Forex Tip: Let It Center Before You Enter

“Let it center before you enter!”

I know a Forex trader who always said this phrase and it makes good sense. The market is always “floating”, consolidating, going up and down wildly…

The concept of waiting for a retracement and getting a discount is quite powerful: each 1 pip added to the reward and subtracted from risk significantly changes the reward to risk (R:R) balance. Here’s why:

  • Let’s say that I originally aim for a 50 pip target with a 60 pip stop loss
  • The Reward to Risk (R:R) is then 0.83 (50/60)
  • But due to 15 pip retracement I am now aiming for a 65 pip target with a 45 pip stop loss
  • The “new” R:R is 1.44
  • This is a 67% (!) better performance
  • Nathan explains more details on this idea in this video (pending orders have the same benefit for R:R as retracements do)

14- 1- 2015 center

Another rule of thumb is to find an entry spot, but then WAIT one more bar before actually entering a trade. The idea is psychologically oriented:

  • Many traders become excited or nervous when the moment of entering a trade is near
  • They start to care less whether the trade is part of their plan and are able to take a trade on the whim of emotions
  • Waiting for the “1 more candle” technique (after a trader has already decided to enter) helps keep the head clear and helps avoid incorrect trades
  • It forces the trader to have extra patience, something that many lack
  • And regularly the concept gives you a better discount OR occasionally it shows us that a trade setup was horrible in the first place
  • In the unlucky moments that the currency pair accelerates away from our entry moment in favor of our trade idea, then we can still try to place a pending order at the original level.

What do you think of these 2 rules? Do you use the “let it center before you enter” rule? What do you think of the time rule of waiting for 1 bar?

I can use the above concepts on a real life practical example of today’s market. The GBPAUD for instance has retraced down deeply (orange arrow) and eventually bounced off of a broken resistance trend line. The bullish pinbar (green arrow) was followed by a small bearish candle (retracing the pinbar candle) and today’s candle is strongly bullish (so far).

Does it make sense to take a long right here right now?

The answers will vary widely depending on who you ask. I think that waiting is the optimal decision:

  • Let today’s daily candle close
  • If the close is near the high, then bulls remained in control
  • Use the “let it center before you enter” rule
  • Take a long at half-way of the daily candle with stop loss below the candle low

The above is an example: in other cases you might not want to wait for a 50% pullback, but you would be ok with taking the trade at a smaller pullback.

14- 1- 2015 gbpaud

Thanks for sharing and wish you Happy Hunting!

The following two tabs change content below.
Winners Edge Trading was founded in 2009 and is working to create the most current and useful Forex information and training available on the internet.

Latest posts by admin (see all)

Winner’s Edge Trading, as seen on:

Winner's Edge Trading in the news