Averaging Down on Forex Trades.
Welcome to Cynthia’s Color Coded MT4 Trading Systems website! What is Color Coded Forex Trading? Color coded forex trading is when a chart is made up of candles or bars and indicators that confirm a trend when all the colors match. Another word for it would be color coordinated. Here’s Cynthia’s latest color coded trading system: The Easy Color . (For more on this topic, see "How to Trade Forex on News Releases.) There are five common forex day trading mistakes that can affect traders at any given time. These mistakes must be avoided.
An additional concern is variance. On a very short-term chart, the opposite is true. Significantly less information goes into each candle, and thereby each candle is less reliable as a forecast of future candle formations.
With all of the above being said, trading on short-term charts is still possible. It just requires that traders utilize even more control and discipline over their trading approaches and risk management. For new traders that often struggle with risk management, or staying disciplined; the results can be disastrous. But if those boxes are checked, traders can look to exert the upmost of control over their approach with shorter time frames. We can still incorporate analysis from longer time frames into our approaches in an effort to get the best probabilities of success.
The first step in the strategy is to add two moving averages based on the hourly chart. Most modern charting packages can offer the ability to build an indicator on a longer time frame. The indicators that I add are the 8 and 34 period exponential moving averages, based on the hourly chart but plotted on the 5-minute chart shown below.
If the faster 8 period moving average based on the hourly chart is above the slower 34 period moving average also based on the hourly chart , then the strategy is looking to go long, and to only go long. The hourly moving averages work like a compass, showing traders which direction to trade the trend. Once the trend has been identified, and the bias has been obtained, the trader can then look for entries in the direction of that trend; looking for momentum to continue on the 5-minute chart as it has been displayed by our hourly-moving averages.
The trigger for this strategy is another 8 period exponential moving average, but this one is built on the shorter-term five-minute chart. The large benefit behind the strategy is that just by the very act of price moving in the trend-side direction over the shorter-term EMA, traders are buying or selling short-term retracements in the direction of the momentum.
When prices make those short-term retracements, they create swings in price action. If momentum does continue in the trend-side direction, the trader could be in a very attractive position as prices continue to move in their favor.
When the position gets in the money by the amount of the initial stop a 1-to-1 risk-to-reward ratio , the trader can look to move the stop to break-even so that, worst-case scenario should prices and momentum reverse, the trader puts themselves in a position to avoid taking a loss. Since a 1-to-1 risk-to-reward has been realized and should momentum continue in the trend-side direction, the trader stands to profit considerably more.
After the stop has been moved to break-even, and the initial risk is removed from the position; traders can even look to add-to the trade with new positions or new lots in an attempt to build a larger position with a significantly smaller amount of risk. Before employing any of the mentioned methods, traders should first test on a demo account. The same concepts apply to downtrends.
Price is constantly moving, so we need to be able to plan our trades before and as they are forming. Before a trade is taken we also need to know what we will do once we are in the trade, depending on what the market does next. They think about entering a trade and the price flying in their direction for an easy profit and high-fives from friends. Or they enter a trade and imagine the price plummeting against them, stopping them out. Either of these scenarios are possible, but so are a host of other possibilities, and which one is more prevalent in your mind will bias your trading.
Rather, we want to consider all possibilities: If you are very optimistic, you may miss clues that the market is turning against you. Your strategy gets you into a trade, with an initial profit target and stop loss. Once you are in the trade though, it is a different world. All sorts of things could happen. What if the price moves in your favor slightly and then starts to move against you? What if the price moves to within 0.
What if the price does absolutely nothing after you get in…for 10 minutes? As a day trader you need to consider the various things could happen, and what you will do in each circumstance. Actually, there are only a few things that could happen. The price can rise, fall, or move sideways, and it may do it quickly or slowly. The combination of the price moving higher-quickly tells us something different than higher-slowly.
A quick downward movement followed by a slow upward movement tells us something different than slow-down and quick-up. Have a plan for each combination that could arise. It is a fair bit to think about…but you have a lot of time while trading. Placing an order takes almost no time or effort. Hitting buttons is easy. The real effort is the thinking and analysis that occurs before the trade.
Once the trade is placed, you should already know what you will do in any situation. Develop your thinking and analysis skills so you can do this on the fly. Trading beyond the hard right edge is an advanced form of active trade management. As discussed above, there are only a few things need to consider—direction, size of moves, and speed of moves.
You decide which direction you are going to trade, and before the trade you decide how to manage that trade. You adapt to what happens after you are in the trade. Like Napoleon on the battlefield, you have calculated everything beforehand. I traded for about an hour and a half.
The brown boxes mark consolidations in the price which is what we are watching for. I used a 10 pip stop loss and 18 pip profit target on this particular day. In less than two hours of trading we had 5 trades: Therefore, your daily profit is Once consistent, you can increase risk to 1. On April 15 we had a Euro conference begin right around the time I started trading on chart and that created some price whipsaws. Best to avoid…but as we can see I did take one trade in there….
Overall, in less than an hour of trading we had 3 trades: Here is a chart from July During the first two hours of that downtrend I have drawn three potential trades.
These were picked because there was a pullback and a consolidation. There were other pullbacks with no consolidations, and other consolidations with no pullbacks. The three trades highlighted had both. Waves had been moving about pips prior to our trades, so a 10 pip target is realistic, along with a 5 to 6 pips stop loss.
No problem on any of the trades this day; take home 30 pips, multiplied by however many lots you are trading. Days like the above are fairly easy. When there is a trend, we continue to trade it until there is evidence of a reversal.
At that point, we wait for another signal. But not everyday has a beautiful trend. The next charts shows the day prior. One thing to always note is the y-axis. On the chart above the price moves about 90 pips. On this day, the price moved about I recommend that you always set your y-axis to about 80 or 90 pips may change a bit over time , as this will keep movements in perspective from day to day.
Once the US session gets going, the price drops, but then bounces above where the decline began. We then get no consolidations which would offer us a long trade. The price then drops below prior swing lows, negating any long trades.
By this point…about We typically need at least a few pip stop loss, so if we can only expect to make a few pips, the reward: Also, notice how a trend never really gets going. If you sit there all day, you are going to be tempted to trade. Instead, if you sit there for an hour and the market is absolutely dead, go do something else for a few hours, and then tell yourself you can come later and see if there are any opportunities in the US session especially if a news announcement is coming out , or just wait until the next day.
If you trade during the London session, and it is dead, stop after an hour and come back and check your charts once the US session begins. Not finding a good trading opportunity sucks, especially when you sit there all morning. But you know what sucks even more? Below is another trading day example.
This time, a nice strong trend is in play. On this chart, I have added in a few comments about deeper pullbacks. When you have a very strong trend with long trending waves, like in the chart below, it is reasonable to assume that some pullbacks will be more complex or deeper than others. Those deeper pullbacks are often forecast by the price moving above recent minor swing highs downtrend, or dropping below minor swing lows in an uptrend and the occasional weaker wave in the trending direction.
For that to happen, the price needs to fail to follow through in the trending direction, like it eventually does at the far right of the chart. I recommend using a daily stop loss and a loss from top. Once you master this method, this should be a rare event. You should only blow up once every month or two.
On days were volatility is lower, your stop loss and target will be a bit smaller. Be aware of super tiny stop losses though, and huge positions sizes…that can spell disaster see Reducing the Risk of Catastrophic Trading Losses. For day trading forex, use an ECN account with near zero spreads , and pay the small commission if you plan on day trading forex regularly.
When volatility shrinks the tight spread becomes more important. When it is quieter, the spread becomes much more of an obstacle, because if it is quieter our targets are going to be smaller. Our payoff relative to the spread decreases. Save your capital for better opportunities. Assume I want to buy. That way, my order will trigger as soon as the price moves out of the brown box.
If you use market orders and are even a second delayed the price could be well away from the entry point we want not good! You can set this up using an MT4 plugin, discussed here. If you trade with a broker that supports NinjaTrader—a great trading platform—that will also work well. It will take 6 months to a year of practicing two hours a day including a few hours on weekends going through charts, reviewing, self-assessing and working on problem areas before you will likely be able to trade like this consistently see 5 Step Plan for Forex Trading Success.
What you are basically doing is planning your trades before the market even moves to your entry location. If the market does something unexpected, you adapt and hatch a new plan. This is mentally taxing , which is one reason I only trade two hours a day when I day trade. Focus on what is happening, plan and then jump on opportunities.
Keeping the mind busy with important trading tasks will keep your sabotaging emotions at bay. Some days you may have 8 or 9 trades. Other days only one or two. Some days your stop loss will be 20 pips and your target 35…other days your stop will be 3. Post your questions, as that lets me know what to focus on in future articles. Hi Cory, First off, thanks for posting so much wonderful, free content. Along with Swing trading, I am starting to study day trading.
I know the best time to trade is on a pullback and consolidation of a trend, but I was wondering if there are viable strategies for range day trading. I know it depends on the price action and velocity, but I see these bounces on levels in charts a lot and wonder if we can easily profit on them. Ultimately though, if you notice certain price areas are respected, then there is likely a viable basis for a strategy there. Formulate where the stop loss and target would go based on the movements that occurred after the price reached those levels.
Add up all the wins and losses to see it is worth trading. Make small tweaks where needed. If it works, then start trying it out on live trades in the demo account to see if you continue producing favorable results.
Thank you very much for your work, its been of tremendous help to me lately. I feel much more confident now and ready to be more active, trading futures and currencies. Didi, You may have set some unrealistic expectations for yourself if you expected to succeed at daytrading after just 3 weeks of work. Be patient and keep working at ir. It took me 6 years of trading to become consistently successful.
That will no doubt speed up the process. Ryan, thanks for your helpful hints. I read the article multiple times and when Cory says it taks 6 to 12 months, then he has his reasons to says so. One can jump back and forth and navigate quickly to the content one really needs to reread and understand again, which in my opinion is by far better than watching long videos with rather little information.
I have some rather rough ideas why that is, but the main reason is unclear to me. I traded your setup during the last three weeks. Consecutive losses are 7 in a row happens often , which is too high and has an adverse effect on my confidence. That also hints at me being unable to apply your strategy correctly. Also loosing trades are way bigger than winning ones.
I seem to make larger profits only when there are news and I positioned my trade ahead of the event, which is something you strongly discourage people from doing … My bad, I know. The expectation of my trading is of course negative around After such a trend consolidates I get in in trend direction like you have written, but then more often than not the trend has already ended and I will be stopped out. Furthermore, I have the impression the markets are very choppy these days.
Effectively there is no real direction and the overall range during the London session is sometimes not more than 50 pips with multiple micro trends in between.
I keep struggling with knowing when there is the right time to enter and more importantly when NOT to enter the market. I would be very grateful, if you wrote an article about this specific area. Which are the criteria you use to assess that? When do you know placing a trade is correct and imminent? I would be very thankful if you worte some words about my problems. May be they are also of interest for other traders reading this. Ther are a few things going on…the first one is time.
While I am not sure if I linked to the article in this post, it typically takes at least 6 months to a year to get really good at a strategy. No two days are alike, so most people flounder for the first few months. It is a big time investment. It will take much more time, trading every day and then reviewing all charts at the end of each day, week, and month to look for areas of improvement.
It then takes time for all those improvements to take hold and become natural enough to implement in real-time. Primarily, the main problem is an analysis one. By that I mean the reading of the market before and during a trade is at fault, not the strategy itself. So it comes down to only trading those consolidation breakouts that are likely to move in the direction expected and by at least a certain magnitude.
And this comes down to practice. Look at your charts and see where there were opportunities you missed, and you could have conceivably gotten into based on what you know. Then look at the trades you took, and see how they could improved.
There is no shortcuts or magic sauce. It is just time and study. It is an incremental process, all taking time. A 20 pip trend is more than enough to get in and out. Most consolidations are 3 to 5 pips, which means a target only needs 4. I hope I can add a little here from personal experience and having been in the same shoes as you. I have been day trading almost daily now for the past 10 months and only recently have I started being consistently break even to slightly profitable and 6 months before this swing trading.
To be more specific, many questions and concerns can probably be answered by Cory, but only through consistent practice where you are constantly assessing market conditions and price action will you actually start to learn what you already knew.
You will also need to train your brain to be able to withstand sitting through times of boredom, not taking impulsive trades and tinkering — this takes time, a long time. And nothing beats quality screen time. And through repetition of the conditions you will encounter, you can better assess when it is a better time to enter, exit or let it play out. Maybe not applicable, but worth noting — I probably lost about months of capital and time by not having a detailed plan when I thought I was seeing something.
Triangles, breakouts, pullbacks… you name it, I tried to trade it — a losing proposition. Pick one and stick to it for a while.
If a stock or pair is moving with strong momentum and it flags, I will take it all day, everyday. So figure out on your losers why you are losing. What happened before your entry? Did you get greedy and not take profit when you said you would resulting in price going against you? So stay patient and persistent. Losing trades happen, it is not anything personal against you like a black jack dealer getting angry after losing a hand?
They know the odds are in their favor and that they are simply acting on the rules of the game set forth by the casino. Thanks Patrick, very helpful. All the best to you and your trading journey! As volatility is session dependent, it also brings us to an important component outlined below — when to trade. This is because charts will play an essential role in your technical analysis.
So you will need to find a time frame that allows you to easily identify opportunities. In fact, the right chart will paint a picture of where the price might be heading. For example, day trading forex with intraday candlestick patterns is particularly popular.
Despite that, not every market actively trades all currencies. As a result, different forex pairs are actively traded at differing times of the day. For example, when the UK and Europe are open for business, pairs consisting of the euro and pound are alight with trading activity.
However, when New York the U. S and Canada are at their desks, pairs that involve the US dollar and Canadian dollar are actively traded. If you download a pdf with forex trading strategies, this will probably be one of the first you see. So, when the Firstly, place a buy stop order 2 pips above the high. Then place a sell stop order 2 pips below the low of the candlestick.
In addition, make sure you place a stop-loss order anywhere between pips above the This will help you keep a handle on your trading risk. Now set your profit target at 50 pips. At this point, you can kick back and relax whilst the market gets to work. If the trade reaches or exceeds the profit target by the end of the day then all has gone to plan and you can repeat the next day.
However, if the trade has a floating loss, wait until the end of the day before exiting the trade. If you want to increase that forex day trading salary, you will also need to utilise a range of educational resources:.
All of the resources above can help you understand regulations and requirements while providing you with free strategies to increase your returns. The most profitable forex day trading strategy will require an effective money management system. Then once you have developed a consistent strategy, you can increase your risk parameters.
So, unsurprisingly, this is a sensible method to employ if you want to increase that forex day trader income. Forex automated day trading could enhance your returns if you have developed a consistently effective strategy.
This is because instead of manually entering a trade, an algorithm or bot will automatically enter and exit positions once pre-determined criteria have been met. In addition, there is often no minimum account balance required to set up an automated system. However, those looking at how to start a forex day trading business from home should probably wait until they have honed an effective strategy first. In fact, it is vital you check the rules and regulations where you are trading.
Having your perspective was an added value in this case.
The demo account is free and can be a phenomenal testing ground for new strategies and methods. Live, interactive sessions Develop your trading knowledge with our expert-led webinars and in-person seminars on a huge range of topics.