Trading Volume In Forex, a must needed guide

Trading Volume In Forex, a must needed guide

Hello, Forex Traders!

Have you ever traded futures and/or stocks?

Irrelevant of the answer, everyone knows how important volume is the analysis of stocks and futures. Volume, open interest and price action are the key components in trading decisions.

Did you notice that volume does not have the same importance as in stocks and futures? Or, in fact, did you ever use the volume on your Forex chart? How is volume measured in the Forex market? Does the Forex market use volume levels as well? We are going to discuss all of these questions and more. Please write down your own experiences in the comment section down below.

By the way, don’t forget to read last week’s article on the “Path to Forex Trading Mastery”. It is well worth your time as you will be able to identify how advanced your trading is and how you can move on to the next level!

volumn

VOLUME MEASUREMENT

The Forex market is a decentralized market, which means that there is no formula for volume or method of keeping track of the number of contract and contract sizes, such as in the stock market. The Forex market measures volume by counting the tick movements. The logic behind this is straightforward:

a)      Price moves up and down in ticks

b)      The Forex market cannot measure how many contracts are sold, but it can measure how many ticks price moves up or down in any given time frame

c)       It can still be measured by measuring how many ticks price moves up and down

d)      Therefore, irrespective of how many transactions have been completed to make price move, the net effect will be measured

It is the equivalent of focusing on the next result instead of analyzing the process. The volume measurement in the Forex market is looking at how much price moves within a certain period and it does not care how many or few buying and selling transactions are in fact needed to make that price move 1 tick. All it knows is how many ticks it moved, regardless of the fact if 100 trades were involved or 10,000.

HOW TO USE VOLUME

Price action is always our primary focus and we should never forget that!! Write it down on a piece of paper, if need be, with a thick yellow mark: price is the number 1 measurement! Almost everything is derived from price and calculated based on price, so using price action as the primary source for decisions is only logical.

Using volume to define trading decisions makes sense if it is used as a confirmation. Here are its primary advantages:

1)      CONFIRM TREND STRENGTH: Volume can confirm the trend direction as traders want to see increased volume in the direction of the trend and decreased levels of volume when the currency pair is correcting in the opposite direction of the trend.

  1. For an uptrend, this means increased volume when the price is moving up and decreased volume when the price is moving down.
  2. For a downtrend, this means increased volume when the price is moving down and decreased volume when the price is moving up.

2)      IDENTIFY TREND WEAKNESS: If price is reaching new levels of extremes (higher highs or lower lows), but volume is not confirming and supporting those new price levels, then this could provide first warning signals that the trend is weakening (retracement can be expected) or ending (reversal potential, or sideways / range movement). Read here more information how to interpret divergence.

3)      BREAKOUT CONFIRMATION: During a consolidation, volume measurements typically are low. If volume picks up upon the break of that consolidation pattern (wedge, triangle, flag, etc), then the volume is confirming a higher chance of a sustainable breakout. Read more on trading breakouts here. 

In previous articles of mine, we have discussed how to interpret the above-mentioned elements. Please go to these links for detailed and in-depth information:

A)     How to trade with oscillators 

B)      Keeping trading simple 

C)      The secret in becoming the best Forex trader 

D)     How to build a winning trading strategy 

ACCUMULATION/DISTRIBUTION

Accumulation is a phase when buyers are controlling the market. If the volume is increased when the market is correcting in a downtrend, then this typically means that more buyers are stepping into the market and a reversal could occur. Usually, these are confirmed when:

a)      Volume increases compared to the day before but closing prices are higher

b)      Price hardly moves down, even though volume has increased

Distribution is a phase when sellers are controlling the market. If the volume is increased when the market is correcting in an uptrend, then this typically means that more sellers are stepping into the market and a reversal could occur. Usually, these are confirmed when:

a)      Volume increases compared to the day before but closing prices are lower

b)      Price hardly moves up, even though volume has increased

There is an indicator that measures this accumulation/distribution balance and is called Accumulation/Distribution (AD). It is calculated as follows:

AD  = ((Close – Open) / (High – Low)) * Volume

If the indicator is falling then it indicates distribution (selling) of the currency. If the indicator is rising then it indicates accumulation (buying) of the currency.

METHODS TO CALCULATE VOLUME

Here is a list of tools a Forex trader can choose from.

trading decision

VOLUME:

The most logical place to start is the volume indicator. This tool calculates the number of ticks which a currency moves up and down. It is often used in other calculations as well. For instance, the AD methodology mentioned in the paragraph above includes volume as part of its basic parameters.

ON BALANCE VOLUME (OBV):

The tool was developed by Joe Granville and is used to detect whether the volume is bearish or bullish oriented. OBV marks the particular volume of the day as a bearish or bullish depending whether the day has been bearish and bullish. It then adds/detracts that volume to the running open total. The total then indicates the overall sentiment of the market.

MONEY FLOW INDEX:

The money flow index shows the money flow and is calculated in a few steps. I recommend going to this link to read the steps yourself. 

MARKET FACILITATION INDEX (MFI):

The MFI is created by trader Bill Williams and is based on volume as well. The MFI is calculated by:

MFI = (high – low) / volume

The formula is very simple, yet provides various interpretations in combination with volume. There are 4 different combinations based on MFI and volume. The color codes have the following meaning:

COLOR                         MFI / VOLUME                                MEANING           B.WILLIAMS DESCRIPTION

1)      Green                   MFI UP / VOLUME UP                  TREND CONT     GREEN

2)      Brown                  MFI DOWN / VOLUME DOWN  TREND END        FADE

3)      Blue                      MFI UP / VOLUME DOWN          SPIKES                  FAKE

4)      Pink                      MFI DOWN / VOLUME UP          START                   SQUAT

Green indicates a strong trend continuation mode. Brown indicates a potential area of the trend ending. Blue occurs in environments when a market spikes into 1 direction, often causing confusion about the trend direction. Pink indicates the beginning of a trend continuation or reversal.

These are the volume tools you can use in the Forex market.

Remember, the volume is important for the analysis of stocks and futures. Volume, open interest and price action are the key components in trading decisions. Please let us know your opinion down below!

Thanks for reading and for sharing the article!

Have a great weekend and Good Trading!

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Rising Investor Caution

Rising Investor Caution

Rising Investor Caution

June 21, 2017

With a low of $43.33 per barrel, West Texas Intermediate oil has fallen 20.4% from its February 23 closing high of $54.45.

The sliding energy sector weighed especially had on Australian equities, which fell 1.6% today. Stocks also dropped 0.9% in Singapore, 0.8% in New Zealand, and 0.5% in Japan and South Korea. And in European trading so far, equities have lost 0.8% in France, 0.9% in Greece, 0.6% in Switzerland, Spain and Germany and 0.5% in Great Britain.

The dollar relinquished most of Tuesday’s rise against sterling, dropping 0.5% against the currency and is also down 0.3% relative to the kiwi, and 0.1% versus the yen, euro and Swiss franc. The dollar is unchanged against the peso and yuan and has risen 0.2% against the loonie and Aussie dollar.

Gold firmed 0.3% to $1,247.40 per ounce.

Ten-year British gilt and Japanese JGB yields are up by two and one basis points, while their German counterpart slid a basis point.

Remarks by Fed officials in recent days have underscored an intent to disregard softer price and growth data while moving forward resolutely with policy normalization through a rising interest rate and reductions to its balance sheet that are likely to commence in the second half of this year.

The Fed stance contrasts with thinking at the Bank of Japan. Minutes released today from the BOJ Board meeting of April 26-27 seem meant to squelch speculation that officials there will pull back from their ultra-stimulative stance anytime soon. While the BOJ has been observed lately to be buying JGBs in less quantity than the target of 80 trillion yen per year and in spite of the BOJ’s upward assessment of economic prospects, risk to growth is still perceived to the downside and the minutes strongly defend current policy settings. A speech today by Governor Kuroda also defended the status quo.

Japan’s all-industry index shot up 2.1% in April, most in a year. This monthly supply-side proxy for GDP had dipped 0.1% in the first quarter, but April saw construction leap by 7.3%, industrial production go up 4.0%, and service sector activity rise 1.2% on month. The all-industry index, which posted small back-to-back increases of 0.5% in 2015 and 2016, was 1.9% higher in April than a year earlier.

In other Japanese economic news, supermarket sales in May were 1.8% below the year-earlier level, but machine tool orders that month posted a 24.5% on-year advance.

Dutch consumer confidence in June was unchanged from May’s reading. Belgian consumer sentiment fell 2 points to a 4-month low. Swedish consumer confidence also declined, but the overall economic tendency index in Sweden rose 0.4 points to a higher-than-forecast 112.1 score in June.

The French government projects 2017 economic growth of 1.6% but core inflation this year of only 0.8%.

Swiss on-year M3 money growth accelerated to 4.1% in May from 3.2% in April.

British monthly public sector borrowing data in May were close to market expectations. Debt that month equaled 86.5% of GDP.

Consumer prices in the year to May rose 3.9% in Malaysia and 5.4% in South Africa.

Uber CEO Kalanick has resigned. U.S. existing home sales data will be reported later today, and several Fed officials are scheduled to speak publicly.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: Japanese all industry idex, Kalanick




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NFP Trading in Forex and a strategy for trading

NFP Trading in Forex and a strategy for trading

Hello Forex Traders!

The NFP is around the corner again! This is always an exciting event in my opinion, even though I never was (nor will be) a news event trader. To me, the NFP event is something similar to a holiday feeling because of the anticipation of exciting times ahead. Do you have the same?

Price almost always responds in a spectacular fashion to the release of the figures and you can sense the drama in the air. Emotions are flying around as the currency pairs spike up and down. Some traders are winning a fortune, others are losing their shirt. This type of price movement is not for the faint-hearted and causes tremendous turmoil. In some cases, price resembles closely the movement of a roller coaster as it whirls down and up in a matter of minutes or even within a blink of an eye. Yet at the end of the day, the only thing which remains is a daily candle. All the emotions and movement still translate into a daily candle, just as the one before and after NFP.

NFP surely is a separate type of trading on its own right and this article will provide more guidance on how to trade the NFP. Usually Tony discusses NFP related matters but this time around I wanted to share my 2 cents as well. Before we do that, we are going to cover the basics of the NFP, discuss the importance of NFP for different types of traders, discuss this month’s NFP figures and strategy, and then explain a methodology how to trade the actual NFP.

NFP IMPORTANCE

Just to cover the details: NFP is the Non-Farm Employment Change and it calculates the total number of paid U.S. workers of any business but excludes government employees, private household employees, farm employees, and employees of non-profit organizations (to individuals). It accounts for +/-80% of the workforce who produce the entire GDP of the U.S. and is a statistic researched, recorded, and reported by the U.S. Bureau of Labor Statistics and is released on every first Friday of the month.

The unemployment rate indicates the percentage of the total labor force that is unemployed but actively seeking employment and willing to work.

These two news events are the biggest and most volatile news releases in the Forex market. Nothing matches a day like today. The news events are vital for policy makers, economists, traders, business owners, investors, etc to decipher the current state of the economy and predict future levels of economic activity.

a)      If the NFP is expanding, this is an indication of economic growth. Economic growth leads to potential inflation, which is followed by an increase of interest rates to compensate inflationary pressures, which in turn makes the currency more attractive and competitive versus other currencies.

b)      If the NFP is contracting, this is an indication of economic decrease and has opposite effect compared to the above, which makes the currency less attractive (lower interest rates, quantitative easing).

NFP Trading in Forex

What is NFP impact on forex trading?

Our ultimate guide on how to trade NFP is continuing with a series of questions to help explain the factors affecting forex market during NFP.

QUESTION 1) How do we interpret the NFP figure itself?
Traders and other stakeholders are comparing the actual NFP figure to the expected NFP figure.

a)      If actual data comes in lower than economist’s estimates – USD weakness expected / short USD

b)      If actual data comes in higher than economist’s estimates – USD strength expected / long USD

QUESTION 2) What currency pairs to trade?
Most often the best currency pairs to trade an NFP release are the majors: EURUSD, USDJPY or GBPUSD.

QUESTION 3) Do we want to trade NFP?
It depends on what type of trader you are and how risk averse you are.

The short and simple answer is: NFP is good for scalpers and long-term traders and not recommendable for intra-day traders picking 1 position a day (using 15min-1 hour time frames).

1)      Technical traders use technical analysis for the decision-making process. This trader often avoids trading on NFP days. Contrary to other news events the impacts of the NFP are so heavy that typical trading comes to a halt. This is ok: remember that the goal of a trader is not to catch every single piece of price action. That is why we have a trading plan which filters price action and allows us to focus on trade setups with positive expected returns. There are some differences depending on which time frames you use and what type of trader you are (know yourself):

  1. Intraday trader: very difficult to trade due to quietness before NFP release and volatility after it. Usually, stop levels are not safe.
  2. Swing trader: difficult but doable. A trader using 4 hour or day charts can take long-term positions if a wide enough stop loss is used to survive the volatility and if a good major turning spot is identified.
    The NFP can be the beginning of a new direction and trend so for swing traders it can be important to be active and aware of that.
  3. Position trader: chances of a trade occurring during the day are small, most of the time this trader is an end of day trader anyhow.

impact on forex

2)       Fundamental traders: the floor is yours/it’s your show.

3)      News event traders: the floor is yours/it’s your show.

4)      Scalpers: the floor is yours/it’s your show.

QUESTION 4) Can everyone trade everything during NFP?
No. It also depends on which type of movement during the NFP:

a)      1st movement à Institutions. Typically the first reaction occurs so fast that is only traded by institutional traders that have access to the fastest information and technology as the reaction to the news is within a split second. Price can jump so fast that it changes within the blink of an eye.

b)      2nd movement à open to all. The currency has moved up / down and maybe even both for a few minutes. After the currency settles down and pauses for a few minutes, a trader can evaluate the NFP released figures versus expected, compare that to price movements and technical analysis and judge whether the NFP trading can make sense.

AUGUST 2017 NFP

I am curious, especially this month, to find out the direction of the U.S. economy. The NFP news release is due at 8.30am EST time on August 4.

a)      Is the NFP figure and unemployment rate decreasing, increasing or stable?

b)      How will this affect the U.S. economy and the world economy?

c)       How will it affect the FED’s accommodative policy?

Tons of questions as you can see. And the NFP is great a measurement to provide answers to these questions. What do you think? Write us down below!!!

 

What is your NFP trading plan? Write us down below!

NFP STRATEGY FOR TRADING FOREX

Now we are going to discuss how an NFP strategy for the Forex market could look like. Please be aware that it is crucial for every trader to do their own demo testing, back testing, paper testing, etc before trading live. Past results do not guarantee similar outcomes in the future.

There are some advantages of trading the NFP:

1)      NFP is very volatile;

2)      Provides opportunity to exploit fake-outs;

3)      Quick in and out to grab pips;

There are disadvantages as well:

1)      NFP is very volatile;

2)      There could be spikes in both directions – never straddle the market;

3)      Due to emotions in this environment, key levels have less influence and market can overextend in a direction and then reverse;

4)      Stop loss size can be larger and might not be respected (depending on broker).

Here is a method how a Forex trader could trade the NFP:

STRATEGY FOR trading

  1. The NFP figure causes the price to spike in a direction (up or down is irrelevant).
  2. The price continues up or down for a minute or a couple of minutes and then pauses without breaking the new extreme (high or low).
  3. Wait for a small pullback.
  4. Conservative traders would enter the trade 1 pip above or below the new extreme (high or low).
  5. Aggressive traders would trade the retracement.
  6. Stop loss 1 pip on the opposite fractal.
  7. Exits:

a)      Target 1:1 r:r

b)      Next major resistance or support

c)       Time filter: trade should not take more than 20-30 minutes (20-30 bars of 1 minute)

Be careful though. If there is not enough momentum or deviation in the NFP release, the market could quiet down after the initial reaction. In that case, there would be not much trading left to do. The bigger the deviation between expected and released numbers, the higher the chance that the market will maintain its volatility – even after the first reaction which is seen in the first minutes.

2- 8- 2013 EU MIN

Thank you for taking the time to read this article on NFP trading in forex. We are confident that you can see the impact on forex that the NFP can have and found a strategy for trading through it. As always, Good And Safe Trading today and thank you for reading & sharing this article!

Hope you enjoyed this article on NFP trading in the Forex market!

Please write down below what you expect of today’s NFP? Thanks!

https:[email protected]

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Winners Edge Trading was founded in 2009 and is working to create the most current and useful Forex information and training available on the internet.

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June 16, 2017

Central Banks: Monetary policy meetings in the Philippines, Mexico, Norway, New Zealand and Hungary. Bullard, Dudley, Mester, Kaplan, Fisher, and Evans are Fed officials who will speak publicly. So will JorTdan of the SNB and Kuroda of the BOJ.

Special Event: Second runoff round of French Parliamentary election on the 18th.

Japanese Data: Trade balance, department and supermarket sales, all industry index, and manufacturing PMI.

Selected Other Asian Statistics: Chinese property prices and index of leading economic indicators. Hong Kong current account and unemployment. Indian index of leading economic indicators and South Korean PPI.

Euroland: Purchasing managers index, construction output, current account, and consumer confidence.

Members of the Euro Area: German and French PMIs. German and Portuguese PPIs. Italian and Portuguese current accounts. Greek import prices and CPI. French GDP, Spanish trade, Italian orders and Dutch consumer sentiment.

U.K. and Switzerland: British public finances, distributive trades survey, and industrial trends survey. Swiss M3, current account, trade balance and macroeconomic forecasts.

Nordic Europe: Swedish and Norwegian unemployment. Icelandic CPI and wage inflation. Danish retail sales and Swedish consumer confidence.

Eastern Europe: Polish industrial output and PPI. Hungary’s current account.

United States: Quarterly current account. Monthly existing home sales, new home sales, K.C. Fed manufacturing index, and index of leading economic indicators. Weekly jobless insurance claims, consumer comfort, energy inventories, chain store sales, and mortgage applications.

Canada and Mexico: Canadian and Mexican retail sales. Mexican wholesale turnover.

Australia, New Zealand, and Switzerland: Australian motor vehicle sales, house prices, and index of leading economic indicators. New Zealand services purchasing managers index and consumer confidence. South African current account, CPI and index of leading economic indicators.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: Economic Data Calendar




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How to Use Currency Strength for Trading Success

How to Use Currency Strength for Trading Success

This article is going to give you a simple yet extremely powerful method (plus a free indicator)to use currency strength for trading success (just see the bottom of the article where I am up over 800 pips on a single trade for reference).

The best part of this method? It literally takes 2 Seconds to find these trends.

Before I get into the 1-step process of finding the best trends that will make you the most money, let’s make it clear why this is so important.

Understanding a Simple, Powerful Truth:

When it comes to trading currencies, the only objective we have is to pair a currency that is losing value with a currency that is gaining value in order to create a matchup that moves in a given direction.

In other words, if the Euro is gaining value (strong) while the USD is losing value (weak) then the EUR/USD is going to move upward exponentially which creates profit potential.

 

A Problem with Trends:

We know that it’s the difference in strength that creates this movement (shown above) that is required to make money in the currency markets, BUT  it is incredibly difficult to scan through price charts and determine which currencies are the best to pair with one another (by looking at pair charts, you don’t actually know which currencies are truly gaining value because it is all relative).

After all, how do we know if the EUR/USD is rising because the Euro is gaining value, the USD is losing value or both?

The real conundrum here is that IF the EUR/USD is only rising because the Euro is gaining value, for instance, then if the Euro quits gaining value the pair will quit rising; whereas, if the EUR/USD is rising because the Euro is gaining value and the USD is losing value, the Euro could lose strength but the pair could continue to rise solely on the USD continuing to remain weak.

So, as you can see, it’s essential to pair the right currencies if you want the best chance of success…

Quit Guessing About Currency Strength:

What if there was a Tool that instantly told you which Individual currencies were the strongest and weakness so you could effortlessly make the correct pair?

The Winner’s Edge FX Power Indicator does exactly that!

currency strength

As you can see, the Forex Power Indicator (FPI) individually rates each of the currencies so that you know the “true strength” of a currency rather than just trying to determine its strength by looking at a price chart.

As you can imagine, this is a huge advantage when it comes to taking advantage of the most powerful market trends.

We’ve developed a strategy report called the POWER STRATEGY that you can Download Here to learn how we use this tool.

 

Taking Advantage of the FPI:

The key regarding the Power indicator is making sure that you combine the individual strength with other components because, of course, strengths are always fluctuating.

You won’t always win by just matching the strongest currency with the weakest one and clicking “Buy” because of the constant fluctuation in the market.

We suggest using things like trend lines, channels, Fibonacci retracements, Support and Resistance Zones, etc. in order to enhance the timing of your entry when matching up the currencies.

Another thing to keep in mind when using the FPI is that there are several different time frames to work off. The FPI will evaluate the individual strength of a currency on the Monthly, Weekly, Daily, 4 Hour, 1 Hour, 15 Minute and 5 Minute time frame.

This allows you to not only take advantage of the FPI for all kinds of different trading strategies and styles, but it also allows you to look for consistency in a given currency (for instance, if CAD is showing weakness on the Monthly, Weekly, Daily, and 4 Hour) so that you can get an even better idea of which currencies have the strongest sustained value and are likely to continue in a given trend.

consistency_power_indicator

This article covers a few basic advantages of the FPI, but we recommend you Download the Power Strategy Here for Optimal Use.

All in all, the FPI is a very simple tool but it has incredible value–Remember, if you can pair the correct currencies together, you can create the maximum profit potential as a currency trader.

As I write this article, I am up over 800 Pips on a GBP/CAD trade that I used the FPI to find. You can see how powerful the trend is and how I took advantage of it:

gbpcad_800_pip_trade

We highly recommend that you take advantage of it which you can do for free as often as you like simply by streaming the data from our website. Click Here to Access the FPI and consider bookmarking the link so that you can come back to the Forex Power Indicator any time.

3 Things Currency traders need to do now:

1. Leave a Comment letting us know how you can use currency strength for trading success.

2. Make sure to access the Free tool and bookmark the link so you can use it all the time

3. Consider Downloading our POWER STRATEGY REPORT and Let us know what you think of it!

 

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Winners Edge Trading was founded in 2009 and is working to create the most current and useful Forex information and training available on the internet.

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Next Week

Next Week

Next Week

June 10, 2017

Central Banks: Monetary policy reviews are scheduled in the United States, U.K., Switzerland, Japan, Russia, South Korea and Turkey. The FOMC, which appears likely to raise the federal funds target, will also release fresh forecasts, and the meeting will be followed by a press conference presided over by Chair Janet Yellen.

Special Events: Brexit talks between the U.K. and the European Union were supposed to commence on June 19th, but now that Britain has a minority government, that start date is in some doubt. The first round of French parliamentary elections is scheduled for June 11th. Only candidates garnering over 50% of a district’s vote get seated after this round. In cases where nobody secures a majority, a runoff second round between a district’s two candidates with the most first round votes will be held June 18th to determine a winner.

Holidays: Corpus Christi in Brazil and Portugal on Thursday. Youth Day in South Africa on Friday.

Scheduled U.S. Data: Retail sales, consumer prices, import prices, industrial production, small business sentiment, the labor conditions index, producer prices, housing starts, building permits, the NAHB housing index, the Philly Fed and Empire State manufacturing indices, the Reuters/U. Michigan consumer confidence index, the monthly federal budget, and weekly jobless insurance claims, consumer comfort, chain store sales, mortgage applications and energy inventories.

Euroland Statistics: Consumer prices, employment growth, trade balance, car sales and ZEW index of investor sentiment.

Members of the Euro Zone: German consumer prices, WPI, ZEW index and index of leading economic indicators. French, Italian and Spanish consumer prices. French business sentiment and Italian trade and industrial output. Spain’s index of leading economic indicators and Iceland’s construction purchasing managers index.

U.K. and Switzerland: British CPI, RPI PPI, DCLG house price index, unemployment, wage growth, retail sales and index of leading economic indicators. Swiss producer prices and import prices.

Nordic Europe: Swedish consumer prices, Icelandic GDP, Danish PPI and Norwegian trade balance.

Eastern Europe: Czech current account and PPI. Romanian industrial output.

Japanese Data: Machinery orders, machine tool orders, revised industrial production, capacity utilization, department store sales, and business sentiment.

China, India, Singapore and The Philippines: Chinese retail sales, industrial production, fixed asset investment, direct investment, and money growth. Indian wholesale prices and industrial production. Singapore trade and Filipino current account.

Australia and New Zealand: Australian labor statistics, consumer confidence, and business conditions and confidence. New Zealand GDP, current account and food prices.

South Africa and Brazil: South African and Brazilian retail sales.

Canada: Monthly survey of manufacturing sales, orders and inventories. Existing home sales.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: Economic Data Calendar




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Long Term Trading Strategy for Forex

Long Term Trading Strategy for Forex

Long Term Trading Strategy

 

Long Term Trading Strategy for Forex

There are a lot of reasons why I believe that a long term trading  Strategy sets you up for success more so than using smaller time frames to trade, and I will get into several of those reasons within this article.

I also lay out a few of those reasons in a more light-hearted tone in my Scalp vs Swing Article which has gotten a lot of attention.

The first thing I want to do is clarify that when I say “Long Term” I am meaning at least looking on the daily charts. I believe that one of the big issues with Forex traders today is that they are so caught up in short-term trading and scalping (which again, I really do have a hard time believing traders can be profitable with), that they don’t even recognize what long term trading is.

I have had many traders say something like this to me: “I want to begin looking at best long term forex trading strategy because scalping has not worked for me. I am now using a long term strategy, trading the hourly charts.”

See, I think the above statement is one of the issues with Forex Traders today and why so many have a lot of trouble being profitable. Learning this type of trading is one way you can learn how to become a successful forex trader.

For some reason, the majority of traders—especially beginners—are so bent on scalping that they don’t even have a realistic idea of what long term trading really is (I know my friend, Zaheer, will agree with me on this one).

So again, when I am talking about “Long Term Trading,” I am talking about using the Weekly charts (and even the Monthly) as your guide for set-up potential and targets, and then, perhaps, using a lower time frame to actually execute the trade for more precision.

Before I get into the actual strategy I want to share with you, I want dig a little more into why the right perspective is so important when it comes to trading long term strategies—I know that many of you only care about the actual strategy guidelines, but I believe that the following information about perspective and a holistic approach is actually more important than the strategy guidelines (comment below if you agree/disagree with me on that).

As an example of how this “Short Term Mindset” can get you into trouble, let’s take a look at the EUR/USD.

Someone looking at the EUR/USD on a 4HR chart would see something like this:

EUR USD 4 HOUR CHART

EUR USD 4 HOUR CHART

 

In the above chart, you see that there is a lot of bullish momentum moving toward higher highs. From this perspective, it looks as though all bullish continuation set-ups will be great entries; however, a longer term view of the EUR/USD at the same exact time tells a different story:

WEEKLY EUR USD CHART

WEEKLY EUR-USD CHART

You can see by looking at the Weekly chart, that the EUR/USD is in a long term forex trading strategy down trend, and that the bullish rally on the 4HR chart is just a pull-back rather than a raging trend as it appeared before.

Not only is it only a pullback, but it is a pullback heading into unsuspected resistance (unsuspected if you only look at the 4HR and don’t realize what is going on long term).

If we move a little bit ahead in time, you can see a bearish bounce off the resistance level. To the trader viewing only the 4HR chart, this may look like a great time to buy again in anticipation of Bullish trend continuation…

buy set up on eur usd

buy set up on eur usd

What the 4HR trader may not realize is that this is not a pullback of the 4HR trend, but rather a continuation of the Weekly trend. So, where the long term trader sees obvious Bearish continuation potential, the short term trader thinks this is “just a pullback.”

So to the 4HR trader, this looks like an unexpected major reversal in the market, but to a long term trader, it is an obvious and expected continuation of market flow, looking like this on the Weekly view:

WEEKLY CONTINUATION

WEEKLY CONTINUATION

This is why it is so important to have a long term view of the market ESPECIALLY if you are going to call yourself a long term trader. Again, so many people looking at 4HR charts think they are long term traders, but they are ignoring the real long term time frames—and that can get you into big trouble just like in this real life example… Those two bearish weekly bars you see would crush someone trying to take long positions on the 4 Hour chart, yet they are just part of the flow on the Weekly view.

Now, I am not saying that you cannot trade profitably on the 4HR charts; I am saying that it is very difficult to make consistently profitable trades when you do not have a good perspective of the markets longer term movement—especially when trying to trade an intermediate time frame like the 1 or 4 hour time frames.

With that said, let’s talk about my long term strategy for traders who want to be profitable and consistent! 🙂

One major note about this strategy is that you must be disciplined if you want to succeed. Yes, you need to be disciplined with all strategies to expect success, but in particular, if you want to trade a long term strategy effectively, you must control your emotions and desire to “get into the market.”

One of the biggest mistakes that unprofitable traders make is over-trading and over-managing their trades. As human beings, we have the desire for action and involvement which tends to cause us to always want to have a trade open or always want to manipulate the trades we do have open, and I can promise you that this will only lead to less and less profitability.

If you want to be successful using the long term strategy that I am presenting to you, you must accept that there will not be a ton of entries (which is a good thing, in my opinion) and that there will not be a need to “jump in” to the open trade and manage it.

Here is how the strategy works:

1 Take a look at the Monthly and Weekly charts.

Looks for trends on these longer term charts that have good momentum in the respected direction. Something like this:

WEEKLY CHART OF TREND

WEEKLY CHART OF TREND

Identify the direction of the trend (bear or bull) and make a note to only look for entries in the direction of that trend (for instance, if it is a bullish trend, look for buys).

2 Zoom into the Daily Chart and draw a Fibonacci Retracement from the current high to current low (or the other way around).

Here is how to draw a Fib Level for those that don’t know: