If you want to become a successful trader, you should immerse yourself completely in the subject in order to find your edge. In case, you are already a winning trader than you should know exactly what your edge is.
The sharp moves often seen in the forex markets can be difficult to trade and often interpret even by advanced traders. Learning to read and interpret price action can be a huge advantage.
When the market is going in a steep decline, one should be really careful to measure the reaction of the long positions. You must try to understand if the sharp move has the chance to turn into a rout.
You should look at the reaction of the longs as soon as the rate begins 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.
More buyers entering the market at lower levels tells you that the market is not heavily long and traders are seeing it as an opportunity to buy low. These lower prices mean bargain prices for you if you wish to accumulate long positions.
Moving averages (MAs) are among the oldest, true 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 essentially lagging indicators and relate to the past price action. MAs can be used effectively in intra day trading for entering and exiting positions in one way markets.
During times of sharp moves, it becomes difficult for the traders to enter a position since retracements are far and few. This makes them confused and forces them to start taking arbitrary decisions.
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.
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