Forex - Trading Methodology

In this post, I will touch on a Simple Trading Method which I use for Forex. I will also be posting up example trades to illustrate. This method uses technical analysis to trade. It has nothing to do with market news.

Trend Trading in Forex

1. Identify General Trend

• Trend can be upward, downward, or sideways (no visible direction). Upward trend can be identified by higher highs and higher lows. 
• In general, the trend should be easily identified with one look at the chart. The more obvious the trend, the better to trade. 
• In an uptrend, if the price falls below the previous low (support), it signals the end of the uptrend. Opposite is true for downtrends.
• Uptrends usually last longer than downtrends. 
• I usually only trade up or down trends. If I see a sideways, I'll skip to the next currency pair

2. Uptrend Buy, Downtrend Sell, Sideways Skip

Sounds easy? But when to buy and sell?

• Buy on pullback, or better, right after a pullback.
• During an uptrend, all the lows will normally connect to a seemingly straight line, or what we call a Trendline. 
• When a pullback happens, watch out for the next point where it touches the trendline. This is the time to buy. If you are more conservative, wait for it to touch the trendline and turn within the next few bars, then buy.

3. Taking Profit

• Once you have a position, set your cut loss and take profit. This is to remove all emotions while you are in an open position.
• In an uptrend buy, cut loss will be at previous low, in a downtrend sell, cut loss will be at previous high.
• Taking profit can vary to your risk appetite. Personally, I take profit no more than the previous high (uptrend) or no less than previous low (downtrend).

4. Duration of trade

• Try not to stay in an open position for too long. Markets are volatile and can turn against you any time. 
• I use a 5 minute chart, sometimes 15 minute charts to view the longer term trend. Note that short, mid and long term trends can be different at any point in time.

5. Some other things to note

• Avoid trading during times of major market announcements like US or China GDP figures or Federal Reserves announcement of rates. 
• Best trading hours will be from GMT 0700hrs to 1600hrs (Sg timing 3pm to 12 midnight), when European markets are most active.
• This trading method is not 100%. You might incur losses. Review your trades and see how you can improve. Stick to the rules as close as possible.

In the next post, I will share some real trades examples. Till then, happy trading!