Having understood the workings of the currencies market and opened an account with a reliable broker, you are ready for the action. I use technical analysis to trade currencies because charts look more appealing.
To get the most out of this article, please refer to the lessons found in the Foundation Stock Course.
#1 Select Your Trading Session
As mentioned, the London session is the most active session from 8am to 12pm GMT. Spreads are tight on the major pairs, and breakouts occur more often.
#2 Screen For Trades
You can increase your chances of success by adopting the triple screen method for screening. Start of by determining the duration you intend to hold your trade for. Ask if you are a day, swing or position trader.
A day trader looks to exit his positions within the same day. A swing trader looks to close his positions after a couple of days while a position trader looks to exit only after a few weeks or longer.
How does the triple screen method work? View charts of a higher timeframe. If you are a position trader and execute trades using the daily chart, look at the weekly and monthly charts.
If you are a swing trader and executes on the 1-hour chart, look at the 4-hour and daily charts.
If you are a day trader and executes on the 1-minute chart, look at the 15 minute and 1-hour charts. Please take note that day trading is not for beginners, so until then, please stay away from this.
Here’s what a position trader will do:
- Open the monthly chart
- Identify key support and resistance levels and trends
- Open the weekly chart and identify key support and resistance levels
- Open the daily chart and identify key support and resistance levels
#3 Trade Plan And Execution
Open the monthly chart and you’ll realize that EUR/USD has been a downtrend for more than 10 years.
Plot your trendlines, support and resistance lines (as shown by the dashed lines). That’s all you need to do on the monthly chart.
Next, have a look at the weekly chart. Zoom in to the last few years. Start plotting the key support and resistance levels. Do you see that I have plotted a support and resistance level using dotted lines?
Finally, you move on to the timeframe which you will be executing your trade on – the daily chart.
This is where you will mark out the critical areas you want EUR/USD to hit before taking action. Trading is like fishing as patience is rewarded.
Zoom in to view the prices in the past year. Mark out the key levels of support and resistance. This key level is shown in the grey zone. Remember that prices do tend to get stuck in a zone?
With your support and resistance zone drawn out, what do you do? Wait for prices to reach the zone before considering an entry.
Since the primary trend of EUR/USD is down, you will want to short sell. It pays to remember that the trend is your friend.
In the example above, prices did hit the zone and crashed after. You’ll want to short sell at the pink arrow, placing your stop loss at 1 ATR level above the previous high (shown by the distance marker and red line). Calculate how many lots you should sell by using the Position Sizing calculator.
Great! Now that you have your defensive part settled, let’s discover where you should place your profit target. Recall that you have marked out the key support and resistance level on the weekly chart? That is where you can aim to take profit.
You have seen how I analyze currency pairs. You know that looking at the higher timeframes are critical.
You have also realized that patience in waiting for the right time and opportunity to present itself is totally worth it.
Give yourself a huge pat on the back for having some so far! Congratulations and I wish you success!
Here’s What You Can Do To Improve Your Trading Right Now:
#1 Join us in our Facebook Group and share your questions as we learn and grow.
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#3 Grab a front row seat and discover how you can expand your trading arsenal in our FREE courses (for a limited time only).
See you around!