When considering forex trading as a profit making venture, it is important to work out winning strategies beforehand if at all possible. Making decisions regarding your forex trading and developing a strategy can be seen as your foundation. With your strategy you will optimize your risk with respect to the expected reward, or put the odds in your favor. Trading strategies should be disciplined and limit risk, while placing you at the most favorable advantage in the market. One strategy is the simple moving away average, which is based on a technical study over twelve periods, with each period fifteen minutes in length. This is a good example of a trading decision that is arrived at through strategy.
A simple algorithm is used in this strategy. When currency price crosses above the twelfth period, simply move away it is a signal to stop and reverse. In this way a long position will be liquidated and a short position will be established, both using market orders. This system will keep trades always in the market, with either a short position or a long position after the first signal.
Another strategy is of support and resistance levels. This is another technical analysis strategy and derives support and resistance. The idea is that the market tends to trade above support levels and trade below resistance levels. If either a support or a resistance level is broken, then the market will follow through is the direction given. These levels can be determined by analysis of the chart and assessment of where the chart has encountered unbroken support or resistance in times past.
Anther strategy that many see as exotic is called the balloon strategy. A balloon option is an option that balloons, or increases in size when triggers are reached. For example, if an investor believes that the dollar will gain strength against the Euro in the near future and is currently trading at 100, the investor will see 110 as being strong resistance, but the investor also believes it will be broken. So, rather than buying straight dollars at 100 for the next six months the investor will purchase at "at the money" balloon call with a 110 trigger and multiple of two. The investor will then own a 100 call in USD110mm. But if the dollar and Euro ever trade at or above 110, the 110 call will double to USD 20mm.
The double bottom is another strategy worth looking at. The double bottom is significant to the short term trader as double bottoms indicate a possible major change in sentiment and trend. The pattern is used on all times frames, and many powerful intraday and long term bull markets are conceived from this setup. Double bottoms reflect strong support levels. When prices fail to break support in the down trending markets on more than one occasion we see powerful changes of trend. These reversal signals are meaningful. The most common entry point where a trader will open on a double bottom trade is on a move through the high of the two troughs. This high will represent secondary resistance, and when penetrated confirms a price reversal. The stops are placed around the lows of he patters because a move below lows negates the pattern premise.
Another good potential strategy is the ichimoku chart. These charts are following indicators, which identify support and resistance levels and create trading signals in a way that is similar to moving averages. A big difference however between the two is that the Ichimoku chart lines shift forward in time, creating wider support and resistance zones and decreasing the risk of trading false breakouts. They are calculated using information on trend existence, direction, support and resistance.
The four main lines are:
Turning Line = (Highest High + Lowest Low) / 2, for the past nine days
Standard Line = (Highest High + Lowest Low) / 2, for the past twenty-six days
Leading Span 1 = (Standard Line + Turning Line) / 2, plotted twenty-six days ahead of today
Leading Span 2 = (Highest High + Lowest Low) / 2, for the past fifty days, plotted twenty-six days ahead of today's date.
Whichever strategy you choose to use, devote as much study as possible to increase your chances of gain and profit.
5 Solid Forex Trading Strategies
When considering forex trading as a profit making venture, it is important to work out winning strategies beforehand if at all possible. Making decisions regarding your forex trading and developing a strategy can be seen as your foundation. With your strategy you will optimize your risk with respect to the expected reward, or put the odds in your favor. Trading strategies should be disciplined and limit risk, while placing you at the most favorable advantage in the market. One strategy is the simple moving away average, which is based on a technical study over twelve periods, with each period fifteen minutes in length. This is a good example of a trading decision that is arrived at through strategy.
A simple algorithm is used in this strategy. When currency price crosses above the twelfth period, simply move away it is a signal to stop and reverse. In this way a long position will be liquidated and a short position will be established, both using market orders. This system will keep trades always in the market, with either a short position or a long position after the first signal.
Another strategy is of support and resistance levels. This is another technical analysis strategy and derives support and resistance. The idea is that the market tends to trade above support levels and trade below resistance levels. If either a support or a resistance level is broken, then the market will follow through is the direction given. These levels can be determined by analysis of the chart and assessment of where the chart has encountered unbroken support or resistance in times past.
Anther strategy that many see as exotic is called the balloon strategy. A balloon option is an option that balloons, or increases in size when triggers are reached. For example, if an investor believes that the dollar will gain strength against the Euro in the near future and is currently trading at 100, the investor will see 110 as being strong resistance, but the investor also believes it will be broken. So, rather than buying straight dollars at 100 for the next six months the investor will purchase at "at the money" balloon call with a 110 trigger and multiple of two. The investor will then own a 100 call in USD110mm. But if the dollar and Euro ever trade at or above 110, the 110 call will double to USD 20mm.
The double bottom is another strategy worth looking at. The double bottom is significant to the short term trader as double bottoms indicate a possible major change in sentiment and trend. The pattern is used on all times frames, and many powerful intraday and long term bull markets are conceived from this setup. Double bottoms reflect strong support levels. When prices fail to break support in the down trending markets on more than one occasion we see powerful changes of trend. These reversal signals are meaningful. The most common entry point where a trader will open on a double bottom trade is on a move through the high of the two troughs. This high will represent secondary resistance, and when penetrated confirms a price reversal. The stops are placed around the lows of he patters because a move below lows negates the pattern premise.
Another good potential strategy is the ichimoku chart. These charts are following indicators, which identify support and resistance levels and create trading signals in a way that is similar to moving averages. A big difference however between the two is that the Ichimoku chart lines shift forward in time, creating wider support and resistance zones and decreasing the risk of trading false breakouts. They are calculated using information on trend existence, direction, support and resistance.
The four main lines are:
Turning Line = (Highest High + Lowest Low) / 2, for the past nine days
Standard Line = (Highest High + Lowest Low) / 2, for the past twenty-six days
Leading Span 1 = (Standard Line + Turning Line) / 2, plotted twenty-six days ahead of today
Leading Span 2 = (Highest High + Lowest Low) / 2, for the past fifty days, plotted twenty-six days ahead of today's date.
Whichever strategy you choose to use, devote as much study as possible to increase your chances of gain and profit.
200 EMA Forex Strategy – Easy For Beginners By Michael A. Jones
A challenge facing many new traders when developing their forex strategy is the ability to identify the overall trend for intra-day trading.
Using the 200 EMA can help solve the problem.
The 200 EMA is a very popular indicator and for that reason alone is worth noting due to the psychological effect on the market place price can have when hovering around the 200 EMA.
To use this forex strategy, create charts on 3 time frames: the 4 hour, the 1 hour, the 15 minute.
Now plot a 200 EMA indicator on each chart and, as a suggestion, color it red, for easy visual impact.
Preferably tile the 3 windows containing your 3 charts into a vertical fashion so you can see the 3 time frames next to each other. It will squeeze up the information on the charts somewhat but for the purpose of this strategy that doesn't matter.
Now scroll through the various currency pairs you like to trade. If you prefer to trade only pairs with a smaller pip spread, they amount to about 9. They are: EUR/USD; GBP/USD; USD/CHF; USD/JPY; EUR/JPY; USD/CAD; AUD/USD; NZD/USD; EUR/CHF
What you are looking for is any currency pair that bucks the 200 EMA on the 15 minute chart. So for example, look at the EUR/USD pair and note the position of price relative to the 200 EMA on the 3 time frames. If price is well above the 200 EMA on the 4 hour chart, well above the 200 EMA on the 1 hour chart, but BELOW the 200 EMA on the 15 minute chart, price is bucking the trend.
The overall trend is up, price has temporarily gone against the trend and is currently in a retracement.
Using the fundamental trading principle of "buy the dips in an uptrend", "sell the rallies in a downtrend", look for a suitable entry point. In the example give above you would look for an opportunity to buy the EUR/USD, perhaps watching for a candle signal that price has exhausted it's downward momentum, bucking the 15 minute chart 200 EMA and will soon resume it's upward momentum.
This is an easy exercise and it can be done once or twice a day, taking just a few minutes.
Once you see price bucking the 200 EMA on the 15 minute chart, whereas it is on the opposite side on the 4 hour and 1 hour charts, sit up and take note. Watch carefully and grab the opportunity to get in and make a few pips!
The forex market is the largest financial market in the world, trading around $3.1 trillion each day.
(Every three years, the Bank of International Settlements (BIS) surveys major Forex market participants and then creates a volume estimate based on the information gathered.)
The most recent BIS survey completed in 2007 yielded the estimated volume figure as $3.1 trillion. (This figure represents an increase in volume of about 70% from the 2004 survey.)
The market is open 24 hours a day from 5pm EST on Sunday until 4pm EST Friday. This makes the spot FX market unique to any other market in the world, as trading is available 24-hours a day.
Trading Zones
Somewhere around the world, a financial center is open for business, where banks and other institutions exchange currencies, every hour of the day and night with generally only minor gaps on the weekend. Essentially foreign exchange markets follow the sun around the world, giving traders the flexibility of determining their trading day.
The forex market can be split into three main regions: Australasia, Europe and North America.
Within each of these main areas there are several major financial centers. For example, Europe is comprised of major centers like London, Paris, Frankfurt and Zurich.
Each day of forex trading starts with the opening of the Australasia area, followed by Europe and then North American. As one region's markets close another opens, or has already opened, and continues to trade in the forex market.
Forex volatility
Since Forex is a highly dynamic market, with lots of price oscillations in a single minute, it allows traders to enter the market many times a day and pull some profit from these numbers of trades.
But this 24 hour market does not necessarily mean continuous volatility in the currencies. Most new traders often misinterpret the fact, that this market can be traded anytime during the working hours of the week.
While there is always a definite movement, traders ideally need an environment of volatility, which may not be present at all the given times.
If you want to find an appreciable number of profitable trades you need to enter the forex market at the best period of time, i.e., when the activity, the volume of transactions, is the highest.
Characteristics of the Forex market
Forex is a 24 hour market. It starts from Sunday 5pm EST through Friday 4pm EST.
Forex trading begins in New Zealand, followed by Australia, Asia, the Middle East, Europe, and America.
The US & UK account for more than 50% of the market transactions.
Nearly two-thirds of NY activity occurs in the morning hours while European markets are open.
During each trading day, the total forex volume is determined by the number of markets that are open and the times each of these markets overlap one another.
Timings of the major market zones
New York Market trade times: 8am-4pm EST Europe Market trade times: 2am-12Noon EST
Tokyo Market trade times: 8pm-4am EST
Overlap of trading zones
Forex trading activity is heaviest when major markets overlap.
Currencies tend to be most active when the markets overlap.
US/Europe Overlap:
8 AM - 12 PM (New York Time)
Europe/Asian Overlap:
2 AM - 4 AM (New York Time)
Chart of the overlap zones
Major market zones
Forex Major Market zones - Asia, Europe and USA. (Tokyo, London and New York)
Within each of these main areas there are several major financial centers.
For example, Asia is comprised of major centers like Australia, Tokyo, Hong Kong, Singapore etc.
Let us further look at the Major markets in detail –
Asian Zone. (Tokyo Trading Session - 8:00 PM to 4:00 AM (EST) )
Tokyo is the first major market to open, and many large participants often use the trade momentum there as the benchmark to gauge market dynamics as well as to devise their trading strategies.
Trading in Tokyo can be thin from time to time; large investment banks and hedge funds are known to use the Asian Session to run important stop and option barrier levels.
In this session, USD/JPY, AUD/USD, NZD/USD and their crosses provide good opportunities as liquidity and momentum remains supported from the previous US session into the relatively lighter Asian session.
But the major activity and subsequent liquidity is mostly concentrated in the British Pound based currency pairs – like the GBP/JPY and the GBP/CHF. There is usually a lot of opportunity in trading these pairs after the 8PM EST open.
The USDJPY, GBPCHF and GBPJPY are good pairs to trade, as their broad ranges provide short-term traders with lucrative profit potentials, averaging app. 90 pips.
The GBPUSD and USDCHF are also good choices due to their moderate volatility as they help shield traders from irregular market movements due to intra-day speculative trades.
But the Euro based pairs (EURCHF, EURGBP and EURUSD) should be avoided until the London session when European traders anticipate the open.
Europe Zone (London Trading Session 2:00 AM to 12:00 PM (EST))
London is the largest and most important dealing center in the world, with a market share of at least 30% and trading volume around $580 billion.
Most of the dealing desks of large banks are located in London.
The majority of major FX transactions are completed during London hours due to the market's high liquidity and efficiency.
The vast number of market participants and their high transaction value makes London the most volatile FX market among all.
Traditionally a more volatile market, the London session is a good opportunity to transact in various GBP and EUR based currency pairs.
Currency pairs like GBPCHF, GBPJPY and GBPUSD present favorable trading opportunities.
The USDCHF, USDCAD, and EURUSD pairs also exhibit much activity.
But the volume of the JPY based pairs decline shortly after the overlap period ends, and should not be considered for momentum trades.
USA Zone. (New York Trading Session 8:00 AM to 5:00 PM (EST) )
New York is the second most important market in FX, with approximately 16 % of market volume.
New York trading is very liquid.
In the United States spot market, the majority of deals are executed between 8AM and 12:00PM, when European traders are still active.
Trading often becomes quite choppy after midday however, as liquidity dries up. As a result, traders tend to pay less attention to market development in the afternoon.
NY is very much influenced by the US equity and bond markets and pairs will often move closely in tandem with the capital markets.
Offering the most possibilities, the New York session provides activity and liquidity in USDCHF, GBPUSD, USDCAD and EURUSD and subsequently most dollar based pairs.
Additionally GBPCHF and GBPJPY momentum spills over from the previous session and comprises a good percentage in New York.
But the EURGBP and EURCHF should be avoided as liquidity dissipates during the overlap and does not rekindle until the following London open. The thin market thus causes fluctuations that are unfavorable for the profit seeker.
Know your Currencies
A trader will have a definite edge, if he/she is aware of -
The Average Pip range during certain times.
The AverageDailyRange of the currencies.
The amplitude of the currency’s movements spanning a daily 24 hour day (across the 3 major trading zones).
The day and time that the currency is expected to have high volatility.
The daily volume figures of the different currencies.
Breakup of the average range in pips
Amplitude Probability Distribution.
In addition, a trader should be aware of the amplitude of the currency’s movements spanning a daily 24 hour day (across the 3 major markets)
For example the data for EUR/USD and the USD/CHF is given below
EUR/USD Amplitude Probability Distribution.
Daily
79.23% chance of 100-150 pip move
3 Days
78.01% chance of 100-250 pip move
5 Day/ Week
81.97% chance of 100-300 pip move
USD/CHF Amplitude Probability Distribution.
Daily
74.23% chance of 75-225 point move
3 Days
74.56% chance of 150-375 point move
5 Day/ Week
45.43% chance of 225-375 point move
Active days and times
Gbp/Usd
31% of the trends occur on Thursday
39% of the trends occur between 0500-0900 EST
Eur/Usd
64% of the trends occur on Thursday & Friday
35% of the trends occur between 0500-1300 EST
Usd/Chf
45% of the trends occur on Thursday & Friday
61% of the trends occur between 0500-1300 EST
Usd/Jpy
41% of the trends occur on Wednesday & Thursday
51% of the trends occur between 0500-1300 EST
Gbp/Jpy
49% of the trends occur on Wednesday & Thursday
31% of the trends occur between 0100-1300 EST
AverageDailyRange
EUR/USD111 pipsAUD/USD85 pips
GBP/USD156 pipsNZD/USD81 pips
USD/CHF127 pipsGBP/JPY172 pips
USD/JPY102 pipsGBP/CHF161 pips
Conclusion.
Forex market volume of transactions remains high during the whole day, but peaks highest when the Asian market (including Australia & New Zealand), the European market and the U.S. market are open simultaneously.
In particular, there are two times when two of the major markets overlap during trading hours - between 2am and 4am EST (Asian/European) and between 8am to 12pm EST (European/N. American).
If you want to find a great number of profitable trades, focus on the hours when the markets tend to make their biggest moves, i.e., during these big markets overlaps, which therefore, are usually the Best Times to Trade.
