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How to catch big moves in Forex: 70/20 Principle of trading
01/03/2017
How to catch big moves in Forex: 70/20 Principle of trading

How to catch big moves in Forex? Experts believe that 70 percent of market moves occur in only 20 percent of all time. What do you need to know about it?

AtoZForex Did you ever notice that sometimes when you get into trade the market seem to freeze? Or, for example, sometimes you are getting to your trading desk and you witness the price is not moving for next few hours?

How to catch big moves in Forex

Why is this happening? If you ever wondered about this, you have taken advantage of the 70/20 Rule of trading. As per experts’ opinion, almost 70 percent of the market moves occur 20 percent of the time.

This principle has a very significant implication in Forex trading. Thus, it is vital for traders to be aware of it.

Watch the market at a specific time

Just take a minute and think about it. If 70 percent of the currency moves are occurring only in 20 percent of the time, there is no need to look at the chart all day long?

This implies the following: in case you want to catch the biggest amplitude of the moves of the currency pair, you need only to be focused on the market for a specific amount of time. That being said, you will need to watch major Forex market sessions in case you are looking to day trade. As a fact, some of the sessions bring much more volatility. Moreover, they are more likely to generate big moves in the market.

Price trend can change on different time frame

The first implication of the 70/20 principle is related to Forex day traders. However, there is something about this rule that should be known by Swing traders.

When looking at a high time frame chart, swing traders can often spot a clear trend. Yet, a trend of a particular time frame does not imply that the price will continue to move in the same direction on lower time frames.

What does all that mean?

Only big moves take place 20 percent of the time in one direction. Because of that, you need to make sure you enter the trade at the right time. In order to do this in a proper way, you might want to use multi-frame analysis. It can help you to understand where the market is most likely to escalate the moves. Additionally, it can help you catch those shifts in the larger picture.

However, the key here is to get into the trade at the right place. In case you enter a trade at the bottom of a range, you are most likely to be surprised. This is due to the fact that the price can go back up. Differently speaking, as soon as you have identified a downtrend, search for the retracement.

The trading rule of 70/20 should decrease the pressure you have to be in front of a trading screen all day long. It allows you to catch the biggest part of the market moves in a small period of time.

Key things to remember:

First, you need to assure that you do not enter a trade on a smaller time frame basing your analysis on the higher time frame trend. Last, but not the least, the place of your entry is very important.

Think we missed something? Let us know in the comments section below.

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