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What Is the 70/20 Rule in Forex?

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Experts believe that 70 percent of market movements occur only during 20 percent of all time. What does the trader need to know about this to maximize the performance of their trades? Have you ever noticed that sometimes when you open a position and enter the market, it seems to freeze? Or, for example, do you sometimes open your trading platform and note with frustration that the price does not move in the next few hours?

How Do I Catch the Big Market Moves? 

To answer this question, you must first know why these moves even happen. If you have ever asked this question the answer is found in the simple 70/20 Rule. According to experts, almost 70 percent of market movements are manifested in only 20 percent of the time. In other words, large movements do not occur all the time, only at very specific times. Therefore, the trader is not required to sit all day watching the market to take advantage of them. This principle has a very significant implication in Forex trading. Therefore, it is important for currency traders to be aware of how they can apply the 70/20 rule.

Observe the Market at a Specific Time

Take a little time and think about it. If 70 percent of the market movements in the FX occur only 20 percent of the time, then you don’t need to look at the graphs all day. This implies the following: in case a trader wants to capture the widest range of movements of a currency pair, he only needs to concentrate on the market for a specific period of time. That said, you will need to see the main sessions of the Forex market in case you want to do day trading. In fact, some of the sessions bring much more volatility. In addition, they are more likely to generate large market movements.

Price trends may change in different time frames. The first implication of Rule 70/20 is related to day trading operators. However, there is something about this rule that should be known to swing traders. By analyzing a price chart with a high time frame, swing traders can often spot a clear trend. However, a particular time frame trend does not imply that the price will continue to move in the same direction in lower time frames.

Only large movements take place 20 percent of the time in one direction. Because of that, the trader must make sure to enter the market at the right time. To do this in a proper way, you may want to use multiple time frame analysis. This can help you understand where the market is most likely to increase movements. In addition, it can help you capture those changes in the overall market outlook.

Entering the Market At the Right Time

However, the key here is to enter the market in the right place. For example, if we enter one of the limits of a price range, we may suffer an unpleasant surprise and get stuck on the wrong side of the start of a new trend. This is because instead of bouncing in the upper or lower limit of the range, the price can break that range in the opposite direction to our operation and initiate a trend movement. Although many times the breakdowns of ranks are false and the price ends up being returned, this is not always the case, hence one must be careful.

The 70/20 rule should decrease the pressure felt by many traders who believe they should be in front of a screen throughout the day. Well applied, it captures most of the market movements in a small period of time.

An important point is that the trader should make sure not to open a trade in a shorter time frame solely based on a trend in a longer time frame. The location of your entrance matters more than you think.

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