points and price movements.
Samson Ononeme from AtozMarkets was happy to contribute to our series - read his thoughts below trend movements and price channels for forecasting.
Forecasting tools and their uses
1. Trend movements
This is a simple method of looking at the trend movement in different time frames. Having analyzed the trend movements on a large timeframe, the trader determines the trend or the price direction on small time intervals. It is optimal to enter when the trend has completed a rollback at a small timeframe, starting to move in the direction of the trend at a large timeframe.
The well-known “3 screens” trading strategy is based on this tactic, where instead of two charts, 3 is used.
In an uptrend, a trade is opened at the point of the minimum, and for a downtrend, at the point of the maximum. The transaction implies minimizing the risk when making a profit.
2. Price channels
The use of price channels is another way of determining which point of entry would work at the beginning of a directional price movement. Price channels, as you can see in the graph below, are two parallel trend lines formed through the interplay between the supply and demand for the instrument you are trading.
The location of the entry points to the market will be near the resistance/support lines. In the case of an uptrend, buy near the support line, and for a downtrend, sell near the resistance line.
The place of the channel breakout in the direction opposite to the trend movement can also be considered as an entry point.
3. Forex news indicator
Lastly, traders can use fundamental analysis (important news, political and economic events) to find the entry points. Traders usually react to price fluctuations in connection with the release of important news. If you see that the price is actively responding to the latest news, you can quickly open a trade following the trend.
However, the disadvantage of this method is that the price of the instrument you are trading will not always adequately respond to different news, which reduces the effectiveness of the strategy. Some traders make the fundamental forecast on their own, which slightly improves the results.
I must emphasize that the above methods are not exhaustive ways to correctly identify entry points, and which one a trader should use will depend on the chosen trading strategy and his personal preferences.
Samson Ononeme is an editor and a prolific writer of articles in the FinTech sphere. He has been working in the financial markets for over 5 years and has developed a new passion for the Forex, Cryptocurrency and Blockchain markets. In September 2017, Samson joined AtoZMarkets as the senior editor. Since then, he has continuously developed his skills in the volatile market, whilst applied his knowledge in a transverse manner to benefit the AtoZMarkets’audience
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