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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

Trading Currencies when the Downtrend Breaks

How do you notice when the downtrend breaks when you’re trading currencies online?  You take what you know about currency trading buy and sell zones and apply them to a breaking downtrend.

Before you can start trading currencies, you need to know when the downtrend breaks.

A downtrend is considered broken if the following conditions are met:
1.The market makes a new low.
2.The market first penetrates the trendline.
3.The market then retraces to the last level of resistance.

When the downtrend is broken, the market enters the buy zone, which is the area above the trendline.

When trading currencies that the trendline is only considered broken if all three of the conditions are met.  That is, the market must have made a new low prior to piercing the trendline or it is not considered a trendline break.

Trading Currencies in the Buy Zone

Trading currencies in the buy zone is one way to take advantage of a downtrend break.  To trade currencies in the forex online when prices enter the buy zone, wait until a complete bullish candle forms above the trendline (it must completely clear the trendline, wick and body).

Take care to wait until the candle has closed to call a trendline break; otherwise you may fall victim to a false spike.  When the bullish candle appears in the buy zone according to the conditions stated above, place a market order to buy at the opening of the next candle (if equity management allows).

Set your stop loss order at the last level of support.

Rules for trading currencies in the Buy and Sell Zones

As with every indicator, there are several important rules to follow when trading currencies in the buy and sell zones:
1. Draw all trendlines (inner, outer, and long-term outer).  This will help you determine if the market is trending up or down, or if a trendline has been broken.
2. Locate the downtrend (uptrend) break and the bullish (bearish) candle in the buy (sell) zone that confirms the break.
3. Find the last level of support or resistance to determine where to place your stop loss order.
4. Practice sound equity management.  If you can’t afford the potential loss (the loss you would incur should the market reach your stop loss order), don’t make the trade.
5. Create a plan for trading currencies.  Trade the plan.

In addition to those important rules, it is also important to decide before every trade whether you will be a day trader or an overnight trader.

A day trader will stay in the market (on that trade) for a short amount of time (a couple of pips, perhaps) whereas an overnight currency trader will remain in the market for three or four days, canceling and replacing to lock in profits.

Remember that when the inner trendline is broken the market predominately (most often) moves to the outer trendline and bounces there.  One way to estimate the potential profit to be made if you are trading an inner trendline break is to calculate the difference between the inner and the outer trendlines.  If there is not much price difference between the two lines, you will likely not make much profit trading the inner trendline break.

When both the inner and the outer trendlines are broken, that is a sign of a major reversal.  That the inner and the outer trendlines broke indicates that the market is not in a price swing within a larger continuing trend, but that the larger trend itself is breaking.

Posted in Technical Analysis