What do you see when you look at the Fx market chart? Do you see the price moving the same direction all the time?
No. The price patterns change and with these changes you will change and adjust your Fx trading strategy.
First step is to determine market movement. Depending on the price movements we can identify market that is trending upwards (we have uptrend), market that is trending downwards (downtrend) and market that is going sideways or being in the range.
You will determine market movement using Fx Technical Analysis tools. If market is trending you will trade the trend, if it is ranging you will trade breakouts. Next, you will have to:
- Decide when and where you will enter the market (open the position). Depending on the way market moves, you will decide which set of technical rules to use to pin point your position entry.
- Be aware of big news coming that can affect currency pair you are considering trading. Always check big news announcements before you open the position in ForEx market.
- Apply your reward/risk ratio, recommended 2:1;
- Decide when and where you will exit the market (close the position). You will exit the position on set of predetermined rules. These rules are defined by your entry point.
For example, if you spot the hammer, if it is a valid signal the price won’t go below it. That is where your stop loss point is. If the price breaches your stop loss – that hammer was a false signal. You can exit the position and take profit on broken trendline.
- Implement proper Risk Management
Risk Management will tell you how much of your account you are risking with every trade. If you are day trader, trading multiple times a day, you should never risk more than 2% of your balance with every trade. If you are swing trader, you can afford to risk a bit more but do not exceed 5% per trade. Everything above these levels is not considered smart trading.
What is ForEx Strategy to Trade a Trend?
For example, you have identified your uptrend (currency price making higher highs and higher lows in a swing). Now you want to know how to trade this trend.
You can trade the trend with Moving Average crossovers (Moving Average 200, Moving Average 100). You can use first Moving Average cross to enter the market and second cross to exit the market.
You can trade trend retracements to the Moving Average Indicator line
Open your positions on points where Moving Average line is on the trend.
What is ForEx Strategy to Trade a Range?
When you look at the market you see that price is not trending. It is moving sideways within determined support and resistance levels. This movement is without volatility spikes usually seen in trend trading. That market is in range.
How to apply your simple Fx trading strategy to trade a range? With Oscillators and price patterns. You will use Oscillator to identify oversold and overbought levels and look for your Japanese Candlestick price patterns to get an entry point.
When price is leaving the range in which there was none to little volatility, we can assume that the trend is going to develop. Rule of the thumb is that Range Breakouts fail a lot. Using Technical Analysis on its own will give you lot of failed signals, so use it along with Fundamental Analysis.
Whole philosophy of trading the range breakout is that Fx market is expecting something to happen. And when it happens it happens with a force.
Most important advice when talking about your Fx trading strategy is not to interfere with your trades. Let them play along and adjust your trading strategy afterwards.
For example, you have entered the market and put your stop loss and take profit points, only to see that trade has gone against you. Biggest mistake you can make is to start moving your stop loss hoping the price will turn around and you will end up in profit. This might work out once or twice but it is a sure way to blow up your entire account.
As in everything in ForEx trading, you want to keep your Fx trading strategy simple and effective. Learn to read the price chart patterns, to read indicators and oscillators and above all, practice your trading.
Simple ForEx Trading Strategy Download PDF
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