The Forex market can lure the novice Forex trader into trading scenarios that appear very attractive at first glance but turn very quickly into a losing trade.
Many a Forex trader will relate to this experience:
Price has been in a consolidation channel for one or two hours.
You place an entry order to get taken in at the top or bottom of the channel.
Within a few minutes your trade is in and within a few minutes more you are looking at a loss of -10 pips, then -15 pips, and then your stop gets taken out.
Price hardly moved for hours but as soon as you got into a trade you were taken out within minutes for a loss leaving you bewildered and muttering, "What happened?"
In the early stages of gaining trading experience, it is good for the novice Forex trader to go by a checklist every time before entering a trade until certain habits become ingrained.
Just having a procedure in place that has to be executed before pulling the trigger on a trade can prevent the Forex trader from quickly entering a trade just because there are some sudden movements on the screen and the trader is worried about missing an opportunity.
Yes, disciplining oneself to take time and go through a checklist first may mean missing some good opportunities occasionally. On the other hand, it will prevent having losing trades frequently.
For a very cautious approach to trading the newer Forex trader can use this Failsafe Checklist to determine whether the potential trade setup is likely to be high probability or low probability.
FailSafe Checklist
Avoid Going Long If:
There is negative divergence on MACD on the 4 hour, 1 hour, or 15 minute chart.
MACD on the 4 hour or 1 hour chart is pointing down.
Price is well above the Central Pivot Point for the day in a Sell Area. (For a free pivot point calculator go here: http://www.vitalstop.com/Forex/pivot...-download.html)
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