Have you ever come across a forex trading strategy which promised to give you the world only to fall flat on its face over and over again when you put it to work…?
Aren’t you just tired of losing your hard earned money trading the markets with complicated forex trading strategies which over promise and under deliver?
Well, what if I told you – No, scratch that…
What if I showed you exactly how to trade the forex markets using a proven low risk, high probability forex trading strategy which will help you to carve out decent amounts of profits within trending forex market environments?
Wouldn’t you just love that?
Well, if that sounds awesome then you’re absolutely going to love this blog post.
So read on!
Trend Trading – A Proven Forex Trading Strategy that Works!
So what is Trend Trading…?
Well,
Trend Trading which is also called Trend – Following is a trading strategy which traders all over the world use to capture profits from the markets when price action seems to be making a sustained move a particular direction.
In a typical bullish trending market, price action is expected to keep breaking through major and minor resistance levels to form brand new higher highs while failing to break below prominent support levels to form lower lows.
However in a bearish trending market,
Price action is expected to continue breaking below major and minor support levels to form brand new lower lows as it fails to break above prominent resistance levels to form brand new higher highs.
The primary job of a Trend Trader is to identify profitable trends early enough so as to get into the markets with low risk, high probability currency trading positions in that trend’s direction with the aim of making decent profits.
Now in order to do this successfully within the spot forex market, you’re going to need some sort of Trend Following, Forex Trading Strategy.
… and this is exactly you’re going to get by the time you finish reading this post.
Step #1 | Identify the Direction of the Trend
Now in order to place low risk, high probability trend trading positions within the markets, you’re first going to need to have some sort of a technique for identifying the direction of the market’s current prevalent trend.
Well, the trend following, forex trading strategy which I trade with, uses three 60 – Period Simple Moving Averages applied to the High, Low and Closing prices of any forex currency pair’s daily timeframe to do just that.
How To Identify Bullish Long – Term Trends
If price is crosses and closes above the three, 60 – Period Simple Moving Averages on the daily timeframe of the currency pair you’re analyzing,
… that’s simply telling you that the direction of the market’s long – term trend for that particular currency pair is actually bullish at the moment.
How To Identify Bearish Long – Term Trends
On the contrary,
If price was to cross and close below the three, 60 – Period Simple Moving Averages on the daily timeframe of any currency pair you’re analyzing,
that would be a warning signal which should tell you that the direction of the market’s long – term trend for that currency pair is bearish at the moment.
But since, some of the trends which you’re likely going to come across are going to be fake trends which just don’t have enough steam behind them,
… you’re going to need some sort of a technique to help you to differentiate between profitable and non – profitable trends within the forex markets.
And this is exactly what we’re to be talking about next.
Step #2 | Confirm the Validity of the Trend
This forex trading strategy uses Multiple Timeframe Analysis for the purpose of confirming the profitability of the long – term trends which you ware able to identify on the daily timeframe of any spot forex currency pair.
Now, I guess you’re probably wondering exactly how does it does that, right?
Well, just like you used three, 60 – Period Simple Moving Averages to identify the direction of the market’s long – term trend in Step #1,
We’re going to be using the same three, 60 – Period Simple Moving Averages applied to the High, Low and Closing prices on the 4 – Hour chart of the currency pair you chose to trade using this forex trading strategy.
Once you’re done with all of that, you’re all set to confirm the profitability of any long – term trend which you might identify on the daily chart of any currency pair using that same currency pair’s 4 – hour timeframe.
How To Confirm the Validity of Profitable Trends Using Multiple Timeframe Analysis
Whenever you identify a bullish long – term trend using the techniques outlined in the first step of this trend – following, forex trading strategy,
… you’re going to need price to also cross and close above the three, 60 – Period SMAs which were added to the 4 – Hour chart of that same forex currency pair before you could go on to consider it’s bullish trend to be a profitable one.
On the flip-side,
If the direction of the long – term trend of the currency pair you wish to trade happens to be bearish at the moment,
… then ideally, you’re going to want to see price cross and close below the three, 60 – Period SMAs on the 4 – Hour timeframe of that same forex currency pair before you would consider it’s bearish trend to be a profitable one.
It’s really as that as simple!
Step #3 | Look For Super Low Risk, High Probability Forex Trade Setups
Okay…
After identifying the direction of the long – term trend for any currency pair and then confirming the validity of that long – term trend’s direction through multiple timeframe analysis,
… the next step in the methodology of this trend following forex trading strategy is to move on to identifying super low risk, high probability forex trade setups in the direction of the market’s established trend using the 1 – hour chart.
But in order to successfully identify low risk, high probability forex trade setups in the direction of the market’s prevalent trend, there are a couple of rules which you’re going to have to follow according to this trading strategy.
Now before we get into that,
You’re going to need to add the same three, 60 – Period SMAs which were on to the daily timeframe and the 4 – hour timeframe of your chosen currency pair to the 1 – hour chart also.
Okay, moving on…
Rule #1 | Price Crossover
Assuming that the direction of the long – term trend on the daily chart and the medium – term trend on the 4 – Hour chart of a currency pair are both moving in the bullish direction at the moment,
According to the first trade identification rule of this forex trading strategy, price also needs to cross and close above the three, 60 – Period Simple Moving Averages on the 1 – hour timeframe of that same forex currency pair,
… before we’re going to be given the go ahead to start looking for low risk, high probability trade entry levels to get into the markets at with a long trading position in the direction of the market’s prevalent bullish trend.
This same rule also applies to a bearish trending market environments.
But…
If the long term trend on the daily timeframe and the medium term trend on the 4 – hour chart of a currency pair are both moving in the same direction,
… when the short term trend on 1 – hour chart of that same pair is moving in the opposite direction, do yourself a favor and stay away from trading that pair.
The only time that we’re going to be allowed to start looking for super low risk, high probability trade setups according to this trading strategy’s first rule is,
… When price is moving in the same direction on both the daily and the 4 – hour chart of a currency pair, when it made a successful crossover either above or below the three SMAs on the 1 – hour chart of that same currency pair.
We’re only allowed to move on to seeking the fulfillment of the second rule for this trading strategy’s trade setup identification process after this crossover happens.
Rule #2 | Fractal Formation
After a successful bullish or bearish price crossover on the 1 – hour timeframe of any trending forex currency pair,
…. the next step in this forex trading strategy’s trade identification process is to wait for the market’s price action to lead to the formation of an up or down fractal which is suppose to help you to identify your trade entry levels.
However,
If price action has already lead to the formation of a series of up or down fractals after it made a successful bullish or bearish crossover when you switched to the 1 – hour chart of the currency pair you’re analyzing,
… simply go ahead and use the most recent up or down fractal on the 1 – hour chart of that currency pair to identify a low risk, high probability trade entry level where you’re going to enter into with a trade in the trend’s direction.
And in case you’re wondering exactly how to use fractals to identify low risk, high probability trade entry levels in the direction of the prevalent trend,
… don’t worry because that’s what I’m going to be showing you how to do next.
How To Look For Super Low Risk Trade Entry Levels
In a bullish trending market,
… you should always use the tip of the most recent up fractal on the 1 – hour timeframe of the currency pair you choose to trade as the price level where you’re going to be getting into the market with a long trading position.
Conversely,
In a bearish trending market,
… you always want to use the tip of the most recent down fractal on the 1 – hour timeframe of the currency pair you wish to trade as the price level where you will be getting into the markets with your short forex trading positions.
After you must’ve successfully identified the exact trade entry price levels where you’re going to be getting into the markets your low risk, high probability currency trading positions in the direction of the prevalent trend,
… the next step in the trade setup identification process for this trend following forex trading strategy is to identify the price level where you’re going to be getting out of the markets if price decides to move against your trade’s favour.
How To Identify Reasonable Price Levels For Placing Your Initial Stop Loss Orders
For bearish trending market environments,
… this forex trading strategy uses the 60 – Period SMA which was applied to price’s high on the 1 – Hour timeframe of any currency pair to determine reasonable price levels for placing stop loss orders for short trading positions.
But in a bullish trending market,
… this forex trading strategy uses the 60 – Period Simple Moving Average which was applied to price’s low on the 1 – Hour timeframe of any currency pair to determine reasonable stop loss levels for its long trading positions.
The reason why this forex trading strategy uses the 60 – Period SMA which was applied to price’s high on the 1 – hour chart to determine the price level for placing the initial stop loss order for short trading positions is simply because,
… when price makes a bullish crossover above the 60 – Period SMA which was applied to price’s high on the 1 – hour chart of a currency pair, that should be considered as an early warning signal telling us that the current trend is probably taking a break or it might just have reversed to the upside.
This is also the reason why this forex trading strategy uses the 60 – Period SMA which was applied to price’s low on the 1 – hour chart of any currency pair to determine reasonable, price levels where you could place the stop loss orders for your long trading positions within to bullish trending market environments.
PRO TIP: Always try to place your stop loss orders at price levels which would indicate that your trade setup is just plain wrong when price reaches it instead of determining it by a certain dollar amount you’re willing to risk on that trade.
How To Manage the Total Risk of your Forex Trading Positions
If you’ve gotten this far,
… I’m pretty sure that not only have you learnt how to identify profitable trends within the markets but you’ve also learnt how to find low risk, high probability trade entry and exit levels using this trend following, forex trading strategy.
Well,
I’m now going to be showing you how to manage the total risk exposure of your forex trades using this strategy’s Advanced Trade Management Technique.
Whenever you place a buy or sell stop pending order or open profitable trading positions and the 60 – Period Simple Moving Average which was applied to either price’s high or low moves away from you initial stop loss order,
… you shouldn’t just sit on your hands and do nothing but rather,
You should swing into action and move your stop loss orders from the price level they’re located at, to the new price level were those 60 – SMAs are.
Doing this simple trade management task is going to help you to strategically reduce the total risk exposure of your forex trading positions like never before.
But that’s not even the best part.
Every once in a while,
… you’re going to come across trades which will move a considerable amount of pips in your favour dragging the SMAs which were applied to either price’s high or low on the 1 – hour chart to reach the price level that trade got triggered at.
Now whenever this happens,
You should immediately take a portion of your unrealized profits off of the table and then continue to trail your stop loss right behind the price level where the 60 – Period SMAs applied to price’s high or low are currently located at.
You should continue doing this up until the moment when price action reverses its’ course and triggers your stop loss to take you out with even more profits.
Now isn’t that just awesome?
Step #4 | Rinse, Wash and Repeat!
Whenever you decide to trade a currency pair using this forex trading strategy, all you will need to do is to quickly go through steps 1, 2 and 3 of the strategy’s trading methodology and I’m pretty sure you’re going to do great, insha Allah.
However, I’ve got to be completely open with you.
… Even though the title of this blog post says that this forex trading strategy works like gangbusters, there going to be times when you’re going to come across losing trades since no strategy on earth wins trades 100{7cb67d9b75c79b3a673d95b59ae00825b793a70f4ca261bcf000bd1a02c1bf11} of the time.
This is even much more likely to happen when price gets stuck in between a clearly defined trading range since this strategy wasn’t designed to be used within ranging market environments.
However,
If you use this forex trading strategy to trade trending market environments, you’re probably going to be blown away by its simplicity and jaw – dropping performance like you’ve never been with any forex trading strategy before.
In Conclusion…
You’ll be surprised to know that becoming a profitable forex trader does not depend on the using a forex trading strategy which wins trades 99{7cb67d9b75c79b3a673d95b59ae00825b793a70f4ca261bcf000bd1a02c1bf11} of the time.
The secret to profitability in forex trading boils down to Sound Risk and Money Management.
You could have a trading strategy which wins 7 out of 10 trades on average and still lose money if you have Poor Risk and Money Management habits.
On the other hand,
You could have a forex trading strategy which only wins a modest 4 out of 10 trades on average and still make money if you can inculcate sound risk and money management habits into your trading methodology.
It’s really that simple.
I really hope that you enjoyed learning how to use this forex trading strategy.
I would like to tell you, once again that this trading strategy was designed to help you take advantage of trending market environments.
The Good News is,
… this strategy will help you to make through forex trading when the market is trending.
And the Bad News is,
… you’re going to find it really hard to make money using this trading strategy when the price gets stuck in between a clearly defined trading range.
So there you have it!
If you’ve got any suggestions for the trading strategy or questions on how to improve your forex trading performance using this forex trading strategy, please feel free to drop them in the comments section of this blog posts.
I can’t wait to hear from you.
