Successful Forex Trading Requires A Combination Risk Management

 Successful Forex Trading Requires A Combination Risk Management - In theory, it is an easy trading trend. All you need to do is trade when you see the price going higher and hold the sale when you see it break lower. In practice, however, it is much more difficult to do this successfully. The biggest fear of trend traders is the late trend, that is, fatigue. Despite these difficulties, trend trading is probably one of the most popular types of trading because when a trend starts, whether it is short-term or long-term, it can last for hours, days, and even months.

Here we will cover a strategy that will help you get into the trend with a clear entry and exit phase. This strategy is called moving average MACD combo.

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The actual timing of the SMA depends on the chart you use, but this strategy works on both hourly and daily charts. The main objective of the strategy is to buy or sell only when the price crosses the moving averages in the direction of the trend.

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Our first example is for EUR/USD on an hourly chart. Trading on March 13, 2006, when the price crossed above both the 50-hour SMA and the 100-hour SMA. But we do not enter immediately, because the MACD crossed the style more than five bars ago, and we prefer to wait for another MACD inversion to enter the cross. The reason we stick to this rule is because we don't want to buy when the moment has already been excited for a while and therefore has exhausted itself.

The second trigger occurred a few hours later on 1.1945. We enter the position and our initial seat at the five bar low from entry, which is 1.1917. Our first target is twice the risk of 28 vines (1.1945-1.1917), or 56 vines, our target in 1.2001. The target was struck at 11 am EST the next day. We therefore move the stop to break and look for an exit average position when the commodity price is below the 50-hour SMA for 10 weeks. This happened on March 20, 2006, at 10 am EST, at which time the second half of the position was closed at 1.2165 for a total profit of 138 shares.

Why can't we just trade the MACD cross from positive to negative? You can see by looking at EUR/USD below that many positive and negative swings occurred between March 13 and March 15, 2006. Most of all, however, from the eluvia, and even from the inversion of some of the signs, if he had been caught, he would have been abandoned before. making any significant profits.

Why can't we just trade the moving cross without the MACD? See the chart below. If we took a moving average cross signal to the downside when the MACD was positive, the trade would have turned into a Win.

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The next example is shown below for USD/JPY on the daily chart. Business on Sept. 16 2005 is established when the price crosses both the 50-day and 100-day SMA. We immediately receive a signal that the MACD has crossed within five bars, giving us an entry level of around 110.95. We put an initial close at the five-bar low of 108.98 and the first target is the double risk, which comes at 114.89. The price is three weeks after the third day of Oct. 2005 is hit, at which time we move our stop to the breakout and wait for the second half of the site to exit with commodity prices below the 50-day SMA by 10. This happened on December 14, 2005, at 117.43, resulting in a total of 521 wine trades.

One thing to remember in the daily charts: although the profit may be higher, the risk is also higher. Our stop was nearly 200 yards from our entrance. Of course, the advantage was our 521 grapes, which turned out to be more than twice our risk. In addition, traders using daily charts to identify setups need to be much more patient with their trades, because a position can remain open for months.

On the short side, let's take a look at AUD/USD on the hourly chart going back to March 16, 2006. The currency's first trade-off is between the 50- and 100-hour SMA. Wait for the price to break below both the 50- and 100-hour anagrams and check if the MACD has been negative for the past five bars. We see that it is the case that we go short when the price moves 10 bars less than the nearest SMA, which in this case is the 100-hour SMA.

Our entry price is 0.7349. We place our initial stop at the last five closes or 0.7376. This puts the initial risk in 27 grapes. Our first target is double risk, which comes to 0.7295. It uses the target after seven hours, at which time we move our stop on the other side to break and look for it to exit when the price trades above the 50-hour SMA by 10 bars. This happened on March 22, 2006 when the price reached 0.7193, earning us a total of 100 vinaceas in the trade. This is definitely an attractive return given that we have only 27 vintners at risk in the trade.

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From a daily perspective, we look at another short pattern in EUR/JPY shown in the chart below. As you can see, the daily patterns go back further because once a clear trend has formed, it can last a long time. If it weren't, the currency would instead move in a range-bound scenario where prices would simply fluctuate between two moving averages.

On April 25, 2005, we saw EUR/JPY below the 50-day and 100 below the SMA. We check to see that the MACD is also negative, confirming that the momentum is moving downwards. We enter a short position at 10 bars below the immediate moving average (100-day SMA) or 137.76. The initial stop was placed at the highest level in the past five closes, which is 140.47. In this way we are in danger of vinasses 271.

Our first target is twice the risk (542 bars) or 132.34. The first target was hit a little more than a month later on June 2, 2005. At this time, we move the stop to break the remaining half and look for an exit, when the price trades above the 50-day SMA by 10 bars. The moving average broke through to the high side on June 30, 2005 and we exited at 134.21. We exited the remaining position at that time for a total profit of 448%.

This strategy is far from foolproof. As with many trend-trading strategies, it works best on currencies or time frames that trend well. It is therefore difficult to implement this strategy in currencies that are typically pegged, such as EUR/GBP.

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The chart below shows an example of a failure plan. The price broke below the 50- and 100-hour SMA in EUR/GBP on March 7, 2006, from the 10-bar. MACD is negative at the moment, so we are going short 10 bars below the moving average at 0.6840. The level is set at the highest high of the past five bars, which is 0.6860. This makes our risk 20 vins, which means that we take our first profit level at twice the risk or 0.6800.

EUR/GBP continues to sell, but not very much to take a profit. The moving low before the currency pair finally reversed back above the 50-hour SMA is 0.6839. The reversal finally extends to our end of 0.6860 and we will eventually lose 20 cents in the trade.

Moving average MACD combo strategy can help you enter the trend at the most profitable time. However, traders implementing this strategy should make sure to only trade in currency pairs that typically fluctuate. This strategy works particularly well in older people. Traders should check the strength of the breakdown below the moving average at the entry point. In the failed trade shown above, if we looked at the directional index (ADX) at the time, we saw that the ADX was very low, indicating that the breakdown probably did not generate enough momentum to continue the move.

Does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investment and may not be appropriate for all investors. Investing involves risk, including possible losses of principal.

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