Forex Strategies

Talking Points
- AUDUSD has been on a downtrend and may continue to push lower.
- Previous levels of Fibonacci support can act as resistance levels
- When one Fibonacci level is broken, price often moves down to the next level of Fibonacci support.

One way traders like shorting after price breaks below a trendline or other significant level of support is to use breakout technique. This involves getting short immediately after price moves through a level of support. However, price oftentimes, retraces to retest the breakout area and traders have to endure time wasted and negative drawdown that comes along with this retrace.

One solution to this issue is to wait until a retrace happens following the initial move. This requires patience on the Forex trader’s part as the thought of missing a big move may outweigh the cool logic of waiting for a better price to short at a higher level. Remember, while bulls look to “buy low and sell high,” bears look to “sell high and buy low.” Therefore, selling at the highest price possible before a drop is the goal. Fibonacci can help us “pick tops” in a downtrend

Learn Forex: AUDUSD Close Below Fibonacci Support




In the chart above, using the AUDUSD 10/27/2008 swing low at 0.6005 and connecting it to the 7/27/2011 swing high of 1.1079 Fibonacci lines were drawn. These lines were tested numerous times while the pair traded in a range. After a level was broken, price moved down to the next level of Fibonacci support. Notice how AUDUSD rebounded from the 23.6% Fibo several times form August 2011 to June 2012.

Next, we saw AUDUSD push down to the 38.2% level at 0.9138 on June 20th. Aussie finally rebounded from this Fibo on 9/5 falling 130 pips short of the 23.6% Fibo at 0.9878; Aussie has been trending down ever since. The 23.6% Fibo of this first set is located at 0.9111 and it could be a possible area to get short. These levels can be used to set profit targets as well as anticipation on entry points.




The Trade Setup

The current rebound from the 0.8900 round number support can be used as the ending point of a set of Fibonacci resistance lines starting at 0.9762 (blue lines). The confluence of the trend with the uptrend and downtrend Fibo levels provide a good shorting opportunity. The resumption of the downtrend could see the Aussie moving down almost 600 pips to the 50% Fibonacci level at 0.8540.

The Aussie has not traded at this level since July 2010. Currency pairs have a tendency to overshoot, so waiting for Aussie to turn down from the 23.6% downtrend Fibo level (0.9108) and the 38.2% uptrend Fibo level (0.9138). A stop can be placed above the last swing high once the down trend resumes with a limit of 0.8540.

---Written by Gregory McLeod Trading Instructor

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Talking Points

• The EURGBP is in a multiyear downtrend.
• Trend traders will see the 2013 rally as the market forming a lower high.
• Resistance has formed a channel allowing traders to trade with the trend.

Finding market trends is important for a Forex trader so they can develop a trading bias to buy or sell a particular currency pair. Some trends move rapidly while others have smaller directional moves, but one thing is certain a downtrend is established by the market making a series of lower highs and lower lows. Conversely, an uptrend is defined as a market making higher highs and higher lows. As 2013 quickly comes to a close it is important to identify fresh trends for the upcoming 2013 trading year.

When looking for the best possible trends to trade into 2014, one pair stood out in my mind. While the EURGBP is not considered a fast moving pair compared to other Euro crosses, only moving an average of 38pips a daily, it does have consistent market direction when looking at a weekly or even a daily chart. Currently the EURGBP is continuing a 4 year down trend declining as much as 2046 pips from its December 2008 high at .9803. However, for the better part of 2013 the EURGBP was seen retracing.So can the EURGBP move back towards lower lows and be one of the strongest trends for the 2014 trading year?

Learn Forex – EURGBP Weekly Trend



Moving into the daily chart seen below, we can better see the EURGBP and its advance for the 2013 trading year. Even though its longer term downtrend temporarily stalled, we can see a price channel developing on the Daily Chart. How can this channel be identified? It all begins by connecting the previous highs on the graph.
Below we can see the pricing channel created by drawing a trendline from the 2011 high at .9082 with the 2013 swing highs of .8814 and .8768. This line will represent a line of resistance for the channel. Once this area is identified, this line can be copied and applied to the graphs current lows. Once extrapolated, these lows will create an area of price support. On the chart below, this is done by connecting the 2010 low at .8067 with the 2012 low at .7751. Now that these areas have been identified traders may then apply the trend based strategy of their choosing to the graph.

Learn Forex – EURGBP Daily Channel



My preference is to find opportunities to sell the EURGBP using the pricing channel mentioned above as technical levels of support and resistance. Traders can place entry orders near .8500 to sell resistance in the event of a retracement. Technical traders may also look for a breakout in the event the EURGBP begins moving towards lower lows. Regardless of the method chosen, a completion of the pricing channel allows to target prices near .7500.

---Written by Walker England, Trading Instructor

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Talking Points
- Since the July lows, GBPUSD has rallied 1671 pips in a strong uptrend.
- The Commodity Channel Index (CCI) measures deviations from the moving average while showing overbought and oversold conditions
- When CCI crosses up above the -100 line, a buy signal is generated

Don’t get thrown off by the lengthy name “Commodity Channel Index” as it is not a new 24-hour cable broadcast devoted to pork bellies and soybeans; though you could use it to trade either of these. CCI is a popular indicator used by Forex traders to identify oversold and over bought conditions much in the same way that RSI or Stochastics is used. But instead of 30 and 70 representing oversold and overbought areas, CCI uses -100 and +100. Though Donald Lambert created CCI back in 1980 to identify cyclical turns in commodities it is very effective with currencies. By measuring the current price relative to the average price of a set period like 14, CCI is low during time prices are below their average and high when prices are above their average. This gives us the oversold and overbought regions.

Why is this important you may ask? Well, it is simple. When we have a strong uptrend, the best place to buy is at price point where traders are no longer selling or selling pressure begins to subside. This is called being “oversold”. How do we know when something is oversold? This is a great question too! Forex traders have several tools and methods at their disposal to show them when prices have fallen too far too fast and when bargain hunters may step in sending prices higher. Candlestick pattern, oscillators and support/resistance levels are the primary tools.

With CCI, Forex traders look to buy when CCI crosses above -100.



Similar to real estate investing, without the headache and a lot more fun, Forex traders want to buy the “worse house in the best neighborhood at the lowest price.” In our analogy, the best neighborhood is a strong trend; the “worse house” is the entry zone for our trade. Like the real estate investor, we look for the value of our holdings to increase over time. Since we have bought at a relatively low price, our risk is small relative to the potential gain. Unlike real estate fixer-uppers, Forex traders can forget remodeling as time and trend work to increase the value of the position

Learn Forex: GBPUSD CCI Buy Signals




Trading Setup

The current trading setup below shows a GBPUSD daily chart uptrend from August 2013. The chart depicts four successful by signals given by CCI as it crossed down below the -100 line and turned up. Forex trend traders would filter out the sell signals generated when CCI crossed down below the +100 line as more pips are gained when trading with the trend than against it. In an uptrend, traders Forex Traders will take buy signals using CCI and use CCI sell signals to take profits. Waiting for CCI to turn above -100 and looking for price to confirm the move, traders will enter the market long and then place a protective stop order about 4-10 pips below the last swing low.
The Trading Plan

Currently, GBPUSD has just bounce from the 1.6220 area and CCI has generated a buy signal when it crossed above the -100 line. A stop could be placed just below that swing low for a target of 1.6671. Remember to always use stops and to only risk no more than 2% of your account equity on any trade. If the stop is hit, then we look for another trade! CCI is simple way to visually identify potential entries.
---Written by Gregory McLeod Trading Instructor

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Talking Points:

• Traders can look for high-probability setups by matching a strong currency with a weak one
• Strong/Weak analysis can be performed manually, or with the StrongWeak App from FXCM
• This article outlines how scalpers can use StrongWeak analysis

We’ve seen rampant demand for education around this style of analysis, and as we explained in Trading the Strong and the Weak – this makes sense. Because in the FX market, every trade is performed in a pair; and each position is trading two economies.

So, you can be wrong and STILL win.

The Value of a Two-Sided Pair: You can be wrong and still win in the trade




The flip-side of this, and perhaps more important to the new trader is that you can be right, and still lose. If you expect the Euro to weaken, and you sell the Euro against the US Dollar; but we end up seeing more US Dollar weakness than Euro weakness: Well, you were right in expecting and getting Euro weakness – but you would still lose in the trade since the US Dollar got even weaker.

What is Strong-Weak Analysis?

Because every currency pair is a two-sided trade, traders are well advised to analyze both currencies in each of the pairings that they’re trading. Because, after all – if we can’t win when we are right, the prospect of profitability can seem distant.

Strong-Weak analysis analyzes each of the major currencies so that we can make an apples-to-apples comparison to find which currencies have been strongest, and which have been weakest over a relevant period of time.
We can do this manually simply by observing the chart and doing a little math. We outlined the manual process for performing Strong-Weak analysis in the article, How to Separate the Strong from the Weak.

An easier way to perform this analysis is with the StrongWeak App from the FXCM App Store. We walked through the app in this video, available on Youtube.

The StrongWeak App from the FXCM App Store (Currently Free with this promotion)



Currency Strength/Weakness shown for 8 major currencies over 4 time frames

How to Scalp with Strong-Weak Analysis

One of the best parts of this analysis is that it will show us what may be the most opportune markets to look for fast movements.

Traders can look to the strongest currency in the analysis to go long, and the weakest currency in the analysis to go short.

So, using the above example, scalpers can refer to the one-hour time frame to find the largest deviation. As you can see in the box for ‘H1,’ EUR is the strongest currency analyzed, and NZD is the weakest.
Traders can then investigate long EUR/NZD positions.

At this point, traders need to decide how they want to trigger the position; and there are two ways to do this.
Traders can look to trade breakouts in the direction of the trend. In this case, they can investigate top-side breakouts in EURNZD.

Alternatively, traders can look to trade the EURNZD move by waiting for prices to pull back so that they can buy the up-trend cheaply. In this case, an indicator such as RSI or a moving average can be used on a lower time frame like the 5 or 15 minute chart; and traders can wait for a bullish trigger to enter the long position.

After locating trends via Strong-Weak Analysis, scalpers can look to indicators to trigger entries



So, if looking to buy EURNZD, traders can simply wait on the 5m chart for prices to pull back below the moving average of their preference, and when prices crosses back over that moving average in the direction of the trend, they can look to trigger the position in anticipation of the trend continuing.

--- Written by James Stanley

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Talking Points

• The AUDNZD remains in one of the markets strongest downtrends.
• Traders can judge trends by using the DMI indicator.
• With DMI – remaining dominant, traders will look for the downtrend to continue.

The first objective of a trend trading plan is to find market direction. There are a variety of methods for finding the trend however interpreting price action can often be difficult and sometimes misleading. To help simplify this process traders can use technical indicators to asssist in finding market direction..

In todays example we will be looking at the AUDNZD currency pair whos weekly chart is pictured below. The pair has declined as much as 1932 pips from its December 12th, 2012 high, making it one of the markets strongest downtrends.Even with such strong movements, traders may question when the market is actually trending or when a retracement is occuring. To answer this question, today we will turn to the Directional Moving Index
(DMI) indicator.

Learn Forex – AUDNZD Weekly Trend




When placed on a chart the DMI indicator is comprised of two lines. The first line is the positive directional movement indicator (DMI+), with the second being a negative directional movement indicator (DMI-). Both lines run in a range between 0-100 to help identify which direction a currency pair is trending. The DMI + line is shown in green in the chart below, and as its name suggests, it helps track price in an uptrend. The DMI - line is depicted as a red line and measures the strength of the market in a downtrend.

Reading DMI is relatively straightforward. Traders will watch both lines oscillate between 0-100 and change their market preference as one line crosses above the other. So all traders have to do, to gauge the trend ,is to identify which DMI line resides above the other. As this line shows the markets underlying strength or weakness it is referred to as the dominant DMI line. In the chart below, DMI - has crossed above DMI +, making it the dominant DMI line and suggesting that the AUDNZD trend is down. If DMI + was the dominant line the opposite would be true. Traders would then conclude that the market was intending to move higher.

Learn Forex – AUDNZD with DMI




Using DMI as a reference my preference is to look for continued weakness in the AUDNZD moving into 2014. This will continue as long as DMI – remains above DMI + indicator lines. One way to trade this market bias is to look for breakouts toward lower lows. If DMI – increases in value, traders may look to employ a trend based trading strategy of their choice

An alternate scenario includes price moving to higher highs. If this occurs traders will be notified as the DMI + line will cross back above DMI -.

---Written by Walker England, Trading Instructor

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Talking Points
- Forex traders look to the 200-day simple moving average to determine trend direction.
- The Euro continues to trade above the 200-day simple moving average indicating that the trend is up.
- The addition of a 10-day SMA provides a visual trigger to buy on dips.

Though moving averages are considered lagging indicators constructed on taking the last “x” number of closing prices and then finding the average of them and plotting this value on a line, they can be useful for finding trade entries when a longer moving average is paired with a shorter moving average. This article will show you how to identify and trade this setup that is forming on the EURUSD.

They are called “moving” because the oldest data points are dropped and the new value to the right is added in its place. For example, to calculate a 200-day moving average you would add up the closing prices from the past 200 days and then divide the result by 200.Taking out weekends, there are approximately 200 trading days in a year. So when price is below or above the 200-day moving average it is the same as stating that a Forex currency pair is above its yearly average.

However, once a forex currency pair moves significantly above the 200-day moving average, its ability to help a trader time entries into a trend diminishes. The addition of a 10-day exponential moving average can give traders a buy signal as price dips below the 10-day EMA and then breaks back above the EMA.

Learn Forex: EURUSD Moving Average Setup




Trading Setup

In the example above, the Euro is above the 200-day moving average represented by the rising black line. Once EURUSD rallied from a bounce from the 200-day moving average back in September, the pair has not looked back. The 200 SMA only serves as a form of a “compass” telling Forex traders what is the dominant trend direction. Adding a 10-day EMA gives a “line in the sand” on a currency pair letting the trader know when a profit-taking decline has subsided and buying pressure is returning. Notice when the Euro has declined below the 10-day EMA while remaining above the 200-EMA and then turns above the 10-day EMA, the trend continues higher. This allows forex traders to “to buy the dips” in an uptrend.

The Trading Plan

Currently, the Euro sits just below its 10-day EMA and above its 200-day SMA. A daily close above the 10-day moving average in the 1.3700 area would be a trigger for a move north of the 1.3800 area. If the Euro can close on a daily basis above 1.3700, a protective stop can be placed just below the 1.3600. If price does not close above the 10-day SMA then the setup is no longer valid.

---Written by Gregory McLeod Trading Instructor

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Talking Points:

• Entry orders free up your day by saving you time.
• Entry orders can give you better entry levels for your trades, saving you money.
• Entry orders require a pre-set trading plan which keeps you accountable to your strategy.

Traders can strategize all they want to come up with a great trading plan, but if they can’t execute that plan effectively, all their hard work might as well be thrown out the window. The Forex market is open 24 hours a day, so this means no trader can keep an eye on it all the time. So we need a way to execute our trading plan that fits with our personal schedule.

This is where setting up entry orders comes into play. Entry orders allow us to set the price that we would like to buy or sell ahead of time and will only get us into the trade if that price is hit. There are several benefits to trading using Entry orders, and that is what we will discuss in this article.

Learn Forex: Setting an Entry order




Benefit #1 – Entry Orders Save You Time

The first benefit should be pretty obvious. Entry orders save us time. We do not need to be at our computer when a trend line is hit or when price breaks out of its price channel. We can very easily add an entry order to get us in the trade if price behaves in the way we think it will. The order does the waiting for us and allows us to get back to spending time with our family or spending time at work.

We can also take things one step further by setting contingent stop and limit orders to manage our trade if our entry order is triggered while we are away. This gives us peace of mind that we aren’t floating a naked trade without managing orders attached to it. To do this, click the advanced button while placing an entry order. The option for setting a stop and a limit will be added.

Learn Forex: Setting a Contingent Stop and Limit



Stops and limits set in this manner are not active until the entry order is triggered and opens a trade on our account. So we do not need to worry about a stop or limit being triggered before our entry order is hit.

Benefit #2 – Entry Orders Save You Money

The next benefit that Entry orders gives us is that they can save us money. This is a topic I teach in many of my trading strategy webinars. To understand this better, we need to think about how much time throughout the day we have to dedicate to Forex trading.

12 hours? 6 hours? 1 hour? 10 minutes? Most of us probably fall near the lower end of the spectrum between 10 minutes to an hour (if we were looking at the average amount of time per day). This is because most of us have a day job, a family, or prior obligations we must attend to.

We must now compare that amount of time to the 24 hour day that the forex market is open. If you said you spend 10 minutes a day placing your trades, you are watching the market 0.7% of the day. If you said you spend an hour a day placing trades, you are watching the market about 4% of the day. Knowing this, what are the odds that you are going to be looking at the market at a time that is optimal to physically place a trade? The odds are probably not very good. It is much more likely that the optimal time to enter a trade will fall sometime during the other 96% of the time when you are not at your computer. If we force ourselves to trade during this small viewing window, we are most likely getting suboptimal entries. Suboptimal entries means we are leaving money on the table.

I see so many traders do this. We get on the computer and start looking for setups with a goal of placing a couple trades before we need to sign off. When in reality, we should be eyeing potential setups that we can get with an entry order. We should try to receive the most ideal price possible even though it might not be available while we are physically sitting in our computer chair.

Benefit #3 – Entry Orders Keep You Accountable

Every strategy we use should have hard set rules before we begin trading it. This means we know exactly what we are going to do in any type of situation before that situation arises. But at times, our emotions (greed, fear, over-confidence, etc.) can lead us away from our trading plan and result in us taking stabs at the market hoping to “get lucky” rather than taking a calculated risk where we believe to have an edge. Entry orders (with stops and limits attached) mostly eliminates this as a possibility and lets our strategy stand on its own without emotional interference.
Entry orders are a great way to keep us accountable to our strategy and make sure we are following the rules to the letter.

---Written by Rob Pasche

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Talking Points

- USDJPY has been on an uptrend and, after a brief pullback, may continue to rally higher
- Typically, a profit-taking decline ends at one of four major Fibonacci support zones
- Multiple lots can be used to spread out the risk at different Fib levels

Fueled by an ultra-easy Bank of Japan monetary policy and a combination of stronger U.S. economic data and rising interest rates, USDJPY has trended up strongly. The surge in USDJPY in November from the 98.00 area to the 104.00 handle was as textbook uptrend with shallow pullbacks disappointing bargain hunters who were looking for a bigger correction.
However, Forex traders may get their chance as USDJPY has run into resistance just short of the 105.00 handle at 104.62 and with the Christmas holidays just around the corner, a profit taking present-buying decline may be in order as traders cash in. But where do Forex traders enter?

Learn Forex: USDJPY Fibonacci Setup



Trading Setup

The yen pair have been challenging because in order to draw a Fibonacci retracement, an established low is connected to an established high. If price fails to move lower and makes a new high, then the lines have to be redrawn. Using the October 8th low at 96.55 as our starting point for the Fibonacci tool and connecting it to the December 20th high at 104.62, we can establish five levels of potential Fibonacci support:

Fibonacci Level	Price
23.6%	102.54
38.2%	101.25
50%	100.21
61.8%	99.17
78.6%	97.69

The Trading Plan

Once USDJPY rebounds from the 23.6 Fib level at 102.54 and starts moving up, enter long with a protective stop-loss placed about 4-pips below the next level of Fibonacci support under the entry around 101.23. A limit can be set at 1.0516 which is slightly above the recent high made on December 20th at 104.62. We are looking to risk 131 pips to make 262 pips in profit. In the event that USDJPY does not pullback but resumes the move higher, we would need to redraw our Fibs after the high is established and the profit-taking decline is confirmed.

Just a reminder that though Fibonacci can show great precision and forecasting price targets and rebound zones, traders have to remain flexible in their view of the charts and price action. USDJPY could correct lower to the 38%, 50% or the 78.6% retracements before turning around and heading higher. So if you are stopped out initially, don’t be discouraged as it could take more than one attempt to catch a ride on this trend. This is the reason that it is recommended that traders risk no more than 2% of their account on any one trade. By only deploying a small amount of your capital on any one trade, your account lives to trade another day! Some traders may take their 2% position and divided into three parts. In this way they can place a third at the 23.6% level, and another third at the 38.2% Fibo, and the final third at the 61.8% level. A stop on all the positions would be placed just below the 78.6% “Fibo of last resort”. Using this method spreads out the risk over smaller positions. Whether you choose an “the all in” approach or an incremental method, Fibonacci gives you the road map to rejoin the trend.

---Written by Gregory McLeod Trading Instructor

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Summary: Many financial investors like the diversification the FX market brings to their portfolio, but are too busy to spend countless hours researching the market for trades. This Forex Video shows how one can balance the time investment with the capital investment in FX.

This is a live webinar recording from December 19, 2013 hosted inside the DailyFX Plus Live Classroom. The objective of time efficient trading is to restrain ourselves from spending endless hours researching and trading the market when our return for our time can be quite volatile.

Since we cannot guarantee returns, the other part of the equation we have significant control over is how we use our time in accessing the market. If we can be efficient with our time in making trades, then we can free up time to also run other business or enjoy time with family and friends.

Outline of content in the video:

• How you efficiently utilize your time (Money vs. Time)
• Portfolio Update (since it began November 7, 2013
• Volatility tends to slow down during holiday trading – as a result, changes made to the portfolio
• Japanese Yen – where next?

When looking for strategies to trade, we seek out strategies whose past displays a history of traits of successful traders.

For example, look at your average winners and compare them to the average losers. Are your average winners larger than average losers? If my average winners are larger than the average losers than a good win ratio can be 40-50%.

So my goal is to find strong trends, apply strategies that implement traits of successful traders (namely a positive risk to reward ratio) to those strong trends, then manage the results.

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

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Talking Points

• The AUDNZD was one of 2013s strongest downtrends.
• Trend traders can use breakouts to time entries into the New Year.
• Donchian Channels can be used to help better identify breakout entries.

When beginning trading for a new year, it is always important to evaluate the markets long standing trends. This way we can better gauge which pairs we may want to trade into the upcoming 2014 trading year. One chart that stands out is the AUDNZD weekly chart below.

From the last week of the 2012 trading year, through the low created on December 17th the pair has declined as much as 1932
pips. As the pair continues to steadily create lower lows, this can create many opportunities for traders to sell the market.
Let’s look at one approach we can use for trading the AUDNZD in the New Year.



Breakout Entries

One way to trade a strong daily trend, is through the use of breakouts. Since the definition of a downtrend is the creation of lower lows, it is intuitive to sell the market when the market breaks a line of support to form yet other new lows. While this strategy may seem simple at first, some traders may have difficulties pinpointing where to enter the market. One way to simplify this process of identifying a new low is through the use of a technical indicator.

The Donchian Channel indicator is a custom indicator offered through the FXCM App store for Marketscope 2.0. This indicator is designed to specifically pinpoint where the market makes a new low or high. Looking at the indicator now applied on the AUDNZD daily chart below, past highs and lows can now easily be identified. Using a default setting of 20, breakout traders can then plan to enter the market each time the market creates a new 20 day low! To do this, an entry can be set below the previous low. That way in the event of a market breakout, traders will have their order triggered into the market.



There are risks associated with any market strategy and it is important to consider risk management when breakout trading. One easy way to identify stop placement is to again use the Donchian Channels. In the event that the market creates a higher high, traders selling the AUDNZD will look to exit any existing short positions.

---Written by Walker England, Trading Instructor

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