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Trading in the Zone, and Staying There
Ever partaken in an activity where you were so immersed that you weren’t even really aware you were doing it? You simply did what needed to be done. There was not question or doubt, you simply executed, and you executed well! As a golfer I dream about rounds when I am “in the zone.” Everything goes right…the swing feels right, there is no doubt in my mind and everything just seems to happen. It is a good feeling. Traders also seek out that zone, because when in it, profits are typically collected.
Trading in the Zone
Have you experienced it while trading? Here are a few elements you may notice when in the zone:
- You spot trade set-ups quickly and easily
- You are calm, collected and confident
- It is like you already know it will be a winning day, but you aren’t even thinking about it, you just take trades
- You execute your trading plan exactly as you should
- Your self-talk is positive as opposed to negative
- You aren’t distracted, you’re focused on your trading
- You are adaptable. You see changes in trend as they occur and are thus able to avoid losses and capitalize on the new direction.
These are experiences we want to occur frequently, but unfortunately that doesn’t always happen. Instead, trading may feel like a struggle. Here are some tips for getting back in the zone when you feel out of it.
Getting Back in the Zone
The zone is mostly psychological, but may also have to do with market conditions. So give yourself a bit of a break, not every day is going to be easy money. Yet there are a few things you can do help you get into the zone:
- Make sure you are following your trading method exactly. After a few losing trades many traders begin to deviate from their plan, which makes them doubt themselves even more. To get back on track, take it one trade at a time, find a set-up and execute the trade exactly as your trading says you should.
- Ask yourself if you even should be trading? Are conditions right to be trading; do your trades have a good probability of being profitable in these conditions? If no, then even being in the zone won’t help you. Stop trading and save your money for another day.
- Reduce your risk on each trade. Nothing will make you more uptight than taking a huge position which causes you to worry. Take smaller positions so you can relax and aren’t worried about the outcome.
- The way to gain confidence is get some winning trades. The only way to get some winning is to execute your plan and trust it. Don’t skip trading signals, or take extra trades. Follow your plan, and if it is a profitable strategy, eventually those profits will return.
- Practice positive self-talk. While you are trading, positively reinforce what you are doing. When you follow your plan give yourself a pat on the back…even if it was a losing trade, you still did the right thing.
- Practice your trading method and know your trading plan inside-out and backwards. Implement your plan consistently and you’ll have much less to worry about. If you know your plan well it is easier to spot trades. The better you know your plan, the easier it is to trust it and remain calm and confident while trading.
- Establish a daily routine and do it every day. This will aid you doing everything discussed above, because you don’t need to figure what to do next, it is all planned out in advance.
Trading in the zone doesn’t have to be a random occurrence; practice recreating that state of mind everyday by sticking to your plan and establishing routines. This will relieve pressure and help you stay calm and confident. Reducing the risk of each trade can also aid in this regard. When you are calm and confident you’ll see market movements and set-ups more clearly, which should help in producing profits.
The Best Times to Trade the Forex Markets
Many first-time forex traders hit the market running. They watch various economic calendars and trade voraciously on every release of data, viewing the 24-hours-a-day, five-days-a-week foreign exchange market as a convenient way to trade all day long. Not only can this strategy deplete a trader’s reserves quickly, but it can burn out even the most persistent trader. Unlike Wall Street, which runs on regular business hours, the forex market runs on the normal business hours of four different parts of the world and their respective time zones, which means trading lasts all day and night.
So what’s the alternative to staying up all night long? If traders can gain an understanding of the market hours and set appropriate goals, they will have a much stronger chance of realizing profits within a workable schedule.
The Forex Markets Hours of Operation
First, here is a brief overview of the four markets (hours in Eastern Standard Time, or EST):
- New York (open 8 a.m. to 5 p.m.): New York is the second-largest forex platform in the world, watched heavily by foreign investors because the U.S. dollar is involved in 90% of all trades, according to “Day Trading the Currency Markets” (2006) by Kathy Lien. Movements in the New York Stock Exchange (NYSE) can have an immediate and powerful effect on the dollar. When companies merge, and acquisitions are finalized, the dollar can gain or lose value instantly.
- Tokyo (open 7 p.m. to 4 a.m.): Tokyo, the first Asian trading center to open, takes in the largest bulk of Asian trading, just ahead of Hong Kong and Singapore. The currency pairs that typically have a fair amount of action are USD/JPY, GBP/CHF, and GBP/JPY. The USD/JPY is an especially good pair to watch when the Tokyo market is the only one open, because of the heavy influence the Bank of Japan has over the market.
- Sydney (open 5 p.m. to 2 a.m.): Sydney is where the trading day officially begins. While it is the smallest of the mega-markets, it sees a lot of initial action when the markets reopen on Sunday afternoon because individual traders and financial institutions are trying to regroup after the long pause since Friday afternoon.
- London (open 3 a.m. to noon): The U.K. dominates the currency markets worldwide, and London is its main component. London, a central trading capital of the world, accounts for roughly 43% of global trading, according to a report by BIS. The city also has a big impact on currency fluctuations because the Bank of England, which sets interest rates and controls the monetary policy of the GBP, has its headquarters in London. Forex trends often originate in London as well, which is a great thing for technical traders to keep in mind.
The Best Hours for Forex Trading
Currency trading is unique because of its hours of operation. The week begins at 5 p.m. EST on Sunday and runs until 5 p.m. on Friday.
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Not all hours of the day are equally good for trading. The best time to trade is when the market is most active. When more than one of the four markets are open simultaneously, there will be a heightened trading atmosphere, which means there will be more significant fluctuation in currency pairs.
When only one market is open, currency pairs tend to get locked in a tight pip spread of roughly 30 pips of movement. Two markets opening at once can easily see movement north of 70 pips, particularly when big news is released.
Overlaps in Forex Trading Times
The best time to trade is during overlaps in trading times between open markets. Overlaps equal higher price ranges, resulting in greater opportunities. Here is a closer look at the three overlaps that happen each day:
- U.S./London (8 a.m. to noon): The heaviest overlap within the markets occurs in the U.S./London markets. More than 70% of all trades happen when these markets overlap because the U.S. dollar and the euro are the two most popular currencies to trade, according to Lien. This is the most optimal time to trade since volatility is high.
- Sydney/Tokyo (2 a.m. to 4 a.m.): This time period is not as volatile as the U.S./London overlap, but it still offers a chance to trade in a period of higher pip fluctuation. EUR/JPY is the ideal currency pair to aim for, as these are the two main currencies influenced.
- London/Tokyo (3 a.m. to 4 a.m.): This overlap sees the least amount of action of the three because of the time (most U.S.-based traders won’t be awake at this time), and the one-hour overlap gives little opportunity to watch large pip changes occur.
Impact of News Releases on Forex Markets
While understanding the markets and their overlaps can aid a trader in arranging his or her trading schedule, there is one influence that should not be forgotten: the release of the news.
A big news release has the power to enhance a normally slow trading period. When a major announcement is made regarding economic data—especially when it goes against the predicted forecast—currency can lose or gain value within a matter of seconds.
Even though dozens of economic releases happen each weekday in all time zones and affect all currencies, a trader does not need to be aware of all of them. It is important to prioritize news releases between those that need to be watched versus those that should be monitored.
Examples of significance news include:
- Interest rate decisions
- CPI data
- Trade deficits
- Consumer consumption
- Central bank meetings
- Consumer confidence
- GDP data
- Unemployment rates
- Retail trade
The Bottom Line
It is important to take advantage of market overlaps and keep a close eye on news releases when setting up a trading schedule. Traders looking to enhance profits should aim to trade during more volatile periods while monitoring the release of new economic data. This balance allows part-time and full-time traders to set a schedule that gives them peace of mind, knowing that opportunities are not slipping away when they take their eyes off the markets or need to get a few hours of sleep.
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You may have heard that maintaining your discipline is a key aspect of trading. While this is true, how can you ensure you enforce that discipline when you are in a trade? One way to help is to have a trading strategy that you can stick to. If it is well-reasoned and back-tested, you can be confident that you are using one of the successful Forex trading strategies. That confidence will make it easier to follow the rules of your strategy—therefore, to maintain your discipline.
A lot of the time when people talk about Forex strategies, they are talking about a specific trading method that is usually just one facet of a complete trading plan. A consistent Forex trading strategy provides advantageous entry signals, but it is also vital to consider:
- Position sizing
- Risk management
- How to exit a trade
Picking the Best Forex & CFD Strategy for You in 2020
When it comes to clarifying what the best and most profitable Forex trading strategy is, there really is no single answer. Here’s why. The best FX strategies will be suited to the individual. This means you need to consider your personality and work out the best Forex strategy to suit you. What may work very nicely for someone else may be a disaster for you.
Conversely, a strategy that has been discounted by others may turn out to be right for you. Therefore, experimentation may be required to discover the Forex trading strategies that work. Vice versa, it can remove those that don’t work for you. One of the key aspects to consider is a timeframe for your trading style.
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There are several types of trading styles (featured below) from short time-frames to long, and these have been widely used during previous years, and still remain to be a popular choice from the list of best Forex trading strategies in 2020. The best forex traders always remain aware of the different styles and strategies in their search for how to trade forex successfully, so that they can choose the right one, based on the current market conditions.
- Scalping – These are very short-lived trades, possibly held just for just a few minutes. A scalper seeks to quickly beat the bid/offer spread, and skim just a few points of profit before closing. This strategy typically uses tick charts, such as the ones that can be found in MetaTrader 4 Supreme Edition. This trading platform also offers some of the best forex indicators for scalping. In addition, the Forex-1 minute Trading Strategy can be considered an example of this trading style.
- Day trading – These are trades that are exited before the end of the day, as the name suggests. This removes the chance of being adversely affected by large moves overnight. Day trading strategies are usually the perfect forex trading strategies for beginners. Trades may last only a few hours, and price bars on charts might typically be set to one or two minutes. The 50-pips a day forex strategy is a good example of a day trading strategy.
- Swing trading – Positions held for several days, whereby traders are aiming to profit from short-term price patterns. A swing trader might typically look at bars every half hour or hour.
- Positional trading – Long-term trend following, seeking to maximise profit from major shifts in prices. A long-term trader would typically look at the end of day charts. The best positional trading strategies require immense patience and discipline on the part of traders. It requires a good amount of knowledge regarding market fundamentals.
50-Pips a Day Forex Strategy
This strategy leverages early market moves of certain highly liquid currency pairs. The GBPUSD and EURUSD currency pairs are some of the best currencies to trade using this particular strategy. After the 7am GMT candlestick closes, traders place two positions or two opposite pending orders. When one of them gets activated by price movements, the other position is automatically cancelled.
The profit target is set at 50 pips, and the stop-loss order is placed anywhere between 5 and 10 pips above or below the 7am GMT candlestick, after its formation. This is implemented to manage risk. After these conditions are set, it is now up to the market to take over the rest. Day Trading and Scalping are both short-term trading strategies. However, remember that shorter term implies greater risk, so it is essential to ensure effective risk management.
Forex Daily Charts Strategy
The best forex traders swear by daily charts over more short-term strategies. Compared to the forex 1-hour trading strategy, or even those with lower time-frames, there is less market noise involved with daily charts. Such charts can give you over 100 pips a day due to their longer timeframe, which has the potential to result in some of the best forex trades.
The trade signals are more reliable, and the potential for profit is much greater. Traders also don’t need to be concerned about daily news and random price fluctuations. The method is based on 3 main principles:
- Locating the trend: Markets trend and consolidate, and this process repeats in cycles. The first principle of this style is to find the long drawn out moves within the forex markets. One way to identify forex trends is by studying 180 periods worth of forex data. Identifying the swing highs and lows will be the next step. By referencing this price data on the current charts, you will be able to identify the market direction.
- Stay focused: This requires patience, and you will have to get rid of the urge to get into the market right away. You need to stay out and preserve your capital for a bigger opportunity.
- Less leverage and larger stop losses: Be aware of the large intraday swings in the market. Using larger stops, however, doesn’t mean putting large amounts of capital at risk.
While there are plenty of trading strategy guides available for professional FX traders, the best forex strategy for consistent profits can only be achieved through extensive practice. Here are some more strategies that you can try:
Forex 1-Hour Trading Strategy
You can take advantage of the 60-minute time frame in this strategy. The easiest currency pairs to trade using this strategy are the EUR/USD, USD/JPY, GBP/USD, and the AUD/USD. You would need a 100-pip momentum indicator and indicator arrows; both of which are available on MetaTrader 4.
Buy Trade Rules:
You can enter a long position when both of these conditions are met:
- The 100 pips Momentum indicator triggers a buy signal when its blue line crosses the red line from below
- The Indicator arrow gives a green arrow signal
In this case, you can place the stop-loss below the red indicator line or the most recent support line. You can either close the trade after 30-pips, or you can also take profit when the indicator arrows give a red arrow signal.
Sell Trade Rules:
You can enter a short position when the following conditions are met:
- The 100 pips Momentum indicator triggers a sell signal when its blue line crosses the red line from above
- The indicator arrows give a red arrow signal
Place the stop-loss above the red-indicator line, or the most recent resistance line. Close the trade after 30-pips, or when the indicator arrows give a green arrow signal.
Forex Weekly Trading Strategy
While many forex traders prefer intraday trading, because market volatility provides more opportunities for profits in narrower time-frames, forex weekly trading strategies can provide more flexibility and stability. A weekly candlestick provides extensive market information. It contains five daily candlesticks, and changes which reflect the actual market trends. Weekly forex trading strategies are based on lower position sizes and avoiding excessive risks.
For this strategy, we will use the Exponential Moving Average (EMA) indicator. The previous week’s last daily candlestick has to be closed at a level above the EMA value. Now we have to look for the moment when the previous week’s maximum level was broken. Next, a buy stop order is placed on the H4 closed candlestick, at the price level of the broken level.
The stop loss has to be placed at the nearest minimum point, somewhere between 50 and 105 pips. The previous extreme value is taken for calculations if the nearest minimum point is closer than 50 pips. Here the last week’s movement range is taken as the profit range.
The Role of Price Action Trading in Forex Strategies
To what extent fundamentals are used varies from trader to trader. At the same time, the best FX strategies invariably utilize action. This is also known as technical analysis. When it comes to technical currency trading strategies, there are two main styles: trend following, and counter-trend trading. Both of these FX trading strategies try to profit by recognising and exploiting price patterns.
When it comes to price patterns, the most important concepts include ones such as support and resistance. Put simply, these terms represent the tendency of a market to bounce back from previous lows and highs. Support is the market’s tendency to rise from a previously established low. Resistance is the market’s tendency to fall from a previously established high. This occurs because market participants tend to judge subsequent prices against recent highs and lows.
What happens when the market approaches recent lows? Put simply, buyers will be attracted to what they regard as cheap. What happens when the market approaches recent highs? Sellers will be attracted to what they view as either expensive, or a good place to lock in a profit. Therefore, recent highs and lows are the yardstick by which current prices are evaluated.
There is also a self-fulfilling aspect to support and resistance levels. This happens because market participants anticipate certain price action at these points and act accordingly. As a result, their actions can contribute to the market behaving as they had expected.
However, it’s worth noting these three things:
- Support and resistance levels do not present ironclad rules, they are simply a common consequence of the natural behaviour of market participants.
- Trend-following systems aim to profit from the times when support and resistance levels break down.
- Counter-trending styles of trading are the opposite of trend following—they aim to sell when there’s a new high, and buy when there’s a new low.
Trend-Following Forex Strategies
Sometimes a market breaks out of a range, moving below the support or above the resistance to start a trend. How does this happen? When support breaks down and a market moves to new lows, buyers begin to hold off. This is because buyers are constantly noticing cheaper prices being established and want to wait for a bottom to be reached. At the same time, there will be traders who are selling in panic or simply being forced out of their positions.
The trend continues until the selling is depleted and belief starts to return to buyers when it is established that the prices will not decline further. Trend-following strategies encourage traders to buy on the markets once they have broken through resistance and sell markets, and when they have fallen through support levels.
In addition, trends can be dramatic and prolonged, too. Because of the magnitude of moves involved, this type of system has the potential to be the most successful Forex trading strategy. Trend-following systems use indicators to inform traders when a new trend may have begun, but there’s no sure-fire way to know of course.
Here’s the good news:
If the indicator can establish a time when there’s an improved chance that a trend has begun, you are tilting the odds in your favour. The indication that a trend might be forming is called a breakout. A breakout is when the price moves beyond the highest high or the lowest low for a specified number of days. For example, a 20-day breakout to the upside is when the price goes above the highest high of the last 20 days.
Trend-following systems require a particular mindset, because of the long duration—during which time profits can disappear as the market swings—these trades can be more psychologically demanding. When markets are volatile, trends will tend to be more disguised and price swings will be greater. Therefore, a trend-following system is the best trading strategy for Forex markets that are quiet and trending.
A good example of a simple trend-following strategy is a Donchian Trend system. Donchian channels were invented by futures trader Richard Donchian, and are indicators of trends being established. The Donchian channel parameters can be tweaked as you see fit, but for this example we will look at a 20-day breakout.
Basically, a Donchian channel breakout suggests one of two things:
- Buying if the price of a market goes above the high of the prior 20 days
- Selling if the price goes below the low of the prior 20 days.
There is an additional rule for trading when the market state is more favourable to the system. This rule is designed to filter out breakouts that go against the long-term trend. In short, you look at the 25-day moving average (MA) and the 300-day moving average. The direction of the shorter moving average determines the direction that is permitted. This rule states that you can only go:
- Short if the 25-day moving average is lower than the 300-day moving average
- Long if the 25-day moving average is higher than the 300-day moving average
Trades are exited in a similar way to entry, but only using a 10-day breakout. This means that if you open a long position and the market goes below the low of the prior 10 days, you might want to sell to exit the trade—and vice versa.
4-Hour Forex Trading Strategy
One potentially beneficial and profitable Forex trading strategy is the 4-hour trend following strategy. However, the 4-hour timeframe makes it more suitable for swing traders. This strategy uses a 4-hour base chart to screen for potential trading signal locations. The 1-hour chart is used as the signal chart, to determine where the actual positions will be taken.
Always remember that the time-frame for the signal chart should be at least an hour lower than the base chart. Two sets of MA lines will be chosen. One will be the 34-period MA, while the other is the 55-period MA. To ascertain whether a trend is worth trading, the MA lines will need to relate to the price action.
In case of an uptrend, the conditions that will be fulfilled include:
- The price will remain above the MA lines
- The 34-MA line will remain above the 55-MA line and continue to do so
- The MA lines will slope upwards for a maximum duration during an uptrend
In case of a downtrend, the following conditions will be fulfilled:
- Price action will remain below the two MA lines
- The 34-MA line will remain below the 55-MA line and continue to do so
- The MA lines will slope downwards for a maximum duration
The MA lines will be a support zone during uptrends, and there will be resistance zones during downtrends. It is inside and around this zone that the best positions for the trend trading strategy can be found. Learn to trade step-by-step with our brand new educational course, Forex 101, featuring key insights from professional industry experts. Click the banner below to register for FREE!
Counter-Trend Forex Strategies
Counter-trend strategies rely on the fact that most breakouts do not develop into long-term trends. Therefore, a trader using such a strategy seeks to gain an edge from the tendency of prices to bounce off previously established highs and lows. On paper, counter-trend strategies are the best Forex trading strategies for building confidence, because they have a high success ratio.
However, it’s important to note that tight reins are needed on the risk management side. These Forex trade strategies rely on support and resistance levels holding. But there is also a risk of large downsides when these levels break down. Constant monitoring of the market is a good idea. The market state that best suits this type of strategy is stable and volatile. This sort of market environment offers healthy price swings that are constrained within a range. It’s important to note that the market can switch states.
For example, a stable and quiet market might begin to trend, while remaining stable, then become volatile as the trend develops. How the state of a market might change is uncertain. You should be looking for evidence of what the current state is, to inform whether it suits your trading style.
Discovering the Best FX Strategy for You
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Many types of technical indicators have been developed over the years. The great leaps made forward with online trading technologies have made it much more accessible for individuals to construct their own indicators and systems.
You can read more about technical indicators by checking out our education section or through the trading platforms we offer. The best forex trading strategies for beginners are the simple, well-established strategies that have worked for a huge list of successful forex traders already. Through trial and error you should be able to learn Forex trading strategies that best suit your own style. Go ahead and try out your strategies risk-free with our demo trading account.
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About Admiral Markets
Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world’s most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
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