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Six Killer Forex Trading Strategies

There are several forex trading strategies that can bring you profits. However, what works in a trending market may not work in a sideways market (and vice versa).

Here are six general strategies for placing trades in different forex trading situations. You may have seen some of these ideas in previous blog posts, but this will be a nice summary of forex trading rules to print and keep by your forex trading desk.

Remember to combine the general information listed here with the more detailed, case-specific information you’ve learned throughout this blog.

Strategy #1: This forex trading strategy works well in both sideways markets and trending markets. To trade the first trading strategy, follow these steps:

1. Enter with one lot.

2. Place your stop loss order at the last level of support if you are a bull (you are buying) or the last level of resistance if you are a bear (you are selling).
3. Analyze the potential risk compared to the potential reward in the trade. Keep your potential losses small.
4. Go for small profits, don’t get greedy.
5. Exit just before the market makes a new high or low. Exit as the market passes through the previous level of support (resistance) to make a new low (high).

Strategy #2: This forex trading strategy works better in sideways markets, but also works fine in trending markets. To trade the second forex trading strategy, follow these steps:

1. Enter with several lots (5 or 10, for example).

2. Place your stop loss order at the last level of support if you are a bull (you are buying) or the last level of resistance if you are a bear (you are selling).

3. Analyze the risk-reward ratio. Keep your potential losses small.

4. Go for small profits (20-30 pips). You should be in and out of the trade quickly.

5. Exit just before the market makes a new high or low. Exit as the market passes through the previous level of support (resistance) to make a new low (high).

Strategy 3: This forex trading strategy works well in trending markets and poorly in sideways markets. To trade the third forex trading strategy, follow these steps:

1. Enter with one lot.

2. Place your stop loss order at the last level of support if you are a bull (you are buying) or the last level of resistance if you are a bear (you are selling).

3. Analyze the potential risk compared to the potential reward in the trade. Keep your potential losses small.

4. Cancel and replace your original stop loss order (to seal in profits). Only cancel and replace the previous stop loss order after the market has made a new high (low).

5. Don’t set a profit limit order. Stay in the market until you are automatically exited when the market hits your stop loss order price (when you are stopped out).

Strategy #4: This forex trading strategy works well in trending markets and modestly in sideways markets. To trade the fourth forex trading strategy, follow these steps:

1. Enter with two lots.

2. Place your stop loss order at the last level of support if you are a bull (you are buying) or the last level of resistance if you are a bear (you are selling).

3. Analyze the potential risk compared to the potential reward in the trade. Keep your potential losses small.

4. Exit with one lot for a small profit before the market makes a new high or low. Exit as the market passes through the previous level of support (resistance) to make a new low (high).

5. Exit with the second lot just before the market hits to Fibonacci extension bounce point (you will be going for a larger profit with this lot).

Strategy #5: This forex trading strategy works well in trending markets and poorly in sideways markets. To trade the fifth forex trading strategy, follow these steps:

1. Enter with multiple lots (5 or 10, for example).

2. Place your stop loss order at the last level of support if you are a bull (you are buying) or the last level of resistance if you are a bear (you are selling).

3. Analyze the potential risk compared to the potential reward in the trade. Keep your potential losses small.

4. Place limit exit orders for each lot at different pip increments (e.g. place your first exit order to exit one lot at 40 pips away from entry; place your second exit order to exit one lot at 60 pips away from entry; place your third exit order to exit one lot at 100 pips away from entry; place your fourth exit order to exit one lot at 150 pips away from entry; place your fifth exit order to exit one lot at 200 pips away from entry).

5. Once the market has started to trend and has moved 100 pips or more away from entry, cancel and replace the stop loss orders for your remaining lots to eliminate your risk. In this case, cancel your original stop orders for the fourth and fifth lots, replacing those stop orders at the breakeven point (the market price 100 pips away from entry).

Strategy #6: This forex trading strategy also works well in trending markets and poorly in sideways markets. To trade the sixth forex trading strategy, follow these steps:

1. Enter with multiple lots (5 or 10, for example).

2. Place your stop loss order at the last level of support if you are a bull (you are buying) or the last level of resistance if you are a bear (you are selling).

3. Analyze the potential risk compared to the potential reward in the trade. Keep your potential losses small.

4. Place limit exit orders for each lot at different pip increments, just as you would in the fifth trading strategy, except this time don’t set a limit exit for the last lot (the fifth lot, in this case). Instead, allow your trade to take advantage of potentially huge moves.

5. Once the market has started to trend and has moved 100 pips or more away from entry, cancel and replace the stop loss orders for your remaining lots to eliminate your risk. In this case, cancel your original stop orders for the fourth and fifth lots, replacing those stop orders at the breakeven point (the market price 100 pips away from entry). As you follow the market with your fifth lot, continue canceling previous stop loss orders and replacing them at new highs or lows, to lock in your profit.

Now you have 6 different forex trading strategies for different market situations. Mastering a few of these could become your bread and butter as a forex trader. The rapid forex blog will continue to teach you more forex trading strategies, but knowing these will add valuable tools to your forex trading toolbox!

Posted in Money Management

Currency Trading Price Consolidation Breakouts

Every consolidation in forex charts will eventually end in a breakout in currency trading (usually wild and fun!)

When currency traders identify a price consolidation, they usually anticipate a breakout to follow. A breakout occurs when prices break out of consolidation, penetrating the support (downward breakout) or resistance (upward breakout) lines.

To profit from a consolidation and breakout, you will need to make a straddle trade. Because you cannot know when currency trading whether the market will break out of consolidation downward or break out upward, you need to prepare for either (thus you are straddling the consolidation). Place one order to buy 15 pips above the level of resistance and another order to sell 10 pips below the level of support.

Why place your buy and sell orders beyond the levels of resistance and support in the forex? Otherwise, you could be entered into the market when it is still in consolidation, by a relatively minor 5 or 10 pip spike within the consolidation.

You don’t want to enter until just before the fundamental announcement (the anticipated breakout point). Why place your buy order 15 pips above the level of resistance and your sell order only 10 pips below support? Remember that the chart you look at is a bid chart, but the price you buy at is the ask (which, remember, is about 5 pips above the bid price).

Trading inside consolidation

While currency trading breakouts from consolidation can lead to solid profits, if the consolidation range is large enough, it is also possible to profit from trading inside the consolidation.

This would be a consolidation you would not want to place a straddle on, however (if the trading range is wide enough to profit from trading the consolidation it would be too risky to straddle).

In this case you would sell at the resistance level with a profit limit at the level of support and a stop loss at the last level of resistance. You would also want to buy at the support level with a profit limit at the level of resistance and a stop loss at the last level of support.

Posted in Fundamental Announcements

Trade Forex Online Fibonacci Downtrend Price Swings

My last post focused on trading forex price swings in a forex uptrend. The Fibonacci ratios work in the same way when you trade forex online downtrends.  Learning these fibonacci ratios will help you trade forex online with more success.

In a downtrend, the fibonacci ratios are hidden levels of resistance that can give important entry and exit signals.  In a downtrend, the Fibonacci ratios represent the down swing retracement as a percentage of the down price swing.

Imagine that the top of the up price swing (the high is 100% and the bottom of the down price swing (the low) is 0%.  The retracement (the market’s upward reaction to the down price swing) will cover some percentage of the original swing, from 0 to 100%.

If the retracement covers 38% of the down price swing and then bounces (turns downward, potentially leading to sideways movement or an extension), then it is said to have bounced at the .382 Fibonacci ratio.  If the retracing market bounces at 50%, 62%, or 79% then it is said to have bounced at the .500, .618, or .786 Fibonacci ratios, respectively.

If the downtrend is going to continue, the market will, after bouncing at one of the four Fibonacci ratios, turn downward again and form an extension (remember that to qualify as an extension the market must make a new low). This helps you understand how to trade the forex online.

If the downtrend is not going to continue, the market may hit one of the four Fibonacci ratios and take it out, continuing upward in a reversal.  If the downtrend is not going to immediately continue, the market may hit one of the four Fibonacci ratios, bounce there, and then continue a sideways movement before extending the trend or reversing.

If the market will continue in the downtrend, the extension of the down price swing will likely either extend to 162% of the original price swing or 127% of the original price swing, and then bounce there.

Specifically, if the market bounces at the .382, .500, or .618 lines then the extension will cover 162% of the original down price swing (that is, the market will extend from the .382, .500, or .618 line to the 1.618 line).  If the market bounces at the .786 line, then the extension will cover 127% of the original price swing (that is, the market will extend from the .786 line to the 1.27 line).

To visualize the extension, imagine that the beginning of the price swing (the first high) is at 0 and the end of the original down price swing (the first low) is at 1.  The extension will go to either 1.27 or 1.618 (depending on where the retracement bounced).

It is in this sense that in a downtrend, Fibonacci ratios are hidden levels of resistance.  As the market swings within the overall trend, it bounces (making lower highs) at the Fibonacci ratio numbers.

Like uptrends, downtrends move at different speeds.  The speed of the trend is defined by how sharply it is falling.  Just as in an uptrend, the smaller the Fibonacci ratio, the faster the market moves; the higher the Fibonacci ratio, the slower the market moves.

Be careful that if the market is slowing down when it bounces at .318, .500, or .618 it may not immediately go into an extension (it may not immediately go to 1.618).  It is possible that, if the market is slowing down, after bouncing at .318, .500, or .618, it may first extend to 1.27, bounce there, and then fully extend to 1.618.

Now you should see the connection between the fibonacci sequence and price swings down in online forex trading. In my next post, I’ll discuss some more things you can do with fibonacci numbers to trade forex online!

Posted in Fibonacci