How to Trade Bounces in the FOREX Market
Every year, thousands of aspiring traders come to the forex market to take advantage of the opportunities of 24 hour trading with a variety of trading methods. One method that has proven reliable and stood the test of time is how to trade bounces in the forex market. For the novice forex trader, trading bounces in the forex can seem a bit risky because the market is falling but using a few key steps this can be a trading methodology that wins consistently.
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Instructions
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Panning For Gold
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Go to a computer with internt access and log on. Then, once you're online, go to FreeStockCharts.com and pull up a quote chart with all the currency pairs that you want to search for setups in trading bounces. Then, pull up a price chart that will link from the quote chart to the price chart. As you scan through the different currency pairs on the forex that you use for trade opportunities for this setup they will automatically pull up one by one on the price chart as you click on each symbol in the quote chart. Also, include volume at the bottom of the price chart.
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2
Scan the list of currency pairs and mark down any steep decline off of a high that is accompanied by a large increase of volume. This indicates heavy sales volume as large numbers of forex traders are either selling positions and many more are trading in the direction of the decline. After the initial wave of selling watch for a rally to relieve the selling pressure.
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3
Prepare for a trade entry when the price of the currency pair rallies initially but then begins to decline again to the significant low that was made. This area will become an area of potential heavy support as it is retested. Once price enters the price area of the low that was made during the initial decline you want to wait and watch for price to react and bounce up from this area to trigger a trade entry.
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Enter a position as price travels over the highest high of the price bar that set the significant low and closes for the day above that price bar. This confirms the entry is valid and that price is bouncing back from an area of significant support.
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Tips & Warnings
You can also use Bollinger Bands on the price chart to gauge where the standard deviation of the mean of the price lies so that you can trade bounces off the bands themselves. This approach is a bit advanced so be cautious but it is reliable as well.
Always use stops and plan for sound risk control when trading the forex. Forex trading is extremely lucrative but if you don't have a method of managing your position size and risk exposure then it can be really hard on your financial life. Like a boxer, you want to have a strong defense against your opponent which for you is the forex market. Protect yourself at all times and you'll end up a winner in the end.
