Don’t you just hate it when you look at the left hand side of your chart and see that a gigantic move of 100s of pips occurred, although you weren’t able to take advantage of it because you either didn’t see it coming or didn’t feel certain about getting in? I want to show you my formula for identifying and catching the big moves in forex.
What causes the big moves in forex?
Arguably the most masterful military strategist in history, General Napoleon Bonaparte, used the element of surprise whenever possible in battle. The forex market is not unlike a battle field in that you are competing against very talented traders who collectively have more information than you could ever have at any time. One of your only real edges is that upon first taking in new information, the market is surprised and confused, and the big players who move the market take time to respond by loading and unloading their massive positions, while you can jump on and off within fractions of a second. The sluggishness of the big players that contribute to the giant moves in forex.
A step by step strategy for riding the momentum of surprise price moves
1. Look for clues on the chart- On a 4 hour chart (so you can avoid much of the choppiness and broker manipulation that occurs on small time frames during volatile periods), scan for any recent giant (relative to recent price action), bold-faced candles. Bold faced candles are characterized by candles whose high is near the close and whose low is near the open if it’s an upward candle and vice versa for downward candles. These two characteristics typically mark serious market activity- usually a high volume push by large players accompanied by strong market sentiment.
2. Look for confirmation- So many moves in the FX market can be fakeouts, so it’s good to look for some sort of confirmation to avoid disappointment. One way of obtaining confirmation is to look at a news calendar and see whether some high impact news event such as interest rates, employment, or retail sales deviated considerably from expectations. These types of events can rock the market and result in a new trend lasting for days to weeks. A second way of obtaining confirmation is to pay attention to news headlines from economic news sources such as Bloomberg, the Financial Times, or Scotiabank’s FX report and see what kind of headlines are being reported. If you notice that the market is starting to panic about a different set of keywords than normal (e.g. last week the headlines on all news sources shifted from being about “risk aversion” to “intervention” and “quantitative easing,” both bad for USD and JPY), then you can conclude with some confidence that the market is undergoing a focus shift due to a surprise.
3. Get in when price breaks key levels- If a major resistance level exists nearby to current price action, the buyers in the market need to push pretty aggressively and if price moves through the level, it will continue to go up until the market finds new sellers. Thus it may prove profitable for you to enter after price demonstrates that the market had enough momentum due to the surprise to sustain a large move and will probably continue to do so.
Remember, the market is a dangerous, uncertain environment with cutthroat competition. If you want to win you need to know what times and situations in which you have the upper hand. Seize the opportunities when the market probabilities shift in your favor.