Tuesday, April 24, 2012

Forex Traps You Must Avoid

April 9, 2010 by  
Filed under Forex Tips

When you see this title, you may be wondering what exactly is “Forex Traps”? Basically the forex traps are scenarios that are purposely created to lure inexperience traders to enter a trade and then price started to move in the opposite direction. These are usually created by those big players in the market as they will be able to make a quick buck out of this action.

A typical forex trap is a fake out that is very common in trading. There may be times when you will see a price bursting out of a triangle in a particular direction causing you to enter a trade. After some time, you will see the price moving back into the triangle again and then breakout in the opposite direction. This is what is usually known as fake outs and this is very common for those of you who love to trade forex breakout strategy.

Below are some examples of Fake outs

1) Triangle Breakout

Triangle Fake out

2) Trend Channel Breakout

Trend Channel Fake out

3) Trend Line Breakout

Trend Line Fake Out

However those losses cause by fake outs can be reduced with the help of a MACD indicator. Whenever you see a breakout occurring, you can immediately take a look at your MACD indicator.

If the breakout is in the UP direction, you have to make sure that the MACD cuts above the signal line to create a bullish crossover and if the breakout is DOWN, you have to check if the MACD cuts below the signal line.

Any breakouts that are not confirmed by the MACD crossover are usually fake outs and you should avoid entering any trades. It is always better to miss a trade than to lose in a trade.

Other Related Posts:

  1. Forex Breakout Trading Made Easy Part II
  2. Forex Breakout Trading Made Easy
  3. Biggest Forex Trading Mistake To Avoid
  4. Forex Strategies – When Is The Best Time To Enter A Trade


2 Responses to “Forex Traps You Must Avoid”
  1. Naveed says:

    Hi Kevin;

    I have been hearing about Forex trading from different sources (friends & emails), but never actually took interest in it mostly because I am that analytic type.

    Your blog is the first one I have actually browsed through and read few different topics. I must say that after reading 5-7 posts in your blog, I am getting interest in the subject, and I will further study on it.

    Thank you for explaining what looked liked complicated stuffs in a simple easy to understand tone.

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