FXD Series: A Closer Look Into ForexDistrict’s Trade Ideas

The Following article will be the first in a series of posts that will help you get a deeper understanding into the technical trade ideas supplied here at ForexDistrict.com. To determine the essential relation between an entry and exit strategy, a basic technical approach of support & resistance, Fibonacci levels and fundamental bias/market psychology is utilized.

The edge lies in a combination of patience, counter-trend within a trend, conservative principles, and market bias. Objectively, we intend to attain a strong monthly performance with limited drawdowns and market exposure. Along with a solid strategy, money management is key to a successful trading career.

Accordingly, we will go in depth, provide our take on the market and give specific examples of ways for you to achieve better results, using the Forex District trade ideas or your own Forex trading strategies.

Support & Resistance (Demand, Supply)

As one of the most widely used concepts in trading, these levels can help you benefit with points to enter the market and/or lock in profits. We tend to look at support and resistance levels as areas where Demand (buy) or Supply (Sell) build up.

“Buy on Dips” or “Sell on Rallies”

This refers to the concept to counter-trend a move that is currently going against the overall established trend. A look at this idea can give us a better understanding of the use of support and resistance levels, as well as provide us with superior risk/reward.

Although going against an established trend at firm levels can be profitable, there is always a heightened risk of the level being broken. Thus, your chances of profitability are lower.

In a Bullish Bias
Lets think about this for a second, put yourself in the mind of an institutional trader, “Mark”…

Mark has over $100,000 million on the line, “client’s money”, he is going against the overall trend, and the move is about to reach a key support level. What would his first psychological instinct be?…what would yours be?… Lock in profits, now!

Since he has gone against the trend, by no means can he risk the market to reverse on him, specially with client funds. This could eventually end in large losses and a lot of headaches . So the most common psychological scenario is for traders to close their positions.

What about the other side?

Now think of the trader that missed the previous rally, he identifies an established trend, and is now searching to enter the market. He knows Forex markets retrace and he could get a better price to go long. Where do you think is the first place he would look at? Decisively, he would aim to enter at a support level. In this case the same level where “Mark” decided to take profits. (See Chart Below)

He knows others would start to lock in their counter trend positions and, similarly, other traders would join him to demand the pair at the support level.

When this two scenarios meet and you buy at the support level in favor of the bullish trend, your success rate is quite high. Your risk of loss would diminish and the chances the trade will go your way would increase.

To put it briefly, Forex market traders should note the “counter-trend” idea as concept that goes in tandem with the overall trend, rather than against it. In this way, your success rate is greater and your level of stress can be minimized. This concept applies in the exact manner to a bearish scenario and could be applied to smaller time frames within related sessions. i.e. EU session – NY session.

The Next Series will look closer into Fibonacci levels and their use in intraday and swing trading.

Also please don’t hesitate to send comments, suggestions or any other questions you may have!