How to Know Exactly When to Place a Trade

How to Know Exactly When to Place a Trade

.AUDUSD M5

Knowing exactly when to place a trade is very important in forex trading. It is always better to make an entry at the beginning of a long trade or a short trade setup than at any other time. You may use three indicators at least to confirm that the trade setup is right. Some forex traders limit themselves only to the use of candlesticks to identify possible positive trade setups. That is also good if one can remember what each type of candlestick setup represents, like the Doji, dragon doji, hammer, hanging man, harami and so on. It is also very possible to make a correct entry with two indicators alone, where one indicator confirms the position of the other.

One source of problems for inexperienced traders is not being able to predict how far a trade setup may run before it gets exhausted. This is where experienced traders have an upper hand because they have mastered the characteristics of most currency pairs. If you understand the characteristics of say GBPJPY, EURUSD or USDJPY you will know when to trade the currency pair, how far its bullish or bearish trend may go and when not to place a trade on it at all.

How to Use the Relative Strength Index (RSI) Indicator

Talking about correct trade setups, one technical indicator that is very useful in identifying the right trade entry price on the MT4 platform is the Relative Strength Index (RSI). When used as a trading indicator on the chart, it easily indicates the overbought or oversold market conditions and gives an idea of the most likely price to make an entry. If the RSI is at the top, indicating an overbought market condition, confirm with the Moving Average Convergence Divergence (MACD) to go short for a sell at the reverse price move. When the RSI is at the lowest point for oversold market condition, readily confirm to go long for a buy. Sometimes you may impose a moving average ten on the RSI. This will further enhance confirmation of the right entry signal for you. As the RSI crosses the MA 10 in an overbought or oversold market condition, make an entry and observe what happens halfway up or down. Sometimes the price consolidates in a sideways move halfway up or down. Whatever happens, it still runs to the opposite end and reverses again. Take note of this point again, whenever the RSI is at an overbought price movement at the top, get set to go short at price reversal and if it is at the bottom, get set to go long to buy the commodity. See the images below.

What is the Best Time Frame to Trade on?

This depends on your trading style. As a day trader, 15 minutes timeframe is good to capture fast moving trades on the lower time frame. When trading on the hourly or 4h time frame, keep an eye on the lower time frame all the same to identify the right entry signals. However, you must know that as a higher time frame trader, you must be very patient since trades do not happen instantly except when news breakout. This is where the intraday trader has an advantage over the long term trader.

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 Take note that each time the price action hit the top or is overbought, it will reverse and get to the oversold level. It then reverses again. Get used to this belief that prices will always reverse either when overbought or when oversold.

 Whenever the asset price is about to reverse, take advantage and get in at the appropriate time to take profit at the other end of the trade.

Observe also from the charts below that when price is moving sideways in the higher time frame, you may have difficulty making profit in these time frames, but in the lower time frames of 5Min, 15Min, 30Min, the price will be trending or ranging. You may be able to take profit in a ranging market and the trending market as well.

Click to Expand Each Chart for Close Observation

Trading on the M5 is like chasing few pips per trade. However, if your broker allows it, go ahead with it but remember that you do not expect high profit except you trade with high lots ( like double digits) per trade. You simply accumulate little profit at a time. In your Demo account, play around with RSI and MACD and see how they help you make some profits.

AUDUSD M15

Take note of the direction of the trend as displayed by the candlesticks. Every reversal in the direction of the uptrend is an opportunity to take profit before the price returns to the major trend. The RSI gives you the opportunity to take advantage of  price reversal to make the correct entry.

 AUDUSD M30

Take note also of the divergence of the two MA's. Price reversal usually occurs when the gap between the two moving averages is widest. It is best to close your trades and take your profit when the gap between the two MA'S is at the widest point.

AUDUSD H1

Do you notice the sideways movement of the price here, more pronounced in the H1 than the lower time frame of M5, M15 and M30? You can definitely make more profit trading with M15 at least than H1 during sideways movement of price in the higher time frame. 

Just notice that each time the RSI hits the bottom, the next line of movement is a reversal to the upside, and each time it hits the uppr end, it reverses downwards to hit the lower end once again. 

AUDUSD H4

AUDUSD DAILY

Always review the direction of the trend in the higher time frame to get an overview of the long term direction of price action. Use the MACD to confirm your observation.

AUDUSD WEEKLY

There seems to be a likely uptrend in AUDUSD from observation of  the divergence between the MA5 and MA22 as seen in the chart. The precise time this may likely happen may not easily be determined. If you are conversant with Elliot Wave theory of counting the waves, you may be able to get it right. To aid you effort at this, see the position of the last bar in the MACD, it is very likely that the reversal is about to set in.

Otherwise, wait for the RSI to cross the MA10 red line superposed on it in the upward direction.

AUDUSD MONTHLY

Study the charts, learn to trade with the combination of RSI and MACD as they direct your decision to make a trade entry at the right time.

The Red line in the main chart  is Moving Average 5 while the Blue line is Moving Average 22.