If you have been trading for a while, you have probably realized that not all trading charts are worth trading. There are times when you should take more trades, because the market is perfect for booking big profits. But then there are times when you should completely avoid trading, because if you do, you might end up with multiple losing trades in a row.
Instead of immediately looking for new trades, the first thing you should do is analyse if the market is worth trading or not.
So when I started recording this video, the forex pairs were not really that good for taking trades. As you can see, on the Euro USD pair the 200 period moving average was looking flat, and the price was crossing it multiple times in a short amount of time.
If you have watched my previous videos, you know I use and recommend using a 200 period exponential moving average to find the long term trend, because it’s the easiest way to find the trend, and if we take trade in the direction of the long term trend, we can achieve greater reward to risk ratios, in other words, we can make more money.
So, on these forex pairs, I’m looking for a chart, where price is staying above the 200 period moving average for a while, and where the moving average is not looking flat. Furthermore, the price action should look cleaner. For example, look at these two charts. Here, the first chart looks much cleaner than the second chart. On the first chart, the price is staying above the moving average, and is not looking flat. This kind of chart is perfect for beginner traders, as the price action is easier to read, and your stoploss won’t get taken out because of a choppy price movement.
Just like the Euro USD pair, the GBP USD and GBP JPY were also looking choppy. Even though they were below the moving average, the price action was not cleaner like the price action we saw in the example.
Many people lose money by taking too many losing trades in a bad market. If your charts look similar to these, you should probably avoid trading at that time.
When I started recording this video, most of the forex charts were looking like this. So instead of taking trades in these choppy conditions, I closed the charting platform and came back later when the price action was smoother.
Few hours later, the price action on the NZD USD pair was much cleaner. The price was above the moving average. Furthermore, the 200 period moving average was not looking flat.
Once you filter the bad charts, and find a good forex pair, it’s time for the step 2, where we will use the multi-time frame analysis to find more information about the chart. By more information I mean the points of interests where price has a higher probability of reacting. Sometimes, when you trade on a smaller timeframe, you might end up taking long trades, at a strong resistance level that is clearly visible on the daily time frame. This lack of information can make you lose money.
In this example, I’m on the 5 minutes timeframe. So to find the important levels that many people can easily see, I will switch to the daily timeframe. Here, I will draw the strong support and resistance levels that I can see. Since we are using the 5 minutes timeframe to enter trades, switching to the daily is not really necessary according to some people. But I like to do it to make sure I don’t end up taking short trade on a smaller timeframe at a strong daily support.
If you don’t know how to draw strong support and resistance areas, check out the support and resistance level video on the Trading Rush channel, it has some good examples that you will find helpful.
As you can see, the price couldn’t cross the resistance level, and also reacted to the support level. Since we are trading on a 5 min timeframe which is much smaller than this, we can say that there is enough room for us to take long and short trades on the 5 min timeframe. Right now, we are not on a strong support or resistance level.
Once we have identified the areas on the daily timeframe, switch to the 4 hours timeframe, and look for other clearly visible areas. As you can see, the price is currently near a support level.
If we switch to the 30 min timeframe, we can clearly see that the price reacted to that support level.
Now if we switch to our entry timeframe which is 5 minutes, we will have more information than before. First we only knew that the price was in an uptrend. But now, we also know that the price is near a support level.
Now in the third step, we will use an entry signal indicator. I’m using the MACD indicator in this example. MACD strategy was one of the best trading strategies, that we have tested in the strategies tested 100 times series. If you want to learn more about it, check out the MACD video on this channel.
As you can see, the MACD has not given an entry signal yet. But we can tell that it is going to, because the momentum is slowing down. I have also made a second MACD video, where I explained how to use the Histogram to our advantage. Check that video as well.
Since patience is the key, I waited for the MACD to give an entry signal which was around 20 minutes later. As you can tell by looking at the histogram value, the MACD has given a crossover. It is a small crossover, so it can be difficult to see on some mobile screens. The entry according to the MACD strategy, is at the closing price of the crossover candle, or at the opening price of the next candle. If you use a different entry signal indicator at this step, take entry according to your entry strategy. Now remember, in the third step, we are not executing the trade yet, because there is one more thing you have to calculate.
In the fourth step, you have to calculate the position size by looking at your stoploss strategy. A lot of new traders make the mistake of setting a bad stoploss. Your stoploss has to be far enough from the entry so the price have enough room to wiggle around before going in your favor. And you have to decide where you want to set your stoploss before taking the trade. That’s because to get a consistent loss amount, you have to calculate your position size using your stoploss distance.
I have explained more about this in my ATR indicator video, and in the part 7 of small account challenge series. Check them out if you want to learn more.
According to the MACD strategy, the stoploss goes just below the swing low, which also happens to be below the support area in this case.
In the step 5, it’s time to set the profit target. In this example I’m going to use a fixed profit target, which will be 1.5 times greater than my risk. To get a 1.5 to 1 reward to risk ratio, I can simply multiply my stoploss by 1.5 to get my profit target.
Once you have calculated all of these values, you can enter the trade. It might look like it takes a lot of time to calculate the stoploss, position size, and profit target before executing the trade, but it only takes few seconds once you get a hang of it. Furthermore, even if you are trading on a smaller timeframe like 5 minutes, you will have enough time to calculate everything properly.
Once you have taken the trade with a stoploss and profit target, you can simply close your trading platform if you are not looking for new trades. Once you have taken a trade, there is not really a point in staring at your chart. The price is either going to touch your stoploss, or your profit target.
In this case, the live trade I took using the MACD strategy was profitable. Furthermore, it went exactly how we predicted, and even reacted to the resistance area we drew using the daily timeframe. With only 5 simple steps, we were able to execute a profitable trade.
That’s all. Now you know a little bit more about trading. Liked the video if you liked it. Subscribe and ring that notification bell for more trading videos, and check out other videos on the Trading Rush Channel to find some of the best trading strategies that actually work. And thanks to all the Patrons for supporting the Trading Rush channel on Patreon. Thanks a lot.
