Forex weekly trading strategy

Best Weekly Forex Strategies.

While many forex market actors may prefer intraday trading due to the steadily growing market volatility, and thus opportunity to achieve greater yields within narrower timeframes, weekly forex trading strategies may allow for a more flexible merger of the investor's strategy and the trader's market tactics, thereby ensuring the opportunity to achieve stable profitability. In this article, we are going to investigate the key specificities of weekly strategies in the forex market and analyze briefly the main types of such strategies.

Key specificities of weekly Forex trading strategies.

When choosing a forex weekly strategy, it should be borne in mind that the weekly candlestick provides extensive market information. In fact, it contains five daily candlesticks whereas the dynamic patterns of their change reflect the actual forex market trends. Within each particular trading week, such dynamics might change. By monitoting those actual tendencies and forecasting them, the trader may choose the best weekly forex strategy.

Generally, a weekly strategy in the forex market is based on a number of tools for avoiding excessive risks. Namely, it assumes a lower position size, and the main focus in the investigation of trends is put on the moving averages and extreme points of the weekly charts. Also, it should be understood that weekly traders bear opportunity costs, as they deposit funds which could otherwise be used for more profitable shorter-term transactions. However, potential steady profits within weekly strategies are the main aim of such trade.

Weekly trend strategy.

This weekly forex strategy is based on the analysis of the exponential moving average (EMA). In order to effectively use this weekly chart forex strategy, it is required that the last week's last daily candlestick is closed at a level above the EMA value. Next, the trader expects the moment when the last week's maximum is broken, and places a buy stop order on H4 closed candlestick at the price of the broken level. Stop loss is after the nearest minimum point, between 50 and 105 pips. If the nearest minimum point is closer then 50 pips, the previous extreme value is taken for calculations. The last week's movement range is the take profit range. The break-even point is achieved after half the movement.

If on the previous week's D1 there was an intersection below EMA(12) (for purchase) or above EMA (for sale), no entry signals should be considered during the current week with the aim of avoiding market entry during flat or trend reversal.

Three oscillators weekly Forex strategy.

This forex weekly chart strategy is based on the use of indicators such as relative strength indexes RSI(8), RSI(14), RSI(19), and simple moving average SMA(9).

For buy entry, the week has to be closed at a point above SMA(9). The oscillator lines need to keep the following order in the upward direction: RSI(8) (red line) above RSI(14) (blue line), and RSI(19) (green line) at the bottom.

For sell entry, the week is closed below SMA(9). The oscillator lines need to keep the following order in the downward direction: RSI(8) (red line) below RSI(14) (blue line), and RSI(19) (green line) at the top.

The three oscillators strategy may be the best forex weekly trading strategy when the trader is able to effectively monitor the persistent tendencies and not to quit transactions even in cases where peaks are achieved, if the trend continues. However, even in such cases profits can be achieved, although at a lower level.

Lazy trader strategy.

This simple weekly forex strategy assumes that orders are opened or closed only twice a week. Under the lazy trader approach, the trader places a buy/sell stop order 20 pips above the maximum, and 20 pips below the minimum. Stop loss is on the level of the opposite order, while take profit actually amounts to triple stop. The break-even point is achieved when profits equal to stop are obtained. It is important within this forex trading weekly strategy not to remove the orders placed, and to close them only at week closure.

Trend method Forex trading weekly strategy.

This weekly chart forex strategy is appropriate for those traders who do not have much time for monitoring the market, and thus may only track market trends approximately once a day. Here, the following indicators are used: RSI(8) with a level of 50 as the main oscillator, moving average convergence-divergence MACD(12,26,9) at a level of 0 as the auxiliary indicator, slope direction lines (15,3,0) and (30,3,0) as trend lines; ATM_Pure_MAColor (50) as trend direction, P-Monthly as the monthly pivot for evaluating take profit and stop loss levels, EMA(5) close and EMA(8) open crossovers, and fractals for setting up stop losses.

In order to enter the transaction, the following conditions should be met at the closure of W1 candlestick: 2MA lines intersect on W1, RSI is above or below 50, MACD signal bar is above (purchase) or below (sale) the signal line.

Stop loss can be set for the last fractal, closure of the previous W1 candlestick, above or below the nearest key level, or beyond the trend line. Take profit is the level of monthly reversal, or it is closed as soon as reverse signals emerge.

Conclusion.

Weekly forex trading strategies allow benefiting from long-term trading, and they allow monitoring effectively the market trends, as entries are performed at average prices approximate with the main direction. Candlestick analysis is the most precise tool used in any strategy of weekly forex trading, but traders should still work with volatile instruments which being steady trends in typical conditions. Also, forex weekly chart strategies assume the availability of sufficient funds deposited. However, when performed effectively, they provide traders with significant yields, and may be very profitable.

Weekly Forex Trading System.

There are many different kinds of Forex trading systems, but underlying each of them is a set of rules. The rules differ to some degree from system to system, but in essence they are all variations of the same system. Reduced to its simplest, the system is called momentum trading.

Momentum Trading.

If you take a look at any given Forex or stock market chart, you'll notice that it's a series of ups and downs.

You'll also notice that rarely does the currency or equity oscillate up and down statically. There's always some larger overall rising or falling trend. This larger trend is the Forex equivalent of Newton's First Law of Motion: objects that are in motion tend to stay in motion unless acted upon by some external force.

Similarly, in the Forex the equivalent rule is that a rising currency value may and probably will have many small ups and downs but generally within a larger, more consistently rising value that continues until some market event or external political or economic event brings the trend to a halt. A winning trade has a certain momentum that doesn't guarantee but suggests that the next move will be in the same direction.

Determining how to profit from this observation is the subject of many books, speeches, software implementations and seminars. Some of these strategies are available for a significant fee, but underlying them all are some well-known market facts available without cost.

Advanced Trading Strategies Vs. Winning Trading Strategies.

Some traders employ systems that require observation and trading adjustments every few seconds to every few microseconds (most of these are computerized and have computational requirements well beyond even the most powerful personal computer).

Others employ trading systems that encourage trading on 5 to 15 minute charts or daily charts. Novice traders who try to implement these systems often don't fare well, first because in general these shorter term systems require more experience and trading skill, but also because when trading on a short-term chart, the trader may inadvertently be trading against the larger, more significant overall trend -- the kind of trend that weekly charts are more likely to reveal. Trading against the trend, needless to say, can be a recipe for disaster.

Weekly Forex Trading Systems.

Systems based on weekly charting are a less labor intensive way of participating in the Forex market. Assuming you have a good basic understanding of the Forex market and of various risk reduction strategies, you'll want to begin to develop your own weekly trading system by looking at some charts. These are mostly generic charts, widely available online from brokerages and trading house without cost. Detailed discussion of each of these indicators is beyond the scope of this article, but each of the following indicators is linked to an article describing them in greater detail. Here, you'll learn the basic idea underlying each chart or indicator.

Moving Average: This is the simplest and most popular of all trend indicators. Basically, moving average charts plot the rise or fall of the currency value within a given time frame. When a currency value rises or falls above or below the given average within that frame, this signals a buy or a sell. Stochastic: This differs from a moving averages chart in that it doesn't look primarily at the quantity of the rise or fall, but rather its velocity. How fast is this occurring? If the rate of rise is increasing, this suggests the currency has an underlying strength that will likely continue, at least until something happens that stops it. If the currency rise is losing momentum, this may indicate it's time to sell. Relative Strength charts assess the rise or fall of a currency in relation to other currencies. Although a particular currency may be rising in value in relation to its currency pair, how does it compare with the rise of other currencies. A rise weaker than other rises may indicate a weakness and could be a sell signal even though the currency may be above its moving average.

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Bollinger Bands (a registered trademark of its inventor, John Bollinger) are another charting indicator. A Bollinger Bands chart is related to a Moving Averages chart, but uses a more complicated charting process that incorporates standard deviation in its calculation. Not all traders will be interested in the complexities of this chart, which is not that far removed from a Moving Average chart, but if you are interested in statistics, mastering Bollinger Bands charting could be an additional, valuable assessment tool.

Using Momentum Charts.

One way to begin using these charts is with the simplest, the moving average. If the currency rises above a moving average for a given time period, this is a buy signal, although a rather primitive one. If the currency rises above the moving averages of two charts of the same currency but with different time periods, this is a stronger buy signal. Using a Stochastic chart, you can determine if rate of rise is increasing or falling. Using a Relative Strength chart, you can compare its rise with the rise of other currencies. A comparison with the moving averages of another related currency -- the Euro vs. the Pound, for example -- can provide an additional insight into the relative strength of your selected currency, the US dollar.

It's not often that all momentum indicators point in the same direction; sometimes you'll need to wait until in aggregate they're more favorable. The main thing to remember is to trade small and be patient. If you normally trade forex mini lots, use micro lots instead, because weekly charting is easy to manage, but the price differences can be significantly greater than when trading with charts over shorter time periods.

As with trading generally, use stops, set targets and stick to your trading plan.

Forex Gap Strategy.

Forex Gap Strategy — is an interesting trading system that utilizes one of the most disturbing phenomena of the Forex market — a weekly gap between the last Friday's close price and the current Monday's open price. The gap itself takes its origin in the fact that the interbank currency market continues to react on the fundamental news during the weekend, opening on Monday at the level with the most liquidity. The offered strategy is based on the assumption that the gap is a result of speculations and the excess volatility, thus a position in the opposite direction should probably become profitable after a few days.

Regular trading with clear rules. No stop-loss hunting or premature hits. Statistically proven profit. You have to open position at the week's beginning and close it right before the end.

How to Trade?

Select a currency pair with a relatively high level of volatility. I recommend GBP/JPY as it showed the best results during my tests. But other JPY-based pairs should work too. By the way, it's a good strategy to use on all major currency pairs at the same time. When a new week starts look if there is a gap. A gap should be at least 5 times the average spread for the pair. Otherwise it can't be considered a real signal. If Monday's (or late Sunday's if you trade from North or South America) open is below the Friday's (or early Saturday if you trade from Oceania or Eastern Asia) close the gap is negative and you should open a Long position. If Monday's open is above the Friday's close the gap is positive and you should open a Short position. Don't set a stop-loss or a take-profit level (it's a rare occasion but stop-loss isn't recommended in this strategy). Right before the end of the weekly trading session (e. g., 5 minutes before the end) you need to close the position.

You can see GBP/JPY pair's last 7 weeks (as of May 24, 2010) and all of them have gaps. 6 out of 7 gaps give correct signals that result in a lot of profit. The last gap gives a wrong signal and yields a medium loss. The average spread for GBP/JPY was 3 pips during the example period and all gaps were much wider than 15 pips, making them all qualifying signals. The net total profit was 1,612 pips in 7 weeks — not that bad.

Use this strategy at your own risk. EarnForex can't be responsible for any losses associated with using any strategy presented on the site. It's not recommended to use this strategy on the real account without testing it on demo first.

Discussion:

Do you have any suggestions or questions regarding this strategy? You can always discuss Forex Gap Strategy with the fellow Forex traders on the Trading Systems and Strategies forum.

Tiger Trading: Long-Term Charts For Short-Term Currency Trades.

Stock traders often add currencies to portfolios, in order to benefit from the incredible opportunities that currency trading can present. While it is true that stocks require a different set of analyses, there is enough in common between the two asset classes that should enable a stock trader to adapt quite easily to currency trading. Although the following method is designed as a swing trade that can be held for many days or weeks, it is also possible to use the tiger trading methodology to hold the position even longer, as long as the trade remains profitable. (To learn more about how currencies are traded Forex: Wading Into The Currency Market .)

It seems that animal traits can be used quite effectively to describe human trader attributes. Let's not forget that bulls can make money, and so can bears, but why the reference to the tiger? A tiger is a prodigious hunter and has the proverbial patience of a cat. It can sit and wait until the odds of a successful hunt are very high. For those traders with similar personality characteristics, trading the way a tiger hunts can be very lucrative.

In order to be a tiger trader, investors need to position themselves so that the trade opportunity can best be seen from a distance, so to speak. To get the overview of the market and the way it has been trading, we should always look to the weekly chart. For stock market traders, the weekly chart may be a relatively short-term chart compared with monthly (or even yearly) charts. However, in the forex markets, weekly charts are considered long-term, from a trader's perspective.

What is Special About the Weekly Chart?

A weekly chart in the forex markets is the only time frame that shows a true close. The close is on Friday afternoon at 5pm EST, and the forex markets open again on Sunday at 5pm EST. Daily charts in the forex markets don't really close, although there is a settlement time, which changes depending on which forex market you are trading in. For example, the New York market opens on Sunday at 5pm EST in New York. The following day, the New York closes at 5pm EST for settlement, and just one minute later, the market re-opens and all trading resumes. There is no overnight, because as soon as New York closes, Australia opens. Hence, forex markets trade 24 hours around the clock until Friday at 5pm EST.

Using a weekly chart (Figure 1), we will be able to draw our "lines in the sand," whether these are trendlines, Fibonacci lines, Gann lines, double tops or bottoms, etc. These lines are typically drawn from the weekly high or weekly low points, as well as on the weekly close. This will help to gauge where longer-term traders are focusing. Since the longer-term traders are usually the position traders who are usually interested in "carry trade" opportunities, they tend to take larger positions, and therefore, collectively are quite influential in creating a direction in the market.

Whether reversals often occur at Fibonacci levels are a result of some natural order that the market obeys, or whether the Fibonacci levels have credence because so many traders watch them, and therefore trade off of these levels, really doesn't matter, as long as these levels display some validity.

Get a Big Picture Overview.

For a tiger trade, the longer time frame dominates the shorter time frame. In other words, signals from a weekly chart are more pronounced than signals from a daily chart. Prices shown on the shorter time frames can actually oscillate and generate alternate buy or sell signals, even while the longer trend remains intact. However, when the longer time frame shows prices approaching a potential reversal level, we need to switch to the shorter time frame because it becomes a leading indicator as to whether the reversal point shown on the longer time frame is likely to have any traction. (To learn more on weekly charting, check out Weekend Analysis: A Path To Forex Profits .)

Then, we draw a chart of the currency pair that we wish to trade, set to a weekly time frame (see Figure 2 below) and then another set to a daily time frame, (Figure 3 below). On both charts, we add a Relative Strength Index (RSI) indicator set to an interval of two periods. In addition, we add three simple moving averages, each being set to 20 periods. We set the first moving average to 20, but calculated on the highs, the second calculated on the lows and the third 20-period moving average on the last or closing price.

We will use the RSI as a filter to determine when to buy or when to sell, and the equilibrium lines will be used as an indication of the trend and how price moves from the trend toward extreme sentiment. Hopefully, the software that you use will allow you to do this. (To see more on charting please check out Charting Your Way To Better Returns .)

Understand the Fundamental Drivers.

For example, if we are trading the EUR/USD, we might watch for the comments of Trichet, the current president of the European Central bank (ECB), to understand whether the ECB is likely to raise the interest rates in the Eurozone. If the United States is keeping rates low but there is a possibility that the ECB is hawkish on inflation and could raise interest rates, then we want to be long the euro against the dollar.

Remember the tiger personality: it means the patience of a cat! We need to be prepared to wait until all the "stars" are in alignment, namely the price is at an extreme reversal point, or the trend is pulling back to equilibrium, which will provide an opportunity to take a trade at a better price. If either of these two factors should occur, we can get ready to pounce. (For more on trading like a tiger, read Patience Is A Trader's Virtue .)

Overview of a Tiger Trade.

Markets can (and do) overreact because emotional humans overreact. This leads to a straying from the equilibrium point, until some extreme point is reached and then, in time, the pendulum will start to revert to the mean. This staggering back and forth from the center is called volatility, and is what provides the tiger with the opportunity to make a profitable snag. (To read more on how markets are affected, read Volatility's Impact On Market Returns .)

By scanning through all the major currencies, we notice that the weekly chart (Figure 2) of the euro-dollar is approaching the 127.6 Fibonacci extension. We could conclude that the coincidence, a double top in the one and a Fibonacci support level in the other, indicates a high-odds opportunity for a EUR/USD trade.

The Daily Chart - Entry Signal.

Once we are happy that there is an opportunity brewing, we can switch down to a daily chart (figure 3, below) of the EUR/USD to observe what happens as the price approaches the 127.6 extension. We also watch to see if the RSI can reach the 5% level, which would indicate a very oversold and extreme sentiment. By listening to the talk in the market, we hear several pundits say that the euro will reach parity with the dollar and the general consensus in the market is to be short the euro.

At this point, it is also important to watch what happens at the 127 Fibonacci line and to see what kind of candle pattern forms. Usually, a hammer, spinning top or doji would be an indication of changing sentiment by the professional traders.

The combination of the DXY at a double top, the weekly EUR/USD at a 127.6 Fibonacci extension, the RSI at about 5% and a spinning top forming on the daily chart indicates a potential trade (Figure 4, below). An order is placed in the market to go long the EUR/USD if it breaks above the high of the spinning top at 1.2015 and, if executed, a stop loss order is placed at 1.1870.

The risk is 140 pips. For every standard contract of 100,000 the value of a pip is $10. Therefore, the dollar value of the risk is $1,400. This risk should represent no more than 2% of trading capital, which means we should have $70,000 equity in our accounts or otherwise trade smaller, mini contracts instead. (For more on charting, see A Glance at an Equilibrium Chart .)

Looking at Figure 4, the EUR/USD proceeds to 1.3200 before any signs of a real correction or potential change in trend are observed, and the opportunity to stay in the trade or even add to it as price pulls back to the lower lines of the equilibrium channel. The trade would be cut short by a trailing stop below the channel if such a level is reached. Alternatively, a trailing stop could be set to cut the trade by 50% and allow the remaining 50% to remain open as long as the trade remains profitable.

The value of this trade is approximately 1,200 pips, which for a standard contract would be equal to $12,000. The risk-to-reward ratio is 1200/140 or 8.57-times, certainly worthy of a patient tiger. The margin required to take this trade is approximately $1,200. The ROI is 12,000/1,200 or 1000%.

Tiger trading is not for those without patience. It is necessary to let the market come to you rather than to chase the market in the fear of missing a trade. If you miss the trade, be consoled; there is always another opportunity. Just sit and wait patiently, but remember the old proverb, "fortune favors the well-prepared mind." (To learn from some of the best investor, check out Financial Wisdom From Three Wise Men .)