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Currency Forex Trading System - 5 Signs To Look Out For When Trading The Currency Bottoms
One of the more popular trade setups in trading is to trade the bottoms of the currency market.
The question to be answered is this : " How do we know that a bottom is occurring or has occurred?"
To track the currency move by charts, we will usually look at the bar chart or the candlestick chart and its various bottoming formations.
Here are some common signs to watch out for during market bottoms.
1. The chart must show successive lower highs and lower bottoms to confirm a downtrend is in place
2. At the bottom of the market, there is usually a hammer pattern formation in the candlestick chart, an inside bar, a long legged doji or a morning star formation on the candlestick chart.
3. In volatile sessions, at the ends of downtrending markets, there can be an exhaustion gap where the price of the currency will have gapped down under selling pressure.
4. If you use dynamic analysis of time and price, there is usually a time day or a confluence of time clusters lying near to the bottom formation, showing the possibility of a significant event, such as a change in trend.
5. If you use momentum indicators, there will be a decceleration of downward momentum towards the end of the
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downtrend and where a possible rebound is possible.
Technical chartists may look out for an outbreak above the high of a bollinger band drawn into the currency price chart where it is usual for the bollinger band to have constricted at the bottom. This is additional confirmation of the market bottom.
While charting helps to pinpoint the possible bottom, it is very much trade management that is important to ensure you are protected in case the trade goes against you. At the same time, it is trade management that will pre-determine the level at which you will take your profits. So build into your trading system principles of trade management - stop loss and profit taking.
Master certain trade setups such as trading at the breakout, trading with the trend and trading at tops and bottoms and you will find a lot of opportunities to make profits when you trade.
ABOUT THE AUTHOR
Did you know that many traders are unable to make money trading the markets simply because they have not mastered a systematic technique to trade, and are often confused about the market direction? Find out exactly how you can solve this difficulty by visiting the author's blog at http://1forex-trading.blogspot.com
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