Hello and Welcome to the ditto educational series that will provide you with the skills you need to become a forex trader!
In previous videos, we have discussed strategy and how it is a necessity in forex. Today we are going to give you a basic strategy that you can practically apply from the knowledge that we have currently accumulated in this channel. In truth, it’s possible to make multiple strategies from what we have currently discussed, but we will focus today mainly on a simple intraday technical-based strategy, with fundamental awareness and news avoidance being the only fundamental aspect.
First, as we are trading intraday and looking to open and close our trades before the end of the day, we are going to quickly refer to the economic calendar to note if there is any medium to high volatility news that day and which currencies will be affected by it. Remember, we are avoiding news in the strategy, and that is the only fundamental indicator we are including. Upon discovering there is nothing of significance to interfere with our day trading, we can move onto the next phase.
Secondly, We are going to open our charts and observe any currency falling into a major pair category as we want a decent amount of liquidity moving the markets. Let’s now look at the Euro USD, for example. Looking at the daily chart, we can observe and establish that this pair appears to be in a downtrend, and that is the next step within our strategy. Identify the overall trend.
Thirdly we are going to apply some exponential moving averages to our chart, in this instance we will include the 200 moving average and the 50 moving average. So here we have a slow and more respected moving average combined with a faster less respect moving average. We need to Pay attention to where they are in relation to each other as this market is in a downtrend and we are looking for sell opportunities because we are trending with the flow of the market we want the 200 moving average to be above 50 moving average, if they should cross this can represent indecision in the market and we would not be looking for short opportunities.
Step four! We are now going to move down to the four-hour time frame and begin drawing in support and resistance areas. Anywhere we can see that the market is generally respecting in this downtrend we are going to highlight like so. As well as drawing in the support and resistance levels, we can also include channels such as we see in this downtrend. So what we have here is the overall channel downtrending with support and resistance training and some of the key levels that have been respected during general market movement. If you zoom back out to the daily timeframe, you should notice that some of your support and resistance levels have been historically respected and perhaps the reason why market reacts to them.
Step 5 this is a key component of our strategy and what we will be basing a lot of our buy and sell decisions upon. We are now going to apply pivot points to the chart and observe market conditions surrounding the pivot and the support and resistance levels they display. Remember we are selling this market as the trend is our friend and it’s currently it’s falling.
Step 6 with our pivot points in place we are now going to observe the Candlestick behaviour surrounding the pivot point and the support and resistance levels provided by them. Again we are not looking for by opportunities even if we feel that they are clearly presented the only time that we would use a buying opportunity in this instance is to exit our sell positions. We are going to use the one-hour charts from now on to select our entries.
Here we see that a range has developed in the market. We can see that we have a resistance level which is also being respected by a pivot point, in this case, it shows as R two on our chart. The market price is continually repelled from this point, showing a series of candlesticks that indicate reversal from this point. A longer-term trader may even use the strategy to enter during this period, but as we are trading intraday, we are looking for a more short-term signal.
Eventually, price breaks below the pivot level and establishes beyond it. We are then show that the retracement occurs to the pivot level and some bearish candlesticks form. I may now consider this a signal for entry to short the market. Based on the highest price that this candle achieved, I would then decide to place my stop-loss just beyond it. As we know that good risk to reward ratios are key to success, we would measure the distance from entry to stop-loss and then times that by 2 to place our take profit level. This gives us a risk-reward ratio of 1 to 2,
Meaning that we can lose at least 50% of our trades and still be profitable.
If you think about it what we essentially did hear was traded breakout, and the same methods apply even if we are trading a reversal from support or resistance. As we can see this trade went onto conclude in profit and had we had held it we would have profited further perhaps deciding to Close the trade at the support level depending on Candlestick behaviour surrounding that level.
So let’s sum up the checklist!
1. Check the economic calendar so that we may avoid volatile news.
2. Identify The overall trend. In our examples case, it was down.
3. Apply exponential moving averages. We are ensuring the 50ema is below the 200ema.
4. Draw in support and resistance areas or zones. This is great if it aligns with our pivot points and gives us another tick.
5. Apply the pivot points. Analyse them for opportunity!
6. Observe candlestick behaviour surrounding key areas of support and resistance and sell the market when opportunity presents itself. Our opportunity cane in the form of a breakout.
7. Use good risk to reward ratios and always pre-calculate the total risk % of your trade account. This part is self-explanatory, and we have gone over this point clubbed glass times. If we can achieve a 2% gain for each 1% risked for example even a weekly gain of 2% is something to aspire to.
This is a very simple strategy but when used correctly with a strong base of knowledge surrounding each component within it, if you are missing parts of information go back through the videos Concerning these subjects to fortify this strategy. You can take this and add additional confirmations, but the main takeaway is we want all of these confirmations pointing in the same direction the more clues or signals we have identified a buy or sell, the more likely we will receive the desired result.
Please take what you have learnt your today and apply it to historical data noting where you would have succeeded or failed in your trades. If you succeeded did you stick to the plan if you failed, why did you fail? Contemplating what you have learnt and how you have applied it will increase your awareness and abilities as a trader, always remember contemplation is the key to learning thank you.