2Bull Forex Blog

The really big profits come from catching and holding the big long term currency trends which can last for weeks, months or years and this article is all about turning these trends into triple digit profits…

If you look at any forex chart, you will see long term trends and here is a simple forex trading strategy for turning them into profits.

Learn How to Use Breakouts

The first point is most new trends and continuations, start from new market highs.

If you want to make money then you need to buy breakouts.

Most traders make the mistake of waiting for prices to pullback to get in at a better “price” but the move doesn’t in most instances it continues, so you must learn to buy breakouts - if you want to get on the side of the big trends.

Valid Breakouts

Not all breakouts have the same odds of success and you need to be selective in your choice to catch the best ones.

Generally, a breakout is valid if the breakout point, has been tested several times
(the more times the better) and if this has occurred in different time frames which are spaced wide apart, that adds to the validity of the resistance.

You are generally looking levels the market participants consider important and when the level breaks look to go with the breakout. You don’t just buy though, you need to check momentum.

Confirmation

Momentum indicators are discussed in our other articles but they simply allow you to gauge the strength of momentum and if its rising then chances are the breakout is valid and will continue. You only need one or two to confirm and our favourites are the RSI and stochastic. There visual indicators and easy to learn and apply.

Applying the Stop

Applying the stop is easy it’s under the breakout as the previous resistance broken will now act as support.

The Key to Making Triple Digit Gains!

Is how you trail your stop remember if you have had a valid breakout chances are it will last a long time weeks or months and you need to stay in the trend. Most traders get so excited when they have a profit; they want to lock it in and protect it and move their stop up to quickly. They then get knocked out of the trade by random volatility, get a marginal profit next, then they see the trend sail on over the horizon, piling up thousands of dollars in profit and their not in!

Keep your stop back and trail it slowly.

You need to give the market room to breathe and accept drawdown in the short term and keep your eyes on the bigger long term prize, when you bank.

A good way to do this is by using key moving averages.

Generally dips to the 20 day are areas you can load up more trades in the direction of the trend and the 40 day MA, is a good area to have your stop in line with nearby trend line support as its outside of random volatility and will keep you in the trend.

Sure you give a bit back at the end but if you got 50% of every major trend you would be very rich.

A Simple, Time Efficient Way to make Triple Digit Profits

The above is a simple way to make money from long term trends and I know traders who make 100% annual gains doing the above. Another advantage of this type of trading is it takes less than 30 minutes a day. You also don’t have to worry about watching prices all the time and you don’t have to trade often.

Long term trend following can be very profitable if you follow the above tips and there easy to do.

An essential element of your forex trading education is using valid support and resistance to time your trading signal. Here we are going to walk you through a live example of how to use it properly.

The currency we are going to look at on our forex charts is the Japanese yen.

If you look at the yen daily chart, you will see a very valid resistance level at the 108.00 level and since March of this year there have been numerous tests of it, over 20 and yet the dollar has failed to close above it supported by momentum.

This resistance is very valid because there have been so many tests. Resistance or support gain validity

- The more times they are tested and hold
- The more different time frames and the wider apart they are
- The traders who trade the market and the news sees the level as significant

Watch the level then confirm the Trade

The way to trade it is to wait for the rise but DON’T sell until you see momentum turn down and two great indicators for timing your trade are the stochastic and the Relative Strength Index. Simply wait for the level to be tested and wait for them to turn down.

Never just assume a level will hold, wait for confirmation via momentum indicators.

Once this occurs you can be short and you know when you’re wrong - if prices close above resistance.

This simple method of trading into valid resistance or support works and providing you time your entry correctly with momentum indicators, it can make a lot of money.

We have used this simple strategy to clear thousands of pips profits, this year and we have kept it simple, nothing complicated about it but it doesn’t mean it simple strategies can’t make money they can.

While resistance holds you keep doing it sell into the level and take profits when the dollar becomes oversold, then wait for the next test.

Follow Reality of Price Change

If the price breaks up and closes strongly above resistance, the odds will favour further strength in the dollar.

Simple and Effective

Sure it’s simple but it can be very profitable and the above is a good example of a low risk, high reward way of trading into valid resistance.

You don’t need to do anything else, than trade the reality of price change on the charts and if you do and you confirm your moves this simple forex trading strategy can make a lot of money.

Many traders use numerous indicators - but over the last 22 years I have four favourites and I will share with you here and they have worked for me and they will work for you. Let’s look at them…

Today, good old bar charts have gone out of fashion but I think their essential and use them in conjunction with the indicators below. I don’t use candlestick charts, there is a big myth there better but there not. If you like using them, then do so but the relationship between the daily range open and close is obvious.

Here are the four indicators and you can read more about them in our other articles. There available on most free chart services and will take you around 30 minutes each to learn and then, your all set to start using them on your forex chart and start making bigger profits.

1. The Stochastic

For me this is the ultimate timing tool.

Trading stochastic crossovers with bullish or bearish divergence, into chart resistance or support, from overbought or oversold levels, is simply the best market timing tool. If the stochastic crosses from chart highs or lows the signal is even more powerful.

2. Relative Strength Index

This gives you the strength of the trend and when RSI weakens or strengthens, when the trend is still up or down, especially from over bought or oversold levels, you have advance warning of a contrary move.

When combined with the stochastic, you have a great combo for better market timing.

3. The Bollinger Band

Gives you the volatility of price and you simply need to understand it to make money at forex trading.

I love using pops to the outer band, near chart support and resistance, to look to take profit or, initiate a contrary trend. Also in a strong trending market, dips back to the centre band ( the moving average) are great value areas to look to add extra positions in a strong existing trend.

You don’t time with them - you look for areas in line with support and resistance to trade into.

4. Moving Averages

Simple moving averages are great and I have just mentioned the mid band of the Bollinger band, which is in fact a simple moving average, to buy and sell back to in existing trends.

In strong trends dips to the 18 - 25 day moving average are a great place to load in new trades.

Another excellent time period is the 40 day moving average which acts as the last line in a strong trend with nearby support or resistance. In strong trending moves we like to trail our stop behind this level and it keeps us in the long term trends.

When trading with the above and support and resistance lines you will get market timing for your trading signals.

There are some other useful technical indicators and we like the ADX line and the MACD too - but the above are the four we use all the time. If you spend 30 minutes on each one you will soon have four powerful indicators that you can use in your own forex trading strategy, to seek currency trading success with.

Check them out, there simple, powerful and can work for you too with a little practice.

Moving averages are one of the most basic and widely used series of indicators by technical analysts of the Forex market. Moving averages are used to confirm existing trends, identify new trends that are possibly emerging, and to attempt to identify trends that are coming to an end before a market correction.

This knowledge can help a trader make smart trades in order to take advantage of the Forex market. When talking about moving averages, there are three main types of moving averages that you’ll see used: Simple, Weighted, and Exponential.

Simple Moving Average

A simple moving average is one that gives equal weight to every price point over the specified period being studied. The analyst can decide whether to use the high, low, or close prices, and then all the price points are added together and averaged out. After using the averages a line is formed.

Depending on the moving average you are using, you may have a line for the “high” averages and the “low” averages. Every new price point that gets added replaces the oldest point and the line adjusts accordingly.

This should provide you a “tunnel” for the highs and lows. Whenever the price of a currency pair approaches or goes outside of these lines, this will provide you strong clues as to what the market will do next, and what actions you should go through with to take advantage.

Weighted Moving Average

A weighted moving average does the same basic thing as a simple moving average, but as its name suggests a weighted moving average gives more emphasis to the most recent data. Basically the closer to present time the data takes place, the more the value of the data point.

This total is also added together then divided by the sum of the weighted factors. The major benefit of a weighted moving average is that it allows the user to smooth out a curve while keeping the “average” more closely related to the most current information.

Exponential Moving Average

An exponential moving average is a different way of weighing more current data. An exponential moving average multiplies a percentage of the most current price by the previous period’s average price.

Basically the oldest pieces of data are never removed, the way they are with other types of moving averages. Instead of replacing the oldest pieces of data with newer, the oldest pieces are given less and less value, creating an average that appears more like an exponential curve.

There are many trading theories which believe in mathematical order in the market and you can predict the future. Human nature is constant and therefore if you know the law of market movement you can make money but what are the best scientific theories?

The three major ones are those based on Gann and Elliot wave and the Fibonacci number sequence.

They all claim to be scientific but to be a scientific theory, they must conform to the following:

- Be totally objective with a set of rules to follow
- Work all the time.

This is the definition of a scientific theory and none of the above are.

Gann and Elliot wave are totally subjective and while you get various levels you can buy or sell to with Fibonacci, they certainly don’t work every time!

Markets are not scientific and while human nature is constant, it cannot be predicted with scientific accuracy and that’s a fact.

This is why all the scientific theories and complex computers today have not increased the amount of winners. Indeed, if a scientific theory did work we would have no market, as everyone would know the price in advance.

How to Win Without Science

A great book which any speculator can learn from is the Zurich Axioms.

This book devised a set of rules which a group of Swiss bankers, who used them to get rich and it lays out a number of rules and principles for speculators to follow and one of them is on forecasts which is very true.

“Human behavior cannot be predicted. Distrust anyone who claims to know the future, however dimly”.
As the books points out if astrologers were always right they would all be rich and there not. Predicting markets is actually doomed to failure just like astrology and the book makes clear:

“Do not look for order where order does not exist.” And the book goes on…

“The Historian’s trap is a particular kind of orderly illusion. It is based on the age-old but entirely unwarranted belief that history repeats itself. People who hold this belief - which is to say perhaps ninety-nine out of every hundred people on earth - believe as a corollary proposition that the orderly repetition of history allows for accurate forecasting in certain situations…. Don’t fall into this trap. It is true that history repeats itself sometimes, but most often it doesn’t, and in any case it never does so in a reliable enough way that you can prudently bet money on it”.

In hindsight you can prove anything and this is known as the chartist illusion

“Beware the chartist’s illusion - it is characteristic of human minds to perceive links of cause and effect where none exist”

You can of course when you have all the facts at your disposal see things as orderly when there not.

Traders do this all the time - they test rules and parameters over a section of data and bend rules to fit it and think it will work in real life but of course the exact data sequence never repeats again and they lose.

Ever wonder why all those forex robots sold online, never make money in real life - despite having great track records?

The answer is the track record is a simulation backwards which appears logical- but when it’s traded going forward, it collapses.

Why You Can Make Money

Despite the fact markets don’t move to science you can still make money from them, if you see them as an odds game.

If you took a game of poker as an example of an odds game and talk to the best poker players, they know they are not going to win every hand - but they are confident of winning longer term. Why?

Because they know that if they bet on high odds hands and fold or pass by low odds hands, they will win longer term.

If you take trading forex who are some of the top traders in the world?

You guessed it - poker players!

So forget about predicting and science, see forex as an odds game and trade the reality of price change sure you wont win every trade but you will win more than you lose and this can mean huge profits.

Don’t look for perfection look to make money.