Forex Entry Strategy
Forex entry strategy based on the exact moment of time when a trader can open a position and have a higher probability to gain profit. Mostly, entry and exit opportunities are considered only when a signal is formed. But, for every signal, there are more strategies than just one. In short, as long as the highest or lowest point of the day isn't reached yet, you also have opportunities to open a position as many times as they are available. This is a well known forex entry indicator. But how to calculate entry opportunities at a certain time and use the Forex entry strategy?
Let's use a pair with average daily range 100.0 pips, and price range between 0.00001 to 0.01000. Thus, a Forex entry strategy with expected profit target of 30.0 will be:
average daily range – expected profit =
100.0 – 30.0 = 70.0
This means 700 entry opportunities (from 0.00001, 0.00002, 0.00003 up to 0.00700).
But this is an ideal condition, which is impossible in practice. Most likely, Stop Loss must be counted as well. So, here is a strategy with a 1:1 risk-to-reward ratio (which, in the above example, means further 30.0 pips). So:
average daily range – expected profit – expected Stop Loss =
100.0 – 30.0 – 30.0 = 40.0
Or, suppose price has moved 40.0 pips (which is higher than expected Stop Loss):
average daily range – expected profit – prior price range =
100.0 – 30.0 – 40.0 = 30.0
In practical application, if a trader starts trading session and a signal has already formed a couple of minutes earlier but price has moved some distance from the designated entry point, say, 15.0 pips, by calculating the entry probabilities he/she can decide whether to act even if it's a bit late or wait for the next signal.
In this situation, as price has moved 15.0 pips away in the direction of the signal, then:
average daily range – expected profit – expected stop loss – slippage
100.0 – 30.0 – 30.0 – 15.0 = 25.0
25.0 compared to 40.0 is 1:1.6 or slightly better than 50:50. Thus, if a trader decides to open a position, he/she has a better chance to gain profit by reducing his/her usual profit target – thus increasing the chance to win.
On the other hand, suppose price has already moved 60.0 by the time a signal has been formed. Then:
average daily range – expected profit – price range =
100.0 – 30.0 – 60.0 = 10.0
which is only 1/5 of the ideal probability. Decreasing profit target won't make much difference. In this case, there is a higher probability to win by waiting until the price reverses and the opposite signal is formed.
By applying the entry probability into a trading decision, a trader might make less trade but the one he/she makes has a higher probability of winning.