A trader who looks to open and close a trade within minutes, often taking advantage of small price movements with a large amount of leverage.
Quick realization of profits or losses due to the rapid-fire nature of this type of trading.
Large capital and/or risk requirements due to the large amount of leverage needed to profit from such small movements.
A trader typically looking to hold positions for one or more days, often taking advantage of opportunistic technical situations.
Lowest capital requirements of the three because leverage is necessary only to boost profits.
Fewer opportunities because these types of trades are more difficult to find and execute.
A trader looking to hold positions for months or years, often basing decisions on long-term fundamental factors.
More reliable long-run profits because this depends on reliable fundamental factors.
Large capital requirements to cover volatile movements against any open position .
Now, you will notice that both short-term and long-term traders require a large amount of capital – the first type needs it to generate enough leverage. and the other to cover volatility. Although these two types of traders exist in the marketplace, they are often positions held by high-net-worth individuals or larger funds. For these reasons, retail traders are most likely to succeed using a medium-term strategy.
The Basic Framework
The framework of the strategy covered in this article will focus on one central concept: trading with the odds. To do this, we will look at a variety of techniques in multiple time frames to determine whether a given trade is worth taking. Keep in mind, however, that this is not a mechanical/automatic trading system; rather, it is a system by which you will receive technical input and make a decision based upon it. The key is finding situations where all (or most) of the technical signals point in the same direction. These high-probability trading situations will, in turn, generally be profitable.
Chart Creation and Markup
Selecting a Trading Program
We will be using a free program called MetaTrader to illustrate this trading strategy ; however, many other similar programs can also be used that will yield the same results. There are two basic things the trading program must have:
Setting up the Indicators
Now we will look at how to set up this strategy in your chosen trading program. We will also define a collection of technical indicators with rules associated with them. These technical indicators are used as a filter for your trades.
If you choose to use more indicators than shown here, you will create a more reliable system that will generate fewer trading opportunities. Conversely, if you choose to use fewer indicators than shown here, you will create a less-reliable system that will generate more trading opportunities. Here are the settings that we will use for this article:
Adding in Other Studies
Now you will want to incorporate the use of some of the more subjective studies, such as the following:
- Significant trendlines that you see in any of the time frames
- Fibonacci retracements. arcs or fans that you see in the hourly or daily charts
- Support or resistance that you see in any of the time frames
- Pivot points calculated from the previous day to the hourly and minutely charts
- chart patterns that you see in any of the time frames
In the end, your screen should look something like this:
Figure 1: a forex trading program screen
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