Technical Trading Strategies

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NOTE: No one technical strategy is going to work all of the time in all the various market structures and environments. For example, Breakout strategies will tend to work in trending environments but get chopped up in uncertain or sideways markets. This means that understanding where you are in the context of The Basic Cycle and the overall trend will benefit you greatly when executing a technical strategy in live market situations.

NOTE: All technical strategies will benefit from understanding the big picture Fundamental Trend and the prevailing Sentiment that is driving market prices in the current trading session. A good idea is to use technical trading strategies as a "Timing tool" to find smart places to enter trades in the direction of the Sentiment that is currently driving prices.

This Wiki is a part of our Essential Forex Trading Guide. Be sure to check that out HERE.

Intermediate Technical Trading Strategies

The Trend Trade

This strategy works best when combined with Fundamental and Sentiment Trading Strategies.

The trend trade attempts to capture a trade in the direction of the overall market trend. This is a trade that should be in line with the current sentiment driving the particular currency and tends to be a day trade because it uses pivots and pivots change every trading day.

Trade Setup:

• In an uptrend wait for the market to pull back.
• Apply the Fibonacci retracement tool from the extreme low to the extreme high.
• Apply trader pivot points.

What we are looking for is a confluence of one of the Fibonacci retracement levels to match with one of the pivot points in the buying zone.

There should be less than 10 pips between the Fib level and the pivot point. The fewer amounts of pips between the 2 levels the better the setup.

The pros are that you can use a small stop loss and have good pinpoint accuracy with the entry. The cons are that price may not pullback for you to get a trigger. Sometimes a confluence will be hard to find.

The same trade management would apply to this trade as pretty much all other trades. We would look to target just before the prior extreme high and place the stop in an area that the market should not hit if you are correct in your analysis.

The trade works in the exact same manner in reverse for a short trade.

The Profile Trade

This strategy works best when combined with Fundamental and Sentiment Trading Strategies.

The profile trade strategy involves buying or shorting the break of the most recent fractal. We talked earlier about how you can take advantage of the market profile changing as a way to get you back into the fundamental trend after it has had a period of price action going against the overall big picture.

Trade Setup:

• Identify the most recent fractal swing high and wait for the price to break that high by one pip then enter a long position. This applies to fundamentally strong pairs.
• Identify the most recent fractal swing low and wait for price to break that low by one pip then go short if the fundamentals are pointing down.
• The stop loss placement goes on the other side of the opposite most recent fractal swing.

One of the best way to use this strategy is with the overnight trades. For example, if there was a strong news release and the London traders moved a currency up through the London session then look to get in on a break of a fractal swing high during the US session. The break of the high during the US session gives us confirmation that the US traders are going to buy the pair up as well.

This strategy is best on a 5 minute chart for intra-day trading but can be on any time frame.

The 4 hour time frame is a nice time frame to get an idea of how price is behaving in relation to the big picture. Sometimes a break of the 4 hour fractal back in the direction of the fundamentals can signal to us that the market is done moving price in the opposite direction and ready to start trading the pair back in line with the big picture.

5 Minute Candlestick Trade

Another strategy that you can use is one that has a high probability of success and is also extremely simple. The caveat is that it can only be used when there is an extreme deviation or surprise that the markets absolutely did not see coming.

The easiest way to see whether or not this has occurred is to research each risk event and find out what the market is expecting so that if the opposite happens you know that it will cause a large sustained reaction. The key word here is sustained because lots of minor deviations cause reactions but these are typically quickly retraced and within a few hours things are all back to normal and it’s as if nothing happened at all with the exception of a spike on the charts. Lots of new and retail traders get sucked into those moves and end up buying at the top or selling at the bottom only to watch the market move against them dramatically.

An example of a time that we can apply this trade is when a central bank announces a rate adjustment when the market was expecting no change. In these circumstances it’s hard to see a trade ever losing but these instances are also rare.

Another example is if something really unexpected happens completely out of the blue. For example, if a central bank member was giving a speech and then said something totally unexpected and out of character this would also get the market moving in a sustained manner.

This trade setup should not be used on small data points that have a deviation from the expected figure because it is better to trade those on pullbacks.

We also need the sentiment at the time in the right order to get any kind of tradeable move such as positive sentiment that is suddenly and instantly changed to negative from whatever the news was. As long as the event was extremely unexpected and has a direct impact on the markets expectations for the central bank’s monetary policy then you are probably good to consider this type of trade setup.

The method for taking advantage of this is rather simple. You make sure that you enter the market right before or at the close of the first 5 minute candle after this surprise event has taken place. Stops can be placed either the halfway point of the candle or just above or below the 5 minute candle away from your entry. This will be something that you perfect over time with practice with this type of trade.

Targets should be based on normal things such as old highs or lows and average daily range of the pair. You can also hold for longer if there is a solid fundamental reason supporting the move and the market has a clear expectation of where the price of the pair could get to in the long run.

The main point is that you should be getting in within 5 minutes of the initial event to ensure that you make some pips from it. This requires you watching and listening to the news feeds intensely but when you get a few trades like this each month it will be worth it.

Advanced Technical Trading Strategies

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