When it comes to trading forex, there are a few things you need to look for in order to spot a good trading opportunity but there will always be some that pass you by.
Owing to the nature of the forex market, the number of trading pairs available, and the fact that the markets are open 24 hours a day. it is impossible to never miss any trading opportunity. What you can do is try to minimise the good trading opportunities that are missed, and maximise your gains on the trades you do take.
In this guide, we have put together 7 simple pointers that can keep your trading opportunity identification game in tip top shape.
7 Top Tips For Good Trading Opportunity Identification
These 7 tips are a guide to help you with potential trade identification. You will want to consider these as ways to identify good pairs to follow, alongside a clear trading plan for how you will maximise the trading opportunity you see in the forex pair you follow. Without further ado, below are our top tips to ensure you don’t miss another trading opportunity.
1. Look for a currency pair that is trending in a certain direction.
This will give you an idea of which way the market is moving and where it is headed. The saying “the trend is your friend” should be followed more often than not in trading, as it will greatly improve your average win percentage.
2. Look for a currency pair that has recently had a significant move.
This could be an indicator that there is more movement to come and you get to follow the movement rather than anticipate a reversal. Whilst trend reversal spotting can be highly lucrative for those that get it right, it is most definitely not an easy skill, even with a good understanding of technical patterns.
3. Look for a currency pair that is not too volatile in direction.
You don’t want to get caught up in a pair that is constantly moving up and down, as this can be difficult to profit from and predict direction. During periods of high volatility, you will usually find spreads widen and are higher also, which in turn makes it harder to profit from smaller moves.
4. Look for a currency pair that has a large amount of liquidity.
This means there are a lot of people trading the pair and there is plenty of activity. The most liquid forex pairs will usually trade with lower spreads than illiquid markets, as there are more opportunities to get in and out of a position (by virtue of the fact you can easily find a willing participant to take the other side of the trade).
5. Look for a currency pair that has low spreads.
This is the difference between the bid and ask price and you want to make sure it is not too high, as it will eat into your profits. During periods of ultra high volatility, spreads in even the most liquid pairs can widen; but usually the major forex pairs are much tighter on spreads than ‘minors’ or ‘exotics’.
6. Do not rely on one technical indicator.
By using multiple indicators, you can confirm your technical analysis with supporting indicators or oscillators. If you are able to confirm your prospective trades with multiple indicators simultaneously, you will likely improve your average success rate and increase the good forex trading opportunities you are able to spot and take advantage of.
7. Stick to a few forex pairs that you know well.
Do not trade every pair under the sun; but be very discerning and picky with the pairs that you do trade. By limiting your focus to a few key forex pairs, you will begin to get a better ‘feel’ for how these react to certain support, or resistance lines, as well as what news to watch out for. Having a back catalogue of knowledge to support your future trades can be a great way to help you spot the best trading opportunities in the forex market.
Make sure that any trading opportunity is a fit with your own plan!
By following these trading tips, you should be able to spot some good forex trading opportunities and keep to a set of rules. You can feel free to configure your own set of rules, and requirements for what you consider to be a good trading opportunity that fits your trading plan.
Just remember to do your research and stay patient, as trading opportunities don’t necessarily come along every day; but with the right set of rules to follow, you can ensure that you don’t miss another trading opportunity that fits your plan.
