People who learn to trade Forex during the day may have a particular bias towards scalping, trade breakouts or trade swings, or one of several other strategies.
However, there is a particular characteristic of the market that you have to deal with that happens every day in the world of Forex day trading.
A key feature of the market
What does the price do about 70% of the time?
Answer: Not much!
Price spends most of his time, according to a rough estimate, maybe up to 70% of the time, in consolidation!
Can you hear someone say, “Is that all? That is not a momentous piece of information!” Perhaps, but many traders do not recognize this feature and suffer as a result.
What makes this information so important
Why is it so important?
Because it will greatly affect your way of operating! Trading when price is consolidating requires a different mindset and very different profit targets than when price is trending or breaking out.
So when trading Forex, you need to ask yourself regularly, what is the price doing right now?
Is it a trend or is it consolidating?
Is trading when the price is consolidating part of my intraday Forex trading style or do I prefer to trade only with price breakouts or variations?
If you prefer to trade breakouts and price swings, keep in mind that probably three-quarters of your time will be spent simply watching price action go up and down in a channel.
Swap channels
On the other hand, if you are a reseller, you can develop your skills to make small profits regularly during this large part of the trading day when the price is consolidating.
Of course, scalping is a high risk intraday trading strategy on Forex. As it involves a series of trades during the day, there is a greater risk that one or more will be unsuccessful.
However, with careful analysis and skills developed from experience and perhaps months spent honing skills on a demo account, it is possible to regularly get 5, 10, or 15 pips out of the market when price is in a consolidation channel. .
If you choose to profit from consolidation channels, mark your charts carefully. You will want to always keep an eye on the 1 hour chart to see where the key support and resistance levels are.
Next, you should examine the 15-minute chart to get a closer look at the current price action and take note of the immediate short-term trend direction. MACD can help here by examining where MACD is in relation to its trigger line.
Then focus on the 5 minute chart and draw horizontal lines above and below the top and bottom of the current channel. Is there a move of 20 pips or more? You then have a reasonable chance of extracting 10 or more from the market.
Remember not only to take into account the wicks of the candles but also the bodies of the candles. Sometimes it makes more sense to draw the horizontal lines that mark the consolidation channel through the candle bodies rather than the wicks.
You need to use your judgment and skills to determine which one makes the most sense in the particular session you are in.
Acceptance leads to realistic expectations
Once you accept the fact that price spends most of its time consolidating, you can approach Forex day trading with a healthy mindset.
You will accept that there will be long periods of inactivity that will require patience. You will need to decide your personal trading style and whether you want to add scalping skills to your overall trading experience.
Otherwise, if you just want to focus on breakouts and reversals, set your profit levels accordingly. Don’t be too ambitious and be prepared to make some profit early.
Look ahead, see where the price is heading and where it is likely to stop and enter another period of consolidation.
Do you have the mental stamina and emotional strength to endure a few hours of consolidation without really knowing whether the price will move back and forth or fall further?
If this is difficult for you, take most of your winnings ahead of time and enjoy the peace of mind. Let a lot or two run after raising your stop to breakeven and at least you will make additional profits, sometimes quite substantial, if the price decides to continue.
Giving careful consideration to this key pattern of market behavior will certainly help your daily Forex trading sessions.
At least you will approach the market with a realistic mindset.
