In this article, we will outline a simple and profitable Forex trading strategy which is easy to understand and learn and can be used by anyone to seek big Forex profits. Let's take a look at the strategy and how it works in greater detail.
If look at currency trading charts you will often see short accelerated price moves away from the main trend and these are caused by greed in a bull market and fear in a bear market. These spikes though are short lived and prices soon return back to more realistic values. Our strategy is a swing trading strategy which will take advantage of these price spikes and turn them into profits - so how do we trade these price spikes?
In the example we will look at now, we will focus on a bull market but the same principles apply in a bear market.
- Look at you charts and wait for a steep rise in price away from the main trend and then you need to look to sell into it but timing is of course critical - so to time your entry, you need to do two things - check how overbought the market is and then, you need to generate your trading signal so lets look at how to do this.
- If you want to find out how overbought a market is, you can use some momentum oscillators and while there are many you can use, three of the best are the MACD, the stochastic and the RSI. By just looking at them you can see how overbought the market is and if it is overbought, you need to generate a trading signal and this is easy to do if you look for divergence.
- If a market is trending strongly both prices will be rising and so will momentum but when prices go to far to quickly, they will eventually correct and the way to get an advance warning of this is to look for momentum to turn down as prices continue to carry on rising. This is known as divergence and you can then trade short.
- You put your stop above the price high and set a downside target where you think prices will retrace back to and this is normally above a key level of support NOT at it. You never want to risk the price bouncing back against you so you get out a bit early and take your profit.
While the above sounds a very simple strategy it can make a lot of money and if you are selective and only trade markets which are at overbought extremes, you will have the odds on your side and can make big gains.
Swing trading is very easy to understand and because humans will always be subject to the emotions of greed and fear prices will always be pushed to far to fast to the upside or downside and if you learn how trade into these price spikes you can make huge regular profits.
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