Trading Strategy recap

By Marco Hering (FT)
Frankfurt, Germany 11/4/2013

In my trading strategy recap, today I want to go over the basic trading strategy while showing two charts of the recent past. One chart is the AUD/CAD and the other one is GBP/AUD. Both pairs had rather “clean moves” recently. So while the market often moves in are more choppy behavior, this also shows you that you can often find good trading opportunities outside of the major pairs. Lets go to the charts. You see two moving averages: The hourly 100 EMA (red line) and the 200 EMA of the 4 hour chart ( Orange line). If you put them in the 30min chart you would have to put in 200 and 1600 as values. There is also a blue dotted line. This is the 100 EMA of the 4 hour chart. This EMA also works often as support and resistance but the 200 EMA in the 4 hour chart is more important for the strategy. I put also a 20 pips band around the 100 hourly EMA. The basic strategy is pretty simple. In an up trend (Higher highs and higher lows) I buy the pull backs to the 100 hourly EMA. I wait to get bullish momentum candles before I enter. (green candles in the chart). The first target is the previous swing high the pair made before the pull back. It's the same for a down trend just obviously I wait for bearish candles after the pull back to the hourly 100 EMA. Once the price falls significantly outside of the bands I consider this as a warning sign that the price will probably retrace further. In an up trend you will then often see a re-test of the 100 hourly EMA from below. If the price drifts away to the downside again there is a high chance that the pair will retrace back to the 200 EMA in 4 hour chart. If you have a wide gap between the 100 hourly EMA and the 4H EMA then I look for short trades. Once we reach the 4 hour 200 EMA I look for a bounce to trade long in an up trend and short in a down trend. If the pair takes out the 4 hour 200 EMA significantly and re-test the EMA and drift away again then I consider this as a possible change in the main trend.

So looking at this trading strategy  AUD/CAD. So see that we got six examples where the price reached the previous highs after a pull back to the 100 hourly EMA. On two occasions the price tried to bounce but failed to make a higher high. Once the price fell through the bands and re-tested the 100 hourly EMA it also closed the gap to the 4 hours 200 EMA. We saw also one nice bounce off the 4 hour 200 EMA.

Let's look at a Trading Strategy Recap on the GBP/AUD. This pair is a greatexample of a change in the main trend. After two long setups (one worked and the other failed) the price fell through the 4 hour 200 EMA. There was no bounce off the 4 hour EMA as you can see since there was no green momentum candle. This prevented me from going long. After the significant break of the 4 hour 200 EMA we had a re-test and the price drifted down again. This was a good short setup as the price fell another 400 pips. If you missed the entry you got another four pull backs to the hourly 100 EMA to get short. All hit at least the previous low. On the fifth pull back we did not get any red momentum candles for a short entry. The price broke the band significantly to the upside and re-tested the 100 hourly EMA. From here the pair closed the gap to the 4 hour EMA again. Once the pair got to the 4 hour EMA some sellers stepped in and the price fell 100 pips.

I will try and post more trading strategy recaps this week.  I now share a twitter with bt at www.twitter.com/pbforexsignals

Regards,

Marco Hering (The Frankfurt Trader)