Forex Strategies

Article Summary:The Average Directional Index (ADX) rates how much a currency pair is trending on a scale from 0 – 100. A pair moving sideways shows an ADX level below 30 while a trending pair shows an ADX level of 30 or higher. Keep in mind that the ADX is directionally neutral, meaning it does not indicate a bearish or bullish trend, only if a trend exists or not.

What it the ADX?

The ADX is displayed as a value between 0-100 where the higher the ADX value, the stronger the currency pair is trending.

Learn Forex: The Average Directional Index (ADX)




You can see in the image above that the ADX looks very similar to popular oscillators like the Relative Strength Index or Commodity Channel Index, but understand that the ADX is directionally neutral. So a higher value does not represent a pair as bullish nor does a lower value represent a pair as bearish. A higher value means the pair has been trending (either up OR down) and a lower value means the pair has been moving sideways.

How Do You Read the ADX?

The ADX will be a value between 0 - 100. Typically, traders will look for an ADX above 30 to confirm that the currency pair is trending either up or down. Any value below 30 would mean a pair has been moving sideways and trend based systems should be cautiously used or completely avoided. Let us show you a real life example.

Below is a strategy using a Simple Moving Average crossover of the 50 and 20 period on an Hourly chart of the EUR/USD. The rules of the strategy are easy, buy when the 20 period crosses above the 50 period, and sell when the 20 period crosses below the 50 period.This crossover strategy thrives in trending markets but suffers in ranging markets.

Learn Forex: Simple Moving Average Crossover (No Trend Filter)




You can see that some of the trades were very good, while many of the other trades were not. Ideally, we would like to avoid trades taken during sideways markets and the ADX does exactly that.

Using the same Moving Average Strategy on the next chart, I am going to filter out all trades where the ADX was below 30, and keep all the trades that occurred when the ADX was above 30. This will ensure I am only taking trades when the pair is trending according to the ADX. I've highlighted the ADX +30 areas when a cross occurred to make the image clearer.

Learn Forex: Simple Moving Average Crossover (With Trend Filter)



The signals that occurred while the ADX was above 30 were much more reliable. We took out all of the trades where the EURUSD was moving sideways and only opened trades during the long trending moves up or down. You might have also noticed that some of the winning trades were filtered out along with the bad trades, but this is ok. Overall, we cut out more losing trades than winning trades so it was an overall positive filter to this trending strategy.

Filtering Towards Success

It's good to understand your trading strategies' strengths and weaknesses, but it's even better to know how to use this information to filter out bad trades. If you are using a trend trading system, definitely take a look at the incorporating the ADX indicator. The combinations are unlimited.
Good trading!

---Written by Rob Pasche

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Article Summary: Analyzing your trades after closing the position helps you determine the effectiveness of your Forex strategy. Many traders settle to gauging their success by their account balance. However, strategy effectiveness is not solely about the reward a strategy can produce, but is a function of the risk versus the reward.

As traders, we take risks each and every day through each of our trades. Whether you acknowledge the existence of those risks or not, they are there. Much like gravity, I can choose to believe that gravity doesn’t exist, but when I walk off roof of a three story building, I’ll painfully be reminded that gravity does exist.

The same applies for risk in the markets. Newer traders generally take the view of the market from the perspective of how much they have to gain in a particular trade or perhaps they expect to double their account in a month without an understanding of the risks it takes to perform at those levels.



Experienced traders know that losses and drawdowns are a part of trading. Therefore, experienced traders will look for performance measures to gauge their strategy’s signal and exposure efficiency. Essentially, experienced traders want to know whether their strategy is efficiently entering and exiting out of the market.

Additionally, is too much risk is being shouldered while in an open position? One such measure I would like to introduce today is the idea of intra-trade drawdowns which can help us identify the risk taken and efficiency of our entries.
Before we discuss how to use intra-trade drawdowns to adjust our strategy, let’s first review what exactly it is. You may hear intra-trade drawdown referred to as a maximum adverse excursion. It simply represents how far your open position floated as an open losing trade. Said another way, how far did this open trade wander against your entry price?

Here are a couple examples.
Assume that you entered into a EURUSD trade as a buyer at 1.3100. An intra-trade drawdown would be the exposure in your trade below your entry price. So if your open position falls to 1.3050, your trade would have experienced a 50 pip drawdown.

In another trade, assume you buy the AUDJPY at 85.00. At one point, while this trade is open, if the price falls to a low of 84.25, then this trade would have a 75 pip intra-trade drawdown.

In both of the examples above, simply noting and averaging out your intra-trade drawdowns, doesn’t really tell you anything. We need to take those figures and compare them against the profit targets and winning trades to provide any insightful analysis.

Average Intra-trade Drawdown versus Average Profitable Trade

By identifying our average maximum adverse excursion, we can see how much we have actually risked on the trades and how disciplined we followed our Forex trading plan.

For example, let’s say a trader identifies their average intra-trade drawdown to be -30 pips. However, even though they have a target of 50 pips, they end up closing trades down for an average of +20 pips. In this example, their risk is greater than their reward. As discussed in our Traits of Successful Traders Research, we want to risk less than our average reward or try to risk a little to make a lot.

If you find your post-trade analysis providing a relatively low intra-trade drawdown, then congratulations! You are efficient at finding entries into the market. What is relatively low? I would suggest you are efficient at finding entries when you close out your trades consistently at twice (or greater) the distance of your maximum adverse excursion.

Happy Trading!

---Written by Jeremy Wagner, Head Trading Instructor, DailyFX Education

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Article Summary: It’s easy to see a big move and want to jump in so that you don’t miss the next trend. However, there is a specific candlestick pattern that you can keep an eye on to make sure that you’re not entering on an exhausted move.

“The first principle is that you must not fool yourself and you are the easiest person to fool.”
Richard P. Feynman

Once you’ve been in the markets for a long enough period, you see that what goes up, can just as quickly also go down. However, there are a few things you can keep an eye on to make sure that you’re not chasing a big move or entering as price enters near resistance or selling right upon support.

Using Candlesticks & Trendlines to Spot False Breakouts

As the quote above warns, when trading, the easiest person to fool is often yourself. The reason for this seems to be that when chasing a specific return, traders can end up forcing set-ups that aren’t really there. Naturally, this can be fatal to the survival of your account but there is a form of market analysis that can help you see whether a pending set-up still has room to run or is likely to fade away.

If you don’t feel like you have a comfortable grasp on trading with candlestick, we’ve created a FREE 20-Minute course here to about the basics of price action and how to use the clues the market is providing to place trades.
When the Market Is Giving You a Yellow Light Candlesticks can be used at key technical levels to ensure you’re not running into the trade with your fist full of cash just as everyone else is leaving the trade or flipping their position. The easy way to see if the trade or set-up doesn’t have the conviction necessary to put your money at risk is through the wick. A long wick shows us that the close took placa good distance away from the high or low and shows a lack conviction on that price extension.



Confirming a Technical Pattern Extreme with Candlestick Wicks

LEARN FOREX: XAUUSD Showed a Large Upside Wick or Shooting Star at Resistance




When price comes up to a level of support or resistance, a lot of traders are eager to enter the breakout. However, false breakouts occur and it’s helpful to see false breakouts in real time. Below are a few examples of when traders were not able to hold price past an extreme such as a trendline or the Relative Strength Index and then you will see a long wick against the extreme.

LEARN FOREX: Multiple Levels of Resistance on EURAUD Confirmed With A Long Upside Wick



Another example of a long wick against a few extremes is taking place with RSI. As you can see above there is declining RSI into higher price highs which shows bearish divergence along with the horizontal line at a significant price level on 1.5000 and finally large rising wedge. These three forms of resistance are met with a large upside wick which means the conviction wasn’t there as a whole and we could see a move down.

When a Breakout Is Truly a Breakout

There are a handful of ways to tell when a clean break of resistance could have some follow through. Instead of seeing a wick through a level of resistance followed by a move back down, a strong candle through resistance with a close above it strong signal that the move could continue. By looking for a Strong candle body through a key level, you can see that conviction may very well carry though.

Learn Forex: Resistance Became Support on GBPUSD As a Large Candle Broke Through




The price action on GBPUSD is very convincing. In other words the heavy level of resistance at 1.5410 was broken through on a news break with a strong candle which shifted GBPUSD into a position of strength. After that clean break, the 1.5410 level of resistance turned into a floor as price pushed higher.

LEARN Forex: Strong Candle Break Shows USDOLLAR Correction Could Be Finished




Closing Thoughts

The body of a candle is a great way to see if a breakout has conviction or not. If key technical support or resistance only has a candle wick through it and the close of the candle is relatively far away from the resistance or support, you can see that as a market that has likely exhausted itself upon the move and may turn lower. However, a big candle body through that key level shows you that there may be room to run and that you can look to that broken level as a place to look for entries or to set your stops around in the future.

Happy Trading!

---Written by Tyler Yell, Trading Instructor

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Article Summary:Forex traders wait every month for the volatility created through the NFP economic release. Today we will examineexpectations for this Fridays NFP event.

The release of Non-Farm Payroll figures can be an exciting time for Forex traders. As one of the most anticipated releases on the US economic calendar, Non-Farm Payrolls also known as NFP, has been historically known to produce volatility in the market place. The cause being, that during this news release, traders look for insight into whether the US economy is expanding or contracting through new jobs being added to the labor force. With NFP set to be released this Friday at 8:30am ET,today let’s get a better understand NFP and its potential impact on market.
First, NFP looks specifically at net changes in employment as jobs are created or subtracted in an economy in any given month. The term Non-Farm is used since farm / agricultural workers are not included in the employment count. The decision to not include agricultural jobs lies in these jobs being largely seasonal that could possibly produce small temporary shifts in labor reporting. Below we can see a composite of past NFP events from September 2011 through present. As you can see these numbers have been anything but consistent, causing problems for traders. With this in mind, let’s look at last month’s event in more detail.



Below we can see exactly what occurred with last month’s price action on a EURUSD 5 minute chart, during the NFP news release. NFP numbers were expected to be released at 185k, meaning analysts expected 185,000 new jobs to be added to the economy. However, at the time of release the NFP number was issued lower than expected at 162k. Traders were left to react to this lower number with the market immediately reacting by selling off the US Dollar. By 8:45am ET, the EURUSD had increased in value as much as 95 pips from the event low at 1.3189.

So what should traders look for this month, with NFP totals again being released on Friday the 6th? Expectations are set for 180k new jobs to be created. Taking a cue from last month’s report, if expectations are missed this could again lead to a selloff of the US Dollar across multiple currency pairs. Likewise, if numbers are better than expected traders will initially look for the US Dollar to rally. Once a direction is established traders can then trade the news using the strategy of their choosing.

Learn Forex –EURUSD August NFP Release




Regardless if you intend to trade the news or maybe just sit on the sidelines, remember NFP can be an exciting and will often bring unexpected volatility. If you do decide to trade, stick with your news trading plan and always keep an eye on risk / reward levels while minimizing the use of leverage.

---Written by Walker England, Trading Instructor


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Article Summary: Trading the forex market may seem over your head but understand that you control when you trade, what you trade, and how much you trade. This means that you control your destiny more that you realize. Here’s a quick guide to show you how you can control your outcomes in the Forex arena.

“There are two mistakes one can make along the road to truth...not going all the way, and not starting.”
-Prince Gautama Siddharta

Historically, September is a month that turns a lot of investors’ attention to the Forex market. This is due to the fact that September is one of the worst performing months for the Dow Joes Industrial Average going back to its creation in 1896 with an average monthly drop of 1.07%. As stocks tend to perform poorly, investors and traders look to other markets and are naturally attracted to the Forex market as it measures as a $4 Trillion daily volume market that is readily tradable by the likes of you and me.



However, many well-meaning and talented traders are scared away from the Forex market due to a few misperceptions that can easily be cleared up. Sadly, traders new to the Forex market shy away from many trading opportunities because they don’t understand how much control they have over their access to the market. Here are a few key points about the control you have when accessing Forex.

Leverage – How large of a trade you’re controlling




Few things scare new traders like the leverage in the Forex market. If you’re familiar with our Traits of Successful traders report (sign up to access the report here), one of a few important findings that we share is that many traders do best with not leveraging their account more than 5x. However, it’s important to understand that when you open a trade, you decide the trade size and in effect, the leverage you will be using.

Learn Forex: Opening a Trade is Where You Determine Trade Size & Leverage



When To Trade – Determining Which Market Environment You Participate In

Another misconception that a lot of traders have is that the currency market runs wild around the clock. However, what we found is that depending on what time of day you’re available to access the opportunities in the Forex market will likely determine the market environments you witness. In other words, if you’re trading from 6pm – 2am ET also known as the Asian trading session, then you’ll likely see a lot of ranges in which you can take entries near support or the bottom of a price channel to try and get into the trade until the top of the range.

Learn Forex: The Asian Trading Session Typically Displays Ranges with “English Speaking” FX Pairs




What You Trade Determines the Volatility You Will Likely Experience
If you’re unfamiliar with the ATR or Average True Range, it’s time to understand it. ATR tells you how much a currency has moved on average over the last 14 periods. Therefore, if you’re looking at a daily chart and you apply the ATR over the last 14 days, you will notice a wide range in the average distance a currency pair travels.

Learn Forex: Average True Range Varies Significantly Across the Board



The way to read ATR is as simple as the table that I put together for you implies. This table tells you that by and far, you can expect the GBPJPY to travel more than the others based on its average movement over the last 14 days. Similarly, if you’re new to FX and you don’t have the stomach or confidence to handle large moves, then you can trade the EURGBP or USDCHF which move a fraction of the GBPJPY.


Learn Forex: GBPJPY is Often Too Volatile for Any Trader to Conservatively Trade




Putting It All Together

If you’re a new trader who is excited about trading the Forex market but you’re also nervous about what you’ve heard prior to reading this article, pleased understand this. You have more control over your results and exposure than you were likely first led to believe. You can control how much you trade, when you trade and what you trade to determine how exposed you are to the FX market.

Lastly, if you take the extreme example and trade GBPJPY which has the largest ATR at 144 pips per day on average over the last 14 days and trade it during the volatile London Session with too much leverage you are likely setting yourself up for more volatility and account equity swings then you can likely stomach. If you’d like a smoother introduction into live trading, it is better to trade with little to no leverage the low ATR currency pairs during the Asian trading session.

Happy Trading!
---Written by Tyler Yell, Trading Instructor


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Article Summary: With so many currencies to choose from, triangle patterns can help forex traders quickly identify a pair to trade. This article will show you how to use triangles to find a trade setup.

Recognizing chart price patterns is an important aspect of technical analysis that Forex traders should master. These patterns act like a highlighter on the chart showing a potential trade. The triangle pattern is one of the most popular price patterns in Forex because it is easy to recognize, has a good risk to reward setup, and provides clear and concrete price objectives.

Symmetrical, ascending, and descending are the the three types of triangle patterns we will explore today as well as a strategy on how to trade them.

Learn Forex: Symmetrical triangle in a downtrend




The first type of pattern is the symmetrical triangle pattern. It is formed by two intersecting trendlines of similar slope converging at a point called the apex.
In the above example of a symmetrical triangle you can easily see on the AUDUSD 1-Hour chart the intersection of a rising trendline and a downtrend line at the bottom of a larger trend. Sellers are unable to push prices lower and buyers can’t push price to new highs.

This coiling of price between support and resistance is called a consolidation. Usually, within the first 2/3 of the triangle, a breakout occurs either above trendline resistance or below trendline support as either the sellers or buyers take control.
Once a triangle is identified on the chart, traders will wait for a breakout either above the resistance trendline or below support. After a breakout is confirmed with either a closed candle above resistance or below support a stop is placed approximately 10 pips below the last swing low of the triangle. A limit equal to the height of the triangle is then placed.

Learn Forex: Triangle breakout with risk management




In the above example, a trader who went long after the clear breakout at 0.9120 with a stop placed at 0.9086 and a limit of 55 pips would have had a profitable trade with a 1.6:1 reward to risk ratio. Though initially, a trader may not know the direction of the move, the triangle pattern alerted traders that a big move was nearby. In my opinion, if the consolidation exceeds 2/3 of the triangle and reaches the apex, price action just goes sideways much like a flat bottle of soda.

The next type of triangle pattern is the ascending triangle. It is easily recognized by a rising trend line intersecting with a flat resistance line. It is often regarded by traders as a bullish pattern characterized by a breaking out above resistance when completed. However, in the ascending triangle pattern, breakouts can take place below resistance. This can especially be the case when the trend prior to the triangle was down.

Learn Forex: Ascending triangle with breakout




Similarly to the symmetrical triangle pattern, traders enter short on a break below the bottom of the pattern with a stop approximately 10 pips above the top of the high with a profit objective equal to the height of the pattern. However, if price rallied above resistance, a stop would be placed below the highest low within the pattern with an additional cushion of approximately 10 pips.

The last triangle pattern is the descending triangle pattern. The descending triangle is characterized by an area of strong support intersecting a downward sloping trend line. When chartist see this pattern as part of a larger downtrend, they look for a continuation of the downtrend. A close break and close below the area of support would be a confirmation of this pattern signaling traders to enter short with a stop above the top of the pattern.

Learn Forex: Descending triangle with breakout




The triangle pattern represents the forces of buyers unable to push price higher and sellers struggling to push price lower. Usually, the struggle is resolved with a breakout below support as illustrated in the example above.

In sum, triangle patterns are easy to spot, and provide good risk reward opportunities. Traders can quickly know that a big move may be near as well the profit objective and the amount to be put at risk. Now that you have the knowledge of the three powerful price patterns you are steps closer to becoming more confident trader!

--- Written by Gregory McLeod, Trading Instructor

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Article Summary: Price action breakouts can be a great way to take advantage of a market reversal. Once found traders can employ a breakout strategy for entries.

Price action breakout traders have the benefit of trading with the trend as well as potentially being the first to spot market reversals. Below we can see a prime example of such a breakout in action. Currently the EURAUD has advanced as much as 1219 pips since its June 14th low to its current swing high at 1.5029. However, looking at the chart below, it is important to notice that price action has moved below series of previous lows printed during the pair’s ascent. With the EURAUD breaking out towards lower lows for the first time in months, this makes the currency pair a prime candidate for breakout trading.

Today we will look at identifying a potential breakout and the opportunities that follow.

Learn Forex – EURAUD 4Hour Uptrend



Trading Breakouts

After finding the previous swing low or high in an uptrend, trading a price action breakout becomes a very straightforward process. Going back to our example on the EURAUD, the previous low for the pairs uptrend resided at 1.4442. This point was acting as an area of price support for the pair as it was moving up towards higher highs. This support was acting like a floor for price and price action breakout traders looking for a reversal have waited patiently for price to trade below this point. With the new creation of a lower low, traders will look to sell this breakout with the expectation of price to develop a fresh downtrend.
Entry orders are always an effective and easy way to prepare for a market breakout. An entry order is a pending order, and can be set through the FXCM Trading. In the event that the market trades through a level or support or resistance, your order will be executed and your trade triggered into the market. Regardless if you are in front of your charts or not, by using an entry order your trade is scheduled to execute as soon as s breakout occurs!

Learn Forex – EURAUD Breakout




Stops and Limits

After finding a breakout point to place an entry order, traders should then consider to manage their risk. Normally when trading a breakout in a new downtrend, traders will look to place stops above the broken line of previous support. Stop values can be placed 1ATR value above this level to account for current market volatility.

Once a stop is set using ATR, traders can then multiply that value to find a positive risk: reward ratio of their liking.

---Written by Walker England, Trading Instructor

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Article Summary: Learning to read price channels can be a very helpful tool in ranging or trending markets. Here is a quick walkthrough on identifying price channels so that you can better set stops and trade limits.

"To invest or speculate successfully, one must form an opinion as to what the next move of importance will be in a given stock. Speculation is nothing more than anticipating coming movements. In order to anticipate correctly, one must have a definite basis for that anticipation... "
-Jesse Livermore

What if you had tomorrow’s newspaper today? That is often the ‘Holy Grail’ type of system that most traders look for when choosing an indicator or trading system but please understand that you will likely wind up frustrated and lighter in the wallet when looking for a 100% trading system. However, you can take the common movements of a currency pair to help you see where price is likely to end its advance or run out of steam on the downside.

Learn Forex: Price Channels Can Hold Even on Extreme News like NFP



In this article, you’ll learn to develop the skills necessary to:

Identify Price Channels

Set Stops & Limits Off Of Price Channels

When identifying price channels there is are two key things you can look for that will make your job much easier. The first is to recognize if there is a trend with higher highs in price and higher lows in price for an uptrend or the opposite for a downtrend. If you’ve recognized higher highs and higher lows then you can take look to see if the higher highs and higher lows are moving in sync.

Learn Forex: Identifying A Potential Channel




Once you’ve clearly identified higher highs and higher lows or lower highs and lower lows for a downtrend, the next step is to draw a channel. Drawing a channel on the chart is as easy as connecting the highs with a line tool and then connecting the lows with a tool. This will provide the map for your trading going forward.

Learn Forex: Higher Highs & Higher Lows on XAUUSD are identified with a Line Tool




Tracking & Trading the Market’s Foot Print

Another benefit to using price channels for entries and exits is that your trading only what the market is likely to provide as opposed to some unground and lofty profit gain that you hope to achieve. At the bottom of the GBPUSD & XAUUSD chart, you’ll notice that the Average True Range or ATR is shown in accordance to the channel. This is helpful because you can base your exits on what the market has been doing over the last fixed number of periods and working to capitalize on those behaviors.

Simply put, if your target is beyond the Channel or outside of the ATR that the channel is covering then you have a lower probability of your target being hit. Naturally, that doesn’t mean that your target will not be hit but rather that it would take a move outside of the ordinary price action to hit your target. As a trader who is looking to make money in an uncertain future, it may be best to set profit targets within common price action and as defined by the channel than hoping for an outsized move outside of the channel.

Entering & Exiting With the Help of Price Channels

When entering off a price channel there are a few things that you’ll likely want to concentrate on. First, it’s good to see indecision or a lack of conviction when price touches the price channel and this can be seen through a long wick of a price action candlestick. A long wick shows you that price has been rejected at that level and you may see price move back to the opposite side of the channel providing you a good entry of real-time price action.

Learn Forex: Channel Touches With Often Converge With Other Indicators




Another convicting note when trading price channels is that you’ll often notice that other key indicators or tools will present signals as price touches the channel line. In other words, if you see price touching a channel top as RSI is showing overbought or a major Fibonacci Expansion level is hit then you have further conviction that this may be a good time to take profits or exit the trade. In the tune of high probability conservative trading, when setting targets, it’s often best to set targets on the inside of the channel so that your target is more likely to be hit that on the outside of the channel.

Closing Thoughts

Trading price channels are a great way for new and experienced traders to approach the FX market. However, we still recommend trading in the direction of the trend even with channels. Also, please remember that ‘the trend is your friend until it ends’ so it is important to keep stops in place because eventually, the channel will run its course and then you can go looking for new channels to trade.

Happy Trading!
-Written by Tyler Yell, Trading Instructor

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Article Summary: In late April, AUDUSD started its decent from 1.0580 down to 0.8850 in early August. While we never look to stand in front of a trend, the tide looks to be turning on AUDUSD as we see multiple reasons to keep our risk tight and look for AUDUSD to move higher as we cover specific risk points to focus on.

“Bull markets are born in pessimism, grow on skepticism, mature on optimism, and die of euphoria."
- Sir John Templeton

Few currencies have confused as many traders as the Australian Dollar. Looking into our internal research, we can see that retail traders have been bullish the Australian Dollar since May when it fell from 1.0580 down to a low of 0.8850. However, for the first time since May, many technical or chart indicators are starting to align and showing that a move higher could have some merit.

Combining Fundamental with the Charts

Over the last few days yootice a lot of favorable data is coming to light shou have likely seen a lot of strength in the Australian dollar. If you look at the fundamental drivers of the currency via the economic calendar you’ll nwing that the Australian Dollar could continue higher. Over the weekend an election took place that has aligned their agenda to economic development that is favorable the Australian dollar. Also, Chinese data which affects the Australian dollar due to their trade relationship came in upbeat which helped the Australian dollar find a good amount of buyers as sellers were sparse.

Ichimoku & Other Technical Patterns Showing AUD Upside

At its heart, Ichimoku is a trend following indicator that can’t predict the future but can help you clearly see the trend. As traders ourselves, we like to trade trends of all degrees and encourage you to do the same and that is why we like Ichimoku. In addition to identifying the trend, Ichimoku can help you interpret price action so you can find a good entry in the direction of the trend.

When Ichimoku is applied to your chart, there are a few things you should be looking for to see if a trade opportunity is present. On the time frame of your choosing, check to see where price is trading in relation to the cloud. If price is above the cloud then you can see that a bullish set up is in the works. Next, look to see if the moving averages of the indicator are complementing the trend. In other words, is the shorter moving average favoring the slower moving average? This shows you if the momentum is moving appropriate.

Lastly, you want to see if the momentum aspect is in line with the trend. Ichimoku utilizes a unique method to measure momentum by looking at how current price compares to price 26 periods ago. Simply put, if price is now is higher than price from 26 periods ago, then you should be looking for higher prices. On my charts below, you can see a bright green line that I have augmented so you can clearly see when momentum is favoring the trend by being displayed on the same side as the cloud.
Trades of the Week: Ichimoku Presents AUD Bulls with Multiple Options

Most Ichimoku reports present you with one trade that you can use as a guiding light for trading with Ichimoku according to the rules below. This report, presents you with two trades off the back of the impressive AUD strength. The first that we’ll look at is the AUDUSD potential trend reversal.

Learn Forex: Trendline Breaks & Ichimoku Buy Signals Align on AUDUSD




Entry to Buy: Strong Price Action Signal Above 0.9200
Stop: 0.9100 (recent price support on prior correction)
Limit: 0.9415 (conservative with trend target near June high)

If this is your first reading of the Ichimoku report, here is a definitive guide on the versatile indicator:
-Full Candle Bodies above the Kumo Cloud
-The trigger line (black) is above the base line (light blue) or is crossing below
-Lagging line is above price action from 26 periods ago (Bright green line)
-Kumo ahead of price is bullish and rising (blue cloud = bullish Kumo)

Ichimoku is a great tool to help you see when a trend is reversing based on when price and the lagging line break through the clod. On the chart below, the AUDUSD trend has shifted from a great bear trend to a potential reversal that we hope to catch with this trade. Outside of Ichimoku, there is a price pattern called an Inverted Head & Shoulders that is developing on this pair. Trend reversals as displayed with Ichimoku are a riskier trade so it’s best to keep your stops rather tight in case the analysis is wrong.

Learn Forex: Neckline Break on AUDUSD Inverted Head & Shoulders




AUDJPY also presents a lot of potential upside as price action has displayed a potential double bottom off the 61.8% retracement point and Ichimoku has presented a bullish signal.

Learn Forex: AUDJPY Buy Signal on Ichimoku with Potential Double Bottom in the Books




Entry to Buy: Strong Price Action Signal Above 91.50
Stop: 89.75 (bottom of H4 Cloud)
Limit: 94.25 (Weekly R2 Level)

Happy Trading!

---Written by Tyler Yell, Trading Instructor

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Article Summary: Forex long wick candles are great reversal trading patterns. This article will show you how to employ a solid risk reward strategy to trade these price extremes.
We are going to look at a popular forex trading bar pattern which easily shows this extreme in sentiment which can be used to find low risk, high probability setups.

Learn Forex: Candlesticks



As you can see by the examples above, long wicked candles like shooting stars or gravestone dojis and hammers are part of a “family” of reversal candlesticks. These candlestick patterns have small real bodies with a wick that is three times, or greater in size in relation to the real body.

Trader Martin Pring called this pattern the “Pinocchio Bar” after the European children’s story of a cobbler who carves a son out of wood that magically comes to life. Whenever the boy told a lie, his nose would grow very long. Pring believed that the long wick lied about the true direction of the trend much like Pinocchio’s. Traders have shortened the name to what is commonly known as the “Pin bar”. Whatever name you choose to call this candle, the impact is usually the same on short-term market direction.

Traders get excited about prices moving in one direction over a period of time. Prices rise in a fever pitch and the trend line becomes parabolic. Finally, price may exhaust itself in one last push higher to new highs before pulling back sharply and closing at a level much lower than the previous high that was made.

The long wicked candle or bar is very recognizable on the chart as price forms an extreme long wick that is outside the previous price range.These long-wicked candles are usually the result of some sort of fundamental news. The reason they show up is seldom known at the time they happen but in hindsight, a reason is attached.

Learn Forex: Risk Reward targets




How to Trade

As you can observe in the example above, long wicked bearish candlesticks are great places to “sell the rallies.” Next, we look to enter on the open of the next candle and immediately place a protective stop at least 4 pips below the low of the wick. We expect a quick response as price recoils from this extreme level and we place a 1:1 or better limit.

In the example above, a long wicked reversal can be seen on the 4-Hour EURCAD chart. Price rallied with a long wick forming a gravestone doji candlestick just beyond the 1.4100 round number. EURCAD breaks below the low of the previous spike candle.

A short trade in the opposite direction of the spike would be entered at 1.4032. A protective stop is set 4 pips above the wick high of 1.4126 at 1.4130. A limit is set for at least 1:1 reward to risk. Notice how in this particular example that EURCAD ran down to the 2:1 reward to risk target.

Similarly, bullish long wicked candles are excellent ways to participate an existing uptrend at better levels to do what is commonly called “buying the dip”.

Looking for bearish long wick reversal patterns in established down trends as price runs up against significant levels of resistance like pivot points, Fibonacci levels, round numbers, daily highs and daily lows increases the success of these candlestick patterns. In addition, these same type of support and resistance levels can increase the odds of a bullish long wick reversal candle pattern following through with higher prices.

In conclusion, long wicked candles can give traders opportunity to get into an established trend at better levels when the market retraces suddenly. Traders can quickly enter the market in the opposite direction of the spike with a clear place to put a stop and limit!

--- Written by Gregory McLeod, Trading Instructor


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