One of the reasons why 95% of the people lose money in the forex market is that currency trading is not always trending.
Choppy markets is a major killer to most forex traders because it may look as though it’s starting to trend in the beginning, but the fact is that it is only a false movement of the price. Forex signals may indicate a correct move in your direction for one moment but move against you the next moment and hit your stop loss.
In other words, you have been whipsawed. With the lack of forex trading techniques in the beginning, I have also personally experienced many whipsaws many years back when I was learning how to trade forex. Below are some forex trading strategies I've learned that can help you overcame the whipsaws or false moves and ensure the safety of your forex account.
1. Train your eyes – Again, you need to provide forex training, in this case to your eyes, to look at the forex charts and see if it’s trendy. If it’s not trendy and you do not have much experience in forex trading, it’s advisable to stay away from the forex market for the time being until the market gets trendy again. What you can see in choppy markets is that the past few candlesticks are not really bullish nor are they bearish.
For example, the price may be up for two candlesticks and down for two candlesticks after that. You can’t really see where the price is going and therefore the forex chart is said to be choppy.
2. Indicators flat or steep? – Besides just looking at the charts, I will also use forex indicators like stochastic and MACD to judge whether the market is choppy. This forex strategy may be very simple, but it certainly helps forex traders to filter whipsaws.
For example, if you are using stochastic and/or MACD to generate forex trading signals in technical analysis, you should expect the indicators to cross up/down with some steep angle, this means it’s a trend forming. While the indicators are looking flat, it simply means there is no trend and it’s a no trade zone.
3. Check higher timeframe – This is another one of the good forex tips to help you filter off whipsaws. If you are trading using 1 hourly time frame and there is signal to buy or sell, you should switch to 4 hour time frame to check whether the stochastic is pointing up or down respectively.
The longer the time frame means that in the shorter time frame, you are trading along the direction of the long term trend. Hope I did not confuse you. I use this method vigorously in my forex trading systems.
Though the above 3 forex trading tips can help you filter off whipsaws, but it’s still in your best interest to avoid trading in choppy markets as there are not many good opportunities for you to gain huge profits. I hope you are clearer now on spotting choppy markets.