• Trading with the trend
Trading in the direction of the dominant trend is one of the best
ways to make money in the forex market. There is almost always a
trending currency pair to be found in forex and as a result many traders
strictly employ trend trading strategies due to the fact they simply
have a higher probability of success than trading in other
market conditions .
market conditions .
Notice in the chart below the down trend on the daily chart of the GBPUSD that lasted about 3 months. There were multiple candlestick signals that formed near the trend line; these signals provided very high probability entry setups that led to great risk to reward ratios. It is a great idea to learn all about trading candlestick patterns in trending markets, there are many intricacies involved which take some time to learn. For example, in the chart below we can see two patterns that look similar, the Harami and the inside bar, however, Japanese candle patterns like the Harami contain many more variations than other forms of candlestick price action, so it is important to learn the differences and decide which version makes the most sense to you.
While it is important to learn how to draw support and resistance levels manually, moving averages provide a great method of locating dynamic support and resistance levels within the forex market. Moving averages show a moving picture of the most active price levels for the last X period of time. For example, a popular moving average is the 200 day moving average, this indicator shows traders the average (open, close, high, or low) price over the last 200 trading days, as opposed to just a static level drawn across the high or lows that you see on your chart. Most traders set their moving averages to calculate the average closing prices over X days, as closing prices are typically the most significant to any security.
There are various ways to trade with moving averages. Some traders like to use them in trending markets and trade off of pullbacks to the moving average(s), while other traders prefer to design a rule-based trading system off moving averages and enter once price closes above or a below their favorite moving average. However you decide to implement them just make sure you do proper research on moving average forex trading before plowing further ahead. Some of the more popular moving averages are the 8, 21, 50, 150, 200, and 365 moving average, but you will need to determine for yourself which one(s) you prefer.
Another way to trade with moving averages is to wait for a cross-over of one moving average over another and then enter on pullbacks to the moving averages. For example, in the chart below we see the 50 period moving average in blue and the 200 period moving average in red on the 4hr chart of the GBPJPY forex currency pair. Notice on the far left of the chart the 50 period moving average crosses up over the 200 period moving average; this was the signal to start watching for buying opportunities. Subsequently, price pulled back to the area of the 50 or 200 moving average on multiple occasions providing numerous high probability entries in the direction of the dominant 4 hr market momentum
• Trading consolidating markets
Learning to trade markets that are consolidating can be a very important and effective tool to add to your trading repertoire. Markets spend more time consolidating than they do trending on average; therefore if you wish to remain continually active in the forex market it is crucial that you understand some basic strategies of trading range-bound market conditions.
One effective trading strategy is to simply mark a horizontal line across the highs and lows of a consolidating market and trade off of these levels (see the EURUSD daily chart example below). After this is done, you then can buy when price reaches the bottom of the trading range or sell when it reaches the top, preferably with confirmation from a candlestick pattern or some other signal, rather than just a blind buy or sell. Eventually trading ranges breakout, and this provides another great opportunity for keen traders. Markets will typically move a distance equal at least to the width of the trading range after breaking out, most of the time they will go further than this. Therefore, trading range break outs can be great entry methods, this forex strategy is also known as a box break out forex strategy.
Learning to trade markets that are consolidating can be a very important and effective tool to add to your trading repertoire. Markets spend more time consolidating than they do trending on average; therefore if you wish to remain continually active in the forex market it is crucial that you understand some basic strategies of trading range-bound market conditions.
One effective trading strategy is to simply mark a horizontal line across the highs and lows of a consolidating market and trade off of these levels (see the EURUSD daily chart example below). After this is done, you then can buy when price reaches the bottom of the trading range or sell when it reaches the top, preferably with confirmation from a candlestick pattern or some other signal, rather than just a blind buy or sell. Eventually trading ranges breakout, and this provides another great opportunity for keen traders. Markets will typically move a distance equal at least to the width of the trading range after breaking out, most of the time they will go further than this. Therefore, trading range break outs can be great entry methods, this forex strategy is also known as a box break out forex strategy.
