Forex Trading Strategies and Forex Trading Systems
Used By Professional Forex Traders

Trading the Fibonacci 50% Forex Entry Technique

50% retracements are one of the oldest and most consistent entry methods for traders of any financial market. These retracements work equally as well in the forex markets as they do in other markets; therefore, it is very important that you have a working knowledge of how to successfully implement this strategy into your trade setup arsenal. There are essentially 2 main ways that you can trade 50% retracements. The first involves entering at “limit” or essentially taking a blind entry near a 50% level, with no other solid confirmation. The second way is the more conservative approach which involves combining a 50% level with other entry signals; this is called trading with “confluence”, and is the most accurate way to trade the forex markets.

A note to everyone reading his before we get started; the Fibonacci 50% entry level is not exact, many times price will move to the Fibonacci 61.8% before reversing, sometimes it will fall a bit short of 50% before reversing. But generally speaking, most large moves retrace somewhere between 45-65% before resuming in the original direction. This is a general rule and not exact, each trading situation varies, it’s just something to keep in mind.

Trading off 50% retracement levels without confirmation.

(click chart to enlarge)

The above 4 hour chart of the GBPJPY shows a recent Fibonacci 50% forex trading strategy. This setup is what is called a “blind” entry at the 50% level. This is a more advanced entry technique and is only recommended for more experienced traders, but after a few solid months of screen time you can begin implementing this strategy if you so choose. The setup begins at point 1 in the chart; at this point price began to move higher and terminated at point 2. This movement from 1 to 2 is considered one move on the 4 hour chart, price than retraced down to point 3 exactly 50%. Once price began coming off from point 2 you would have anticipated a possible 50% retracement and then you would set an order to buy on limit near the 50% level. This strategy can work on any time frame and on any forex currency pair. Keep in mind this is a more advanced strategy and is a bit more risky than the 50% trading technique we will discuss next.

Trading off 50% levels with confirmation.

(click chart to enlarge)

In the chart below we can see an example of how to enter a Fibonacci 50% area with confirmation from a price action candlestick signal. Entering in this fashion adds a certain amount of “confirmation” to the direction you are entering. The candlestick signal in the chart below is known as a hammer or a pin bar reversal and they occur relatively often near 50% retracement levels. This is a more conservative way to trade the forex market because before you even enter the trade you have multiple factors or confluence of factors giving support to your entry decision.

The 50% forex entry technique is something that occurs with enough accuracy and prevalence in the forex market to make it a worth-while forex trading strategy for you to explore. Start plotting 50% levels on you charts and you will begin to notice how accurate they are. Remember that the more confluence you can add to the 50% retracement the higher its probability will become. Confluence can mean a support or resistance level in combination with a 50% level, or perhaps a convergence of moving averages at a 50% level in combination with a price action candlestick signal. The more confluence of signals at a 50% level the stronger it becomes. Add this forex strategy to your trading toolbox today.

Support and Resistance Forex Strategy

A thorough understanding of how to effectively use support and resistance is crucial for any aspiring professional forex trader. There are essentially 4 primary ways to implement support and resistance levels into your forex trading routine. The 4 primary support and resistance forex strategies include: using support and resistance to trade consolidating markets, using support and resistance to trade trending markets, using support and resistance to trade breakouts, and using support and resistance combined with candlestick strategies to find confluent areas.

• Trading Ranges

Notice in the chart below how price has been stuck in a trading range between about 135.85 and 131.00 for over 2 months. By watching for price to enter into a trading range scenario like the GBPJPY daily chart below, you can simply buy or sell bounces off the trading range high and / or low. When price gets near the top of the range you can sell with a stop loss above the highest high of the trading range, and when price gets near the low of the trading range you can buy with a stop loss below the lowest low of the trading range.

• Trending Markets

Trending market conditions are arguably the best to trade in; they can be very consistent and lucrative, especially in forex. Knowing how to effectively utilize support and resistance in trending markets will make you a much better trader. Notice below in the daily chart of USDJPY there was a downtrend in place and nearly every time price broke through to new lows it eventually retraced back up to challenge this break down level. This is the point where you want to look to initiate new positions; in a downtrend like the example chart below, you want to watch for a pullback up to an old support / new resistance level and in an uptrend you would wait for a retracement down to an old resistance / new support level.

• Breakouts

Knowing how to use a breakout forex strategy depends upon having a thorough understanding of support and resistance. The problem many forex traders make when trading breakouts is that they get filled to early; before the actual breakout occurs. The best way to try and avoid this is to set your buy or sell order above or below the highest or lowest resistance or support level. In the example below of daily USDCAD we can see a strong resistance level near at 1.0215, once price broke past this level it shot higher by over 500 pips. When trading breakouts make sure to set your entry order above or below the most well-defined high or low, as in the example below.

• Support and Resistance with Candlestick strategies

Using support and resistance in combination with candlestick signals can be a very effective and accurate way to trade the forex market. This is done by finding a strong area of support or resistance and then waiting for a well-defined candlestick pattern to develop at or near the support or resistance area.

In the chart example below of daily EURJPY, we can see 2 candlestick patterns known as a “hammer”. The first hammer set the support level near 127.00-127.50. When the second hammer then formed showing rejection of this support level, we had a support level in combination with a candlestick pattern, this is known as confluence of signals and is a very strong trading setup. There are many other candlestick patterns and strategies that can be used in combination with support and resistance levels, this just one example.

You now have a basic background in support and resistance forex trading strategies. Support and resistance levels are very important in all financial markets and can actually be used in combination with price patterns as a stand-alone trading method, meaning you can trade successfully with only a thorough understanding of support and resistance and price patterns. Keep everything simple like this and you will be on the track to forex trading success.

Box Break Out Forex Strategy

The box break out forex strategy is one of the most well-known and consistent forex trading strategies out there. Traders have literally been using this strategy to successfully trade the markets for decades, and it works especially well in the forex markets. Every serious forex trader needs to have a working knowledge of the box break-out forex strategy as it is crucial to spotting profitable opportunities within the market. So let’s look at some examples of this time-tested forex trading strategy and discuss how you can begin to implement it into your trading routine.

The first example we are looking at below is of the AUDJPY daily chart. First, notice how price bounced between 76.50 and 80.00 several times before breaking out to the upside. Once price did finally breakout from this “box” of support and resistance, it moved a minimum of the width of the original box, which was 350 pips, typically price will go a little further than the width of the box before a major reversal, as it did in this example.

Review of the Box Break-out Forex Strategy:

• Look for “box” areas on the currency pair you are trading where price has bounced between nearly the same support and resistance levels several times, forming a box like setup.

• Trade the breakout of the box by putting a buy and sell above and below the box setup, once your first order gets filled the other one automatically becomes your stop loss.

• Set your initial target at the width of the box. In the example above the daily box of AUDJPY was 350 pips, so the initial target was set at 350 pips.

• Often time, price will retrace and test the box break-out level, such occurrences are usually very high probability entry scenarios, especially when confirmed with a rejection bar or price action setup.

The intra-day box break-out forex strategy:

Another way that many traders like to use the box break-out forex strategy is as an intra-day trend continuation pattern. In the example below we are looking at the 1 hour GBPUSD chart and we can see that the trend was up before the box formed between 1.5300 and 1.5140.

After price bounced around in this box for several days it broke decisively to the upside, with the dominant trend, shooting up 160 pips with only a slight retracement along the way.

Notice in the zoomed in chart below we can see the breakout of the box in the above chart. We also have highlighted a 1 hour pin bar setup that showed rejection of 1.5315..this rejection candle was close enough to our initial breakout near 1.5300 to be viewed as a very solid 2nd entry opportunity for any traders who missed the original breakout.

As you can see by the examples in this article, box break-out forex strategy nearly always retrace somewhat after the initial breakout. Typically the retracement will move down or up to re-test the initial breakout level, however sometimes they come just shy of fully re-testing the breakout level. In either case these 2nd entries are a much safer way to trade the box break-out forex strategy because of the fact that you never REALLY know when the box is going to DECISIVELY breakout. Often times there will be many “false” breakouts which can fill you prematurely and thus whipsaw you out of a position.

The best way to avoid this is to wait for the initial breakout and then enter on the first retracement to the breakout level, this is the more conservative way to trade the box break-out forex strategy. The more aggressive way to trade the box break out forex strategy is to simply place a buy and sell stop about 10 pips above and below the box and just sit and wait for the box to breakout, taking profit once price moves the width of the box, however keep in mind this method may result in false-breakouts filling your order in the wrong direction, but the plus side to this strategy is that you will won’t miss many of the initial decisive break-out moves.