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Start Learning Forex with the School of PipDaddys

Buy - Sell - Smile
MAKING MONEY IN FOREX

NEVER PAY FULL PRICE



                          In real estate it is said the real profit is made when you purchase the property,
not when you sell it. This adage means that when you purchase a
home or investment property, you should try to get the absolute best price
for the property. Paying as little as possible for a home will help you makethe most profit when you decide to sell it at a later time. Buyers who pay
market or get into bidding wars for a home are paying full price and will
have a much harder time making a profit than those smart enough to wait
for the best price.

Trading is no different than negotiating to buy a home. The basic goal
of trading is to buy something you believe will appreciate at a good price
and sell it later for a profit. Even when you sell a currency, you are buying
the currency it is paired with, so, as they say in real estate, the real profit
is made when you open a trade, not when you close it. Never paying full
price for a trade is the third principle of a bargain hunter.
You might wonder how a trader can negotiate with the market for a
better price when trading currency is nothing like buying or selling real estate.
The answer is rather simple: Learn to read price action. Through the
study of price action and support or resistance, the market will tell you
when a currency is potentially on sale and offering a bargain price. Traders
who can learn to identify these opportunities will make more profit than
traders who chase the market and pay full price. Figure 2.4 illustrates how
a trader can use pullback or bargain days within a trend to join the market
at a much better price than traders who simply jump on every breakout.

Traders who join trends on pullback days are effectively entering the market
at a discounted price. Traders who do not wait for a pullback day are
paying full price and assuming more risk in their trades.
Getting the best deal on a trade is simple if you’re patient enough to
wait for the market to pull back and offer you a bargain. When the market
is trending higher, as shown in Figure 2.4, a bargain day is represented by
price action that moves against the trend or doesn’t close with a new high
price. These bargain days allow you to enter the market, with the trend, at a
price better than that obtained by those who bought at the top of the rally.
This reduces the amount of risk you must take on, because a protective
stop can be placed below the low of the bargain day candle. The opposite
is true for a downtrend. When price is trending lower, bargain days are
represented by price action that moves higher, against the downtrend, or
closes without making a new low. When you enter trades based on a bargain
day price and are stopped out two or more days in a row, it should
be a signal to you that the price action you are following may be coming
to an end. Look for signs that the market is starting to move sideways or
is perhaps even reversing the trend direction before you continue to trade
the existing price action trend.
Bargain days or bargain prices occur due to the structure of what
drives prices in the first place: supply and demand. When there are not
enough buyers to support sellers, the oversupply of sellers will drive the
market lower until new buyers are found. When there are not enough sellers
to support demand, the market will drive price higher until more traders
are willing to sell. While price is trending, there will be pauses during the
trend when buyers or sellers are reluctant to join the trend at such lofty
prices. This pause creates a temporary imbalance in supply or demand
against the trend and moves the price in a countertrend fashion for a short
time until buyers or sellers reemerge and continue driving the trend in its
original direction.
These small countertrend moves represent bargain days and allow us
to join the trend at a discounted price. The effects of supply and demand
as represented by bargain prices are illustrated in Figures 2.5 and 2.6. Figure
2.5 demonstrates supply and demand creating a bargain price opportunity
to sell the USD/JPY on a four-hour chart. In this example the market
was unable to find new buyers at the round number of $99, causing a selloff.
When the market returned to test that supply level, buyers dried up
again, causing an even larger selloff. This process happened a third time,
causing a selloff of nearly 500 pips.
Figure 2.6 demonstrates the concept of supply and demand creating a
bargain price related to breakout trading. In this example the weekly chart
of USD/CAD clearly shows a breakout following months of consolidation.

Traders who bought the USD/CAD immediately after the breakout paid fullprice; traders who waited for the pullback or bargain price entered the market
at a much more favorable rate. Whenever breakouts occur, the impulse
to jump on a fast-moving market is hard to resist, but you must keep your
emotions under control and avoid paying full price for a trade. Pullbacks
occur because the market is reloading with new interest from the buyers
or sellers who created the breakout. Wait for the bargain price created by
a pullback before you enter a trade and it will ensure that you never pay
full price for a trade ever again

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