On Sep 29, 2011 | In Forex Tips | by Forex
Are you searching for a tried and tested Forex intraday trading strategy that you can use as a starting point for your own trading? You won’t find a lot of traders going out of their way to share their own strategy or system with you, and those who are willing will most likely charge you a hefty sum for it. Today, I’m going to break from the crowd and share one of my personal favorite strategies with you, so pay close attention because you may not get this kind of opportunity ever again.
Before I get into the Forex intraday trading strategy, there’s a few things you need to know about the market itself. First of all, a trading day can be broken up into three major sessions: the Asian session, the European session and the American session. Obviously, the specific time at which each sessions starts will vary depending on where you are in the world, but generally this starting time will be marked by a big jump in liquidity and price movement. The strategy I will share with you today involves the start of the European session, which is commonly known as the London open among trading circles.
The London Open Forex Intraday Trading Strategy Setup
The reason why I focus on the London open with this Forex intraday trading strategy is because the European sessions are typically when the largest moves happen in the markets. It’s not uncommon for the prices of the major pairs such as the EUR/USD, USD/JPY and GBP/USD to move a few hundred pips in a matter of one or two hours.
To be able to execute this Forex intraday trading strategy profitably, you need to have good technical analysis skills, because you will be using support and resistance lines as well as drawing Fibonacci levels. If you understand Elliott Wave theory, it will be a big plus as well.
You should be ready at your computer with your charts at least half an hour before the London open on each trading day. With this Forex intraday trading strategy, you won’t trade every day, but on the days that you trade you should make a healthy profit. The first thing you should look for is a trending market. If there’s a strong trend in play, then you will be trading on the day, otherwise close your charts and don’t bother. You’ll know whether there’s a trend or not simply by observing the most recent 3 swings. If the swings are consistently making higher highs and higher lows, then you have an uptrend. If the swings are consistently making lower lows and lower highs, then you have a downtrend.
The Forex Intraday Trading Strategy Trading Tactics
Once you have identified the direction of the trend, you’re ready to trade. This Forex intraday trading strategy is based on trading the continuation of the trend, so if you have identified an uptrend you are only allowed to take long positions, and vice versa. Use your Fibonacci drawing tool to plot out the Fibonacci levels for the previous swing, and enter at the 61.8% retracement level in the direction of the trend. Set your stop loss beyond the 100% level, and use this to calculate your optimal position size for whatever money management strategy that you are applying.
Once you have entered a trade, personally I like to ride the trend and see where it goes instead of using targets. My typical exit strategy will be to observe what happens when the price reaches the previous swing’s extreme point, which will play out either one of these two scenarios: either the price will test the previous swing extreme and then bounce back, or the price will test the previous wing extreme and cut through it like a hot knife through butter (personally I like the second scenario a lot better, as will you).
When the price reaches the previous swing’s extreme, I will normally shift my stop loss to my entry point to zero out the risk. Once the price is around this extreme area, it will quickly become very obvious which way it is going to go. If you’re unsure, you can always take 50% of your position off at this point and then leave the remainder to stop out or continue with the trend. Once the price goes beyond the extreme, then all I do is to wait for a new extreme point to be formed, draw my new Fibonacci levels and close out the position at the 38.2% level. So there you have it, my Forex intraday trading strategy in a nutshell.
