The currency markets are now at a period where increased volatility is found in just about all of the currency pairs that traders have available to trade. This increased volatility is seen by many as a great opportunity to exploit market movements and there is definitely a lot of truth to this. It is no secret that volatility is necessary for price to move up and down in the market. However, what many traders make the mistake of is believing that the increased volatility means that you now stand to profit no matter which way you trade the markets. Many new traders also believe that profits are easily gleamed on any time frame, even all the way down to the 1 minute time frame, with very little risk. Now is definitely one of the best times to be a currency trader but you still need to be aware of the risks involved. Don’t trade your currency pair haphazardly and always remember that the trend is your friend.
Trade your currency pair with the trend and not against it. Markets may be making massive moves on an intra-day level but this does not mean that you should be deliberately looking to buck the trend. A classic example of this is the EUR/USD. It is currently in a massive sell off and anyone that had shorted the market in the last few weeks would have made a significant profit. However, this doesn’t mean that some people made the mistake of trying to go long and take a chunk out of the market as the price went north. There is no doubt that you could have went long on the EUR/USD and made a profit, but a quick look at the chart shows how clear and simple it would have been to profit by going short. Why increase your risk of suffering a loss by going against the natural flow of the market? Go with the flow when trading and you’ll stand to profit much more than by going against it.
Going with the trend and not against it isn’t obviously enough to trade. So what else should you look for when trading the currency markets? You need to spot an optimal point of entry. Just what is your reason for entering the market? You need a trading plan, but put more simply you need something that triggers your entry into the market. For some traders it is a signal generated by one of the many popular trading indicators available today. For others it is something more fundamental, such as interest rate or other related economic news. Another simple yet effective "trigger" to get into the market is waiting for price to make a retracement or pullback. This retracement offers an opportune time for you to get into the market because price is now at a level where you stand to profit much more than other traders who got in at a more "expensive" level. Obviously this is no guarantee that your trade will be profitable, but what it does mean is that if your trade is successful then you will profit more and if it fails you will suffer a much smaller loss. This is one huge advantage this method of entering into the market has over any other kind.
