A Beginner’s Guide to Forex Trading
by Chris Capre
Professional Price Action Trading Strategies
In the chapters so far we have discussed the basics of forex market, and how to trade forex. But now we need to talk about real strategies that will help you gain a high probability of earning consistent money. One basic rule that will help you perform well, is trading in a simple manner without the use of several indicators. Forex trading is already complicated enough, so one way to work with simplicity is to learn price action trading.
This strategy calls for simply focusing on the price movement over time on any time frame without indicators. It involves a combination of looking for price action patterns, but also using models to understand the order flow, such as impulsive and corrective price action.
In case of an uptrend in the market, look for the price to retrace to a key support level within that trend and then watch the price action for opportunities to get into that trend. Always opt to move along with the market trend, although you can occasionally make a counter-trend trades when you have more experience.
A professional price action trading strategy looks at obvious price patterns formed at key levels. One can use resistance and support lines on your candlestick charts to make your buy and sell decisions. An example is below on how a support level was broken, and you could have entered using a breakout retest setup to get short on the pair.
Although one can trade in any currency pair by using the price action analysis, it is better to focus on a few pairs. Most traders prefer to trade in popular pairs like EUR/USD , GBP/USD, USD/JPY, or any of the majors. The key is to study that pair’s movement over time, to get a feel for how it reacts, its volatility levels, how it relates to support and resistance levels, etc. This will give you insight into those pairs, and then help you focus on trading them successfully.
In case you wish to trade in a particular forex session, you should opt for the currency pairs that are active in those sessions.
To learn more about price action trading, make sure to visit my price action course page here.
High Probability Ichimoku Trading
Ichimoku trading is a highly popular form of trading which combines a set of trending indicators and a cloud (or ‘kumo’) which gives you future support and resistance levels. A significant feature of this trading style is that it isolates higher probability trades by excluding more false signals requiring greater confirmation before generating a signal. Also known as a glance equilibrium chart, the Ichimoku cloud integrates three signals into one chart thus allowing traders to make informed decisions. When combined with Japanese candlestick charts, the Ichimoku cloud generates powerful trading signals.
Experienced traders can tell you that the Ichimoku trading systems are quite reliable for sustained trending moves and upcoming reversals. Although a newcomer is likely to get confused with the various signals depicted in an Ichimoku chart, it only takes a few minutes to get familiarized with them.
Components of the Ichimoku Cloud System
The forex trading market allows you to buy and sell the currency of any country against another. The most popular currencies amongst forex traders are the US dollar (USD), the Euro (EUR), the Great British Pound (GBP) and the Japanese Yen (JPY). The USD is the most traded instrument, while the Euro is the 2nd. Thus the EUR/USD (Euro vs. the USD) is the most traded pair on the planet.
Do you think the Euro is going to rise vs. the USD, then you would buy it vs. the USD. Think its going to fall in value – then you would sell it vs. the USD. This is the basic mechanic of trading currencies. Advantages and Basic Features of the Forex Market:
- The Tenkan Sen or conversion line: This is determined by averaging the highest high and the lowest low levels during the previous nine periods.
- The Kijun Sen or the base line: This is determined by finding the average of the highest high and lowest low of the previous 26 periods.
- The Senkou span A: Or one of the boundaries of the ichimoku cloud called kumo. Also known as leading span 1 line, the senkou span is determined by calculating the average of the tankan and kijun and projecting it 26 days into the future.
- The Senkou span B or leading span 2: This is the second boundary of the cloud and is determined by calculat ing the average of the highest high and the lowest low over a period of previous 52 days. It is then plotted 26 days into the future.
- The Chikou span or the lagging span: This is the fifth line which displays the current daily closing price projected into the past by 26 days. This component measures the strength of the signals created by other compo nents of the cloud.
A trader can go through the multiple points of verification on this cloud before entering a trade. A major verification point is checking the price in relation to the cloud. In case the price is below the cloud, the trader should look for a good place to enter a sell trade. Similarly when the price is above the cloud, the trader should look for a good place to enter into a buy trade.
I personally use the Ichimoku cloud to take my trading decisions and would recommend traders to use it for its high probability results. One simple method for trading the Ichimoku Cloud is the Tenkan Kijun Crossover Setup which you can read an article about by clicking on the link here.
To learn more about trading the Ichimoku Cloud, make sure to check out my Ichimoku Course.