FX TRADING STRATEGy
humans. We tend to believe that the difference in the reactions to market movements between the humans and the machines is
generally pretty comparable.
Therefore, we tend not to fear the computers that trade because we consider them to be extensions of their human programmers. The “no” part of our answer is based on our belief that the Forex markets have attracted an unusually large number of the PC based robotic
trading programs, which
we refer to as “BOTS”. These “BOTS” appear to be heavily p r o g r amme d to follow the p r e v a i l ing trend. We have noticed this tendency in all Forex markets we trade and in multiple time frames. If that is indeed the case, as we think it to be, the Forex trader can use the information to his advantage.
If price is approaching a trend line – let’s say one of the Bollinger Bands – the movement very near the value of that band can be swift and dramatic. The savvy trader can use this information to their advantage:
If we are in a trade and are considering taking profit as the price approaches a trend line, we
68 FX TRADER MAGAZINE April - June 2013
If we are preparing to enter a trade at the trend line, likewise we must act swiftly, lest we lose a significant portion of our potential profit.
If we are in a trade, and price is moving in our direction, we must consider the approach of a trend line with caution – breaking it could
must be prepared to act quickly – lest price hit the trend and retract significantly, reducing our profit significantly.
direction – even those trend changes that occur on the faster time frames. The savvy Forex trader must understand trend, perhaps more than any other technical indicator, and develop a method of predicting the continuation - or change of trend - in multiple time frames.
The savvy Forex trader must understand trend,
perhaps more than any
technical indicator, and develop a method of predicting the continuation - or change of trend - in multiple time frames
quickly add to our profits, rejection could quickly and significantly reduce our accumulated profits.
Bottom line, for Forex traders, trend lines are very important price points that must be observed with due diligence.
Detecting a trend change
Detecting a trend change is probably the “Holy Grail” of all securities trading – especially Forex. Trend changes almost always result in significant price movement in the opposite
intra-day
Our trading method employs the use of multiple time frame charts – at least tree intra-day charts for Forex. It is not uncommon to see the “trend” in each chart to be significantly different – not just in st r e ng t h , but in actual d i r e ct io n . The trend in our longest (which
other chart varies
in time frame from market to market) can be up while the other two time frames (of much shorter durations) can oscillate from up to down repeatedly - and vice versa.
Our method of detecting a potential change in trend is based on three technical indicators:
- The MACD – we prefer to use the histogram plot
- The stochastic oscillator(s) – we use a special iteration of three stochastic oscillators
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