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Posted on May 06, 2022 at 12:29 PM
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Forex Trading Strategies For You! (Series 1)

To succeed in your Forex trading career, a working strategy is key. This article sums up some of the Forex trend-trading strategies that have been tested and trusted by experienced Forex traders over the years.

There are many roads to Forex trading—some easy, others complicated.

In this article, I am going to show you one of the easiest strategies for swing trading the trends as recommended by Adam Lemon, a decade-long Forex trader and analyst.

Follow these steps carefully, and your Forex trading endeavour will most likely take a pleasant turn!

But before we begin:

First Things First...

Before anything at all, the crucial first step to swing trading the trend profitably is deciding which currency pair to trade. Get this wrongly and it's a total disaster.

You have to select a currency that is very strong and stable, even when combined with others.

No doubt, the US Dollars (USD) is one 'badass macho' that fits this description. It is the number one reserve currency in the world and the mainstay of the global financial system.

Based on this, this strategy will be considering four currency pairs containing the USD currency:

  • EUR/USD
  • GBP/USD
  • USD/CHF
  • USD/JPY

Our selection is not farfetched—these four babies are the real deal because they have put up some really interesting shows in the past.

Take Note of Money Management Too

This strategy utilizes a special form of money management referred to as Fractional Money Management.

Fractional Money Management is the process of risking a fixed proportion of your equity on every trade entry you make. 

Why Fractional Money Management? Can't we just apply the conventional fixed money management method and be over with it? 

Well, it turns out that profits and losses mostly occur in 'runs' or 'streaks', i.e., simultaneously, and by risking a fractional proportion of your equity for every trade, you:

  • Drastically reduce the possibility of losing your entire account.
  • Profit more from a winning streak and less from a losing streak

But how much of your equity should you risk per trade?

Well, this is at your discretion. You want to risk an amount you can psychologically endure—that won't rip your pockets so bad or cause you a migraine.

That being said, I guess it's time to get started.

TRADE ENTRY STRATEGIES

First off, we'll be highlighting some important rules you need to follow before initiating a BUY or SELL trade.

RULE 1: TAKE LONG TRADE ENTRIES IN PAIRS THAT ARE IN AN UPTREND.

A pair is said to be in an uptrend if the current price of the currency pair is higher than the level it was three and six months earlier.

RULE 2: TAKE SHORT TRADE ENTRIES IN PAIRS THAT ARE IN A DOWNTREND.

A pair is said to be in a downtrend if the current price of the currency pair is lower than the level it was three and six months earlier.

One thing is certain: the market will not be volatile at every point in time.

Therefore, it is important to remain patient and stick to crucial rules, as they will go a long way in helping you discover profitable trading conditions.

According to Adam Lemon, the following are crucial trade entry triggers you should take note of:

  • A candle closes on a 4-hour (H4 chart) after it has made a new low below the lowest price of the previous six H4 candles if the pair is in an uptrend. (Click Here to Learn More About Candlesticks).

    On the other hand, an H4 candle closes after it has made a new high above the highest price of the previous six H4 candles if the pair is in a downtrend.

  • When the candle closes: if it is a long trade entry, a buy/long stop order is placed 1 pip above the high of the closed candle, while if it is a short trade entry, a sell/stop order is placed 1 pip below the low of the closed candle.

  • The stop loss is set right at the other side of the candle, and 1 pip beyond the high or low.

  • If during the 4 hours of waiting, the price hits stop-loss despite the entry price not being triggered, then the trade entry should be cancelled.
  • The entry price must be hit within 4 hours, i.e., during the very next H4 candle, or otherwise cancelled.

See an example of a trade entry below:

Screenshot (507)

As shown above, we're waiting on a short trade of the GBP/USD currency pair, since its price is below its levels from both three and six months ago.

We wait for a candle to close, having attained a price higher than the highest price of the previous six candles, which begins at the gap after the large candles on the left (as shown in the screenshot).

The trade entry (sell stop order) is set 1 pip below the low price of the candle, while the stop loss is set 1 pip above that same candle. The trade entry is also triggered in the next candle.

Failure of the trade to trigger in the next 4 hours or the exceedance of the stop-loss price during that time will result in the removal of the sell stop trade entry order.

Summed above are the basic rules of entry into a trade.

It is important to note that in selecting the best entries, two factors—Market Volatility and Time of the Day—must be considered.

The two factors to be considered in making the best entries, alongside the various Trade Exit Rules will be dealt with in Series Two of this article. Click Here to Jump to Series 2.

Stay glued to our Blog Page for more interesting article reads!

 

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