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There is no perfect time to buy or sell any asset or no perfect strategy that can make you profit quickly. Traders can try to find the secret pattern or make any benefit using market inefficiency. Based on scientific research, a combination of fundamental and technical analysis brings the most significant profit in the long term. But in practice and my trading experience, I met traders that created huge profits using daily trading, scalping methods, arbitrage, High-frequency trading, etc. So the trading time frame and style are not crucial for success.
If we want to learn when to buy and sell in forex first, we need to know base terms.
When to Buy and Sell in Forex?
The best time to buy and sell in the forex market is when the price reaches a previous high or low or some critical price level that can be interesting for trend amplification or reversal. Usually, the best trading results a trader can achieve during high liquidity strong trends when the market is most active.
Most traders trade when liquidity and volatility are high, but some profitable systems trade during low volatility periods. Therefore, before identifying the right time to buy or sell in forex, understanding the basic principles of the forex market is crucial:
- Currency Pairs: The forex market trades in currency pairs, meaning you purchase one currency while selling another. The currency pair consists of a base currency (the first) and a quote currency (the second). The currency pair’s price indicates how much the quote currency is required to purchase one unit of the base currency.
- Long and Short Positions: ‘Going long’ means buying a currency pair, expecting the base currency to appreciate against the quote currency. Conversely, ‘going short’ implies selling a currency pair, expecting the base currency to depreciate against the quote currency.
- Pips: A ‘pip’ represents a currency pair’s smallest unit of price movement. It’s usually the fourth decimal place in most currency pairs. So, for example, if EUR/USD moves from 1.1050 to 1.1051, it has moved by one pip.
Factors Affecting When to Buy or Sell
Several factors can influence the best time to buy or sell in the forex market:
- Market Analysis: Market analysis, a necessary skill for every forex trader, includes fundamental analysis, technical analysis, and sentiment analysis.
- Fundamental Analysis: This involves studying macroeconomic indicators, including inflation, GDP growth, and unemployment rates. This analysis also includes news events like political elections or central bank policy changes. If a country’s economy is expected to perform well, its currency will likely appreciate, creating a potential ‘buy’ opportunity.
- Technical Analysis: This uses chart patterns, indicators, and statistical tools to predict future price movements. Traders look for trends and patterns in the currency pair’s historical price data to determine whether to buy or sell. Standard tools include moving averages, stochastic oscillators, and Fibonacci retracements.
- Sentiment Analysis: This gauges market sentiment, i.e., whether traders feel bullish or bearish. If most traders buy a particular currency pair, it could be an indicator to join the trend and buy. Conversely, if most traders are selling, it may be wise to do so too. This analysis involves various tools, including the Commitment of Traders (COT) report and forex market sentiment indicators.
- Time Zone and Trading Sessions: The forex market operates 24 hours daily, divided into four trading sessions: Sydney, Tokyo, London, and New York. Each session has different characteristics and volatility levels, affecting currency pair movements. For example, the London-New York overlap (1 PM – 4 PM GMT) is often the busiest period, providing potentially higher profit opportunities.
- Risk Management: Before buying or selling, traders must consider their risk tolerance, capital, and trading strategy. Effective risk management techniques, like setting stop-loss orders, can help limit potential losses. The leverage used can also significantly impact when and what trades to place.
Strategies for Deciding When to Buy or Sell
- Trend Following: This strategy involves identifying the currency pair’s general direction (upward or downward) and placing trades in the same direction. Traders usually enter long positions when the trend is upward and short positions when it’s downward.
- Range Trading: In this strategy, traders identify currency pairs moving within a specific range and aim to buy at the lower boundary (support) and sell at the upper boundary (resistance).
- Breakout Trading: Here, traders anticipate the price breaking out of its range (either above resistance or below support) and place trades accordingly. If the price breaks above resistance, traders might go long, expecting the price to continue rising. If it breaks below support, traders might go short, expecting further depreciation.
- Position Trading: This long-term strategy relies heavily on fundamental analysis. Traders hold positions for weeks or months based on economic trends and performances.
There is a strong influence on buying and selling time on political events. For example, if a government is experiencing instability, political corruption, or even changeovers implemented within the government framework, it can impact how much value a pair of currencies possesses. Moreover, economic policy plays an integral role here.
Many traders on forex watch for unemployment rates, monetary policies, GDP, and fiscal policies, which are noted as affecting the value of currency pairs. Finally, technical analysis is also recognized as a solid holding influence over the value determination of currency pairs. Those who are considered technical traders hold a high preference for direct pricing levels where there are support and resistance. They also monitor trends and other valued indicators to derive a foundation for conducting trades on the forex.
As a trader, you need to estimate or project how fundamental factors will impact the future. Your plan does not need to be correct but needs to be your edge, your need to have an opinion. Your observation and your opinion matter.
George Soros talks about investors’ ability to imagine future events in the financial market in his books. The market will not react to the good news because the news is good. Instead, the market price will react if the future expectation is reasonable or better than expected. Here we talk about the primary trend, several weeks trend – longer-term trades.
The following rule is to have several triggers when choosing a good time to buy or sell. For example, if the fundamental analysis shows one thing and the price shows the opposite direction, you must wait.
You use technical analysis and indicators to see if those indicators show the same direction. For example, you want to see your oscillator, volume indicator, and divergence show the same direction before entering into trade. But, of course, it depends on your strategy.
The highs and lows of a currency pair reflect significant price levels within a given time frame. These points act as psychological barriers where significant buying or selling activities have previously occurred. Traders frequently utilize these points to analyze market trends and predict future price movements.
- Previous Highs: A previous high refers to a peak point that the price of a currency pair reached before falling. If the price approaches this level again, it is called “resistance.” At this point, the market may anticipate selling pressure, causing the price to fall. On the other hand, if the price breaches this level, it may indicate a bullish market, potentially leading to a “breakout” where the price continues to climb. In such a scenario, traders may consider “going long” or buying.
- Previous Lows: Similarly, a previous low refers to a point where the price fell before rebounding. If the price nears this level again, it’s called “support.” Here, the market may expect buying pressure, causing the price to rise. If the price breaks below this level, it can signify a bearish market and possibly a “breakdown,” where the price continues to fall. Traders may consider “going short” or selling in such a situation.
Trend Amplification and Reversal
Identifying trends is vital in forex trading. Trends represent the general direction of a currency pair’s price over a certain period. When a trend amplifies, the movement in the trend’s direction (upward or downward) is gaining strength. A trend reversal, conversely, indicates a possible change in the trend’s direction.
- Trend Amplification: Traders aim to identify strong trends and trade in their direction. If a trend amplifies after reaching a critical price level, it signifies the market’s strong sentiment in the trend’s direction. This could lead to a continued price rise in an uptrend or a continued price fall in a downtrend. It’s an optimal time for trend-following strategies.
- Trend Reversal: Conversely, trend reversals can present excellent trading opportunities. For instance, if the price approaches a previous high but fails to break it, it could signal a trend reversal from bullish to bearish. Conversely, if the price nears a previous low and fails to break it, it might signal a reversal from bearish to bullish. Reversal trading strategies often use these scenarios.
High Liquidity and Market Activity
High liquidity periods in the forex market, often during overlaps of trading sessions, result in tight spreads and significant price movements. These conditions create more opportunities for traders.
- High Liquidity: Liquidity refers to the ability to buy or sell a currency pair without causing significant price movement. High liquidity periods offer better price certainty and lower transaction costs (spreads). The highest liquidity in the forex market is typically observed during the London-New York session overlap.
- Market Activity: Higher market activity often leads to more robust trends and more significant price fluctuations, offering traders more opportunities to profit. Major economic news releases, for example, can stimulate market activity and initiate new trends or even reverse existing ones.
When to Buy and Sell Short Forex Positions?
In this case, fundamental analysis has a more minor impact, and technical analysis has a more significant impact on your decision. This is because fundamental analysis wants a patient trader ready to wait weeks to make a profit.
The trading journal is the most crucial thing in a short-time trading, where you will write moments when you make the most mistakes. The est approach is to learn when not to trade. I kn w short-time traders who do not like to trade on Mondays, Fridays, or during important events during the Asian session. Each trading personality strategy has its lousy trading timing, and we need to learn to avoid lousy trading time for our strategy.
The best approach is testing your strategy on the new test dataset and improving your system based on past performance.
Conclusion
Deciding when to buy or sell in forex involves an in-depth understanding of market dynamics, thorough analysis, and effective strategy implementation. Reme ber that forex trading carries significant risks, and there’s no foolproof method to ensure profits. Maintaining a disciplined approach, constantly learning, and adjusting to changing market conditions is crucial for successful forex trading.
He is an expert in financial niche, long-term trading, and weekly technical levels.
The primary field of Igor's research is the application of machine learning in algorithmic trading.
Education: Computer Engineering and Ph.D. in machine learning.
Igor regularly publishes trading-related videos on the Fxigor Youtube channel.
To contact Igor write on:
igor@forex.in.rs
