Do you want to become a successful trader? If yes, than you should immerse yourself completely in the subject of forex trading in order to find your edge. If you are already a winning forex trader than you should try to know exactly what your edge is.
Even the most advanced traders find it hard to know, interpret and trade the sharp moves often seen in the forex markets. By learning to read and interpret price action, you can develop a huge advantage for you as a trader.
When the market is in a steep decline, one should be careful to measure the reaction of the longs. You must try to know and know if the go has the chance to turn into a rout.
You should look at the reaction of the longs as soon as the rate starts to go south, this way you will be able to determine if the market is sitting on a large number of long positions and whether traders want to dump their positions. In case of a spike followed by a sharp V recovery, you should avoid shorting the pair.
Masses of buyers entering the market at lower levels tell you that the market is not particularly long. Lower prices mean bargain prices for those wishing to accumulate long positions.
Moving averages (MAs) are among the oldest, right and tested lagging indicators. MAs can be simple as well as exponential. Widely used moving averages are the 50, 100 and 200 day MAs. Many traders use MAs in making trading decisions.
Moving averages are lagging indicators and relate with the past price action. MAs can be used effectively in day trading for entering and exiting positions in one way markets.
During sharp moves, it becomes hard for the trader to properly enter a position since retracements are far and few.
MAs can be used as dynamic resistance levels in such situations. This can give better results than the static support/resistance levels used by majority of the traders.
The advantages of using MAs this way gives you dynamic levels to trade off and gauge price action. MAs can help you avoid using arbitrary levels when you should take profit.