Forex Entry Methods – Where and How to Find Expert Eye-Opening Forex Entries in 10 Minutes

Hello, Forex Traders!

Often I mention the importance of establishing whether there is a trend in play, or not. Logically, when there is a trend in place, the trader has the opportunity to trade with the trend setups or counter-trend reversal setups. If the market is range-bound, then the trader would be best advised to deploy range trading tactics. Take a look at how to determine the best forex entry strategy and the tools for entries. 

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Let’s get started learning about the Best Forex Entry Strategy.

Forex Entry Strategy: Market Structure

It is vital for Forex traders to be able to recognize which environment the market is currently operating in so that they can employ the best-suited tactic and Forex entry strategy at any particular time. Some traders tend to specialize in one type of trading, others can successfully trade many different styles. In any case, when building your trading strategies, it is wise to ask yourself these 2 questions:

1. What type of market structure do you want to trade?
   • When a trader is focused, they would need to compensate for that by scanning and viewing more currency pairs.
2. Will you focus on 1 type of trading, a couple, or all types of trading?
   • When a trader is more all-around in their approach, the trader can focus on fewer currencies, varying from 1 to a couple.

Read more here: how to build a trading strategy – part 1 and how to build a simple profitable strategy – part 2.

Analyzing the trend

Analyzing the trend is an important factor in determining the type of trading you will focus on. Using the classical definition of higher highs and higher lows versus lower lows and lower highs is the right step. But putting it all in practice on multiple time frames leaves a lot of space for interpretation. Having clear guidelines and rules is therefore very useful and important.

A crystal clear trend definition is worth its weight in gold, or in the case of the Forex trader: it is worth a lot of pips!

Do you have that in your trading plan?

Do you feel comfortable with your definition, but feel there could be space for improvement?

Read also: Average True Range

Different Types of Trading Entries?

Regardless of the type of trading strategies and market environment you seek to trade, the Forex Entry Strategy helps to establish a Forex entry point. There are three types of Forex entries. Here are our classifications of Forex entries:

1. Choosing levels/level picking: Predetermining entries.
2. Confirmation signals: Waiting for proof of price respecting a level.
3. Momentum entries: Waiting for breakouts of certain levels.

Irrespective of what the actual entry signal is, each and every entry signal fits in one of the three groups mentioned above.

Here are some examples of the situations above:

1. I would qualify an entry based on the Fibonacci retracement tool as level picking because a trader is expecting the price to turn at that exact spot. The trader has the anticipation of a turn without any current evidence for that. The trader might, of course, have historical evidence that the entry methodology has proven to be successful, but every new entry still remains to be seen.
2. A confirmation signal entry would be one when a trader uses the Fibonacci retracement, but this time around only takes an entry when they see a candlestick formation taking place which confirms the fact that the price is respecting that Fib level.
3. A momentum entry is when a Forex trader is waiting for a break of a (key) level. These entries are always waiting for the price to go through a tool drawn on the charts, such as a trend line. These traders are also called breakout traders. Here you can learn how to find opportunities in Forex.

Best Trading Tools/Patterns For Entries

Here is a list of tools/patterns used by those traders:

1.) Level pickers:

1. Top and bottom
2. High and low
3. Fibonacci retracement
4. Fibonacci target
5. Trend line bounce
6. Bottom and top of the range
7. Chart pattern bounce

2.) Confirmation traders:

1. Candlestick pattern formations in areas where they expect support and resistance based on various tools and indicators
2. Indicator confirmations
3. A break of fractal in the anticipated direction of move

3.) Momentum breakout traders:

1. Trend line break
2. Chart pattern break
3. Fractal indicator break
4. Break of the top or bottom
5. Break of the high or low

Trend Vs Entries

Irrespective of the fact whether you are trading with the trend, counter-trends, or ranges, all of us are still confronted with the choice of how to exactly enter the market. Forex Master Trader uses the following process for its trading room:

1. Define the trend/market structure
2. Search for the opportunity
3. Check for filters (blocking the trade)
4. Qualify the exact entry

Therefore, once traders have completed the first three steps, all of us traders then need to decide how we want to enter the market. In some cases, an opportunity for one group would be an entry for another.

A momentum trader might consider a pullback as an opportunity but take the actual entry up to the break of a trend line, whereas the level picker might see the pullback for an actual entry.

Know When to Enter a Forex Trade

There are some advantages and disadvantages when using the various entry signals. Most of them are quite straightforward, and I am sure that there are many more elements, aspects, pros, and cons than the ones I mention here below, so please mention those down below in the comment section!

Early Entry:

1. Suitable for long-term position traders that are aiming for larger swings in the market.
2. Less problematic to identify exact entries but in cases with tops and bottoms, more difficult to use. An optimal stop-loss position, in cases with Fibs stop loss, is clear.
3. Suitable for traders who want to monitor price action development less intensely.
4. There is a higher risk for that trade (due to no evidence of turn) and trade probabilities tend to be lower, which needs to be offset by the higher reward to risk.
5. The trade takes longer to develop compared to the other 2 groups.

Confirmation Entry:

1. Traders can await the reaction of the market to the desired level, which for some traders might make it easier to take a trade.
2. The confirmation has the danger of turning out to be small but the price, however, continues in the same direction (the confirmation turned out to be a small pullback for a continuation of the momentum opposite of the direction wanted).
3. The entry and stop losses are easily defined.
4. The reward to risk can sometimes be very high: a tight stop loss above a rejection wick targeting the trend continuation move could see a high R:R.

Momentum Entry:

• a.)    Suitable for traders who want to optimize their entry point and clear stop loss level.
• b.)    Suitable for traders who are very active in the market.
• c.)     These entries have a higher chance of skipping sideways price action and catching the faster impulsive part of the move, which means that the trade usually is shorter
• d.)    Danger of trading false breakouts and getting whipsaws.
• e.)    Exact entries and stop-loss levels depend on where the break occurs.

Some traders choose 2 or all of the above entry styles, which does give the opportunity for a trader to scale in and scale-out. Scaling in and out is a great technique to maximize the profits when a trader is winning and minimize the losses when the trader is losing. The practical implementation of the technique, however, is not as easy as it might sound.

A good tip for making this part of the trading easier is by treating every single entry as a separate analysis but with one risk management plan.

Here is an example: Regardless of the fact that your early entry is ahead a certain amount of pips, you want to make sure that the confirmation or momentum entry qualifies as a legitimate entry (even if you did not have the early entry which was making pips) and that there is sufficient space within your risk management parameters.

Also, read about Scaling in and Scaling out in Forex.

Trading Style And Psychology

The Forex entry strategy preference will vary for every trader, depending on their trading style and trading psychology.

Some traders might not be able to handle early entries that well as they rather wait for a momentum break. Others might find it easier to trade a pullback as they are able to plan the trade more ahead of time.

Your trading style and trading psychology are important factors that influence this choice, so those are elements that everyone will need to take into account for their own trading.

Despite the individual traits, there are some common elements that all Forex entries share. Here is the table:

Type	Trend	Range	Counter-trend
Early	good	perfect	good but difficult (reversal)
			ok but difficult (retracement)
Confirmation	perfect	ok (big range)	ok (reversal)
		bad (small range)	bad (retracement)
Momentum	perfect	ok (big range)	Horrible
		bad (small range)

Trends

When a trend is in place, most entry possibilities are deemed desirable. The difference between good and perfect is a personal choice and up for debate. However, the advantage of waiting for confirmation and momentum in a trend is that there is more clear guidance when a corrective pullback is over and has finished.

Ranges

In a range environment, the best entry to use is the early one. Waiting for momentum or confirmation can be ok if the range is wide enough and has sufficient space for a trade to develop with a decent reward-to-risk ratio. If the range is too small, the latter two entries are not desirable.

Counter-Trend

With counter-trend trading, it is important to note that generally speaking, this type of trading is considered to be more difficult. If you do want to trade a counter-trend, then trading it with an early entry signal does provide the best prospects for both a reversal and a retracement. But once again, catching a reversal is difficult.

A confirmation entry is ok if a trader is expecting a reversal, but if the market is only making a retracement then the confirmation entry might happen right at the turning spot for more trend continuation. Momentum entries are definitely not advisable for counter-trend trades.

THE ENTRY MOUNTAIN

To give a visual example of the different types of entries, look at the screenshot down below.

I am using an example of a mountain to give an idea of how the entries relate to each other.

Top of the mountain:

At the top of the mountain, a trader is very lonely, as he is the only one thinking that the price could go down, whereas the majority of the traders are in the valley thinking how far can the price go up. Nobody knows yet where the peak of the mountain (price) will be, but the early entry trader makes a decision and goes for a certain level. If all goes well, his entry is right at the peak.

A third away from the top:

The confirmation entry is about a third away from the top. These traders have been price hit the top and moved down away from it and are trying to ride the trade back down to the valley.

Close to the valley:

Momentum traders are waiting for the price to move down lower and pick up speed when the price is rolling down the slopes. It jumps on board when the price has a good speed and angle and is trying to catch the last but fast roll down into the valley, after which prices bottom out and due to its velocity rolls out and up the next hill (retracement).

Forex Entry Methods FAQ

Conclusion: Forex Entry Strategy

In any case, whatever Forex entry strategy you decide to use, it is always important to plan the trade ahead and wait for those market circumstances to emerge. Stop chasing the market, it is very important. More information on that can be found in this article: Forex Trading System. 

This wraps up this article on Forex Entry Methods. Make sure to look at the article on stop losses and take profits as well.

We recommend you follow up with our articles about the factor of time as well, you can find both parts here: part 1 and part 2.

Thank you for reading!

Please leave a comment below if you have any questions about Forex Entry Strategy!