Hello traders! This week’s newsletter will discuss how to increase the reward to risk ratio on your forex trades while decreasing your total number of trades by only trading near the edges on the chart!

 

What Does it Mean to Trade on the Edges of a Chart?

Now, first of all we must define what I mean by the edges. Every time frame, and therefore every trading style, can be broken down into three trends: up, down and sideways. When a market is consolidating, or basing, the edges are very obvious. In this chart, I’ve marked 3 obvious sideways trends (each area can be called a base) with short blue lines where price paused for a few candles before beginning a new trend. In all 3 cases, the trend was to the downside, coincidentally. I’ve also marked a much larger and longer base with the two pink lines. For clarity’s sake, all zones are roughly marked instead of using our more specific supply and demand zones.

EURUSD

Depending on your trading style, meaning, how long you plan on spending in a trade, you could have played the smaller zones (marked in blue) back and forth, long and short, until price broke out of the zone. These smaller forex trades aren’t displayed on the chart, but they could have earned you in the neighborhood of 20-40 pips per side.

For the larger pink zone, trading on the long side at the 2 lower arrows should have earned you about 60 pips. On the short side, at the top downward pointing pink arrow, the short should have earned around 2-300 hundred pips.

 

So now the question is, where are the edges in a trending market?

Using the same EURUSD pair but going out to a larger, weekly timeframe shows a pretty clear downtrend for the past several months. In a downtrend, we prefer to stick with the dominant direction, so short forex trades for our conservative traders! The four blue arrows show where the trader should be looking for short trades in supply zones. Again, each trade would be worth anywhere from 100-300 pips. The more conservative trader will be able to use the bottom edge in a downtrend for profit targets, then patiently wait to re-enter on the short side.

Our more aggressive traders may look to go long, against the trend by playing retracements. Going against the trend is harder, and generally means going for smaller profit targets.

Chart

In an uptrend, to trade the edges the conservative trader will look to go long in that uptrend, near the lower edge in a demand zone. On this 60-minute EURGBP chart, this trader had at least 3 possible long entries, worth anywhere from 50-100 pips.

EURGBP

So how do we define the edges? Personally, I’m just using the obvious swing lows and swing highs. Because of our decentralized market when trading spot forex, I don’t need to be as specific as trading a centralized market like futures or stocks. This is why my trendlines, as they are called, don’t line up perfectly as some others would have you draw.

Another important thing to remember is that our task as traders is to keep our losses small and let our winners run! When trading the edges, your losses should remain very small in relation to the winning trades. In addition, you should be taking fewer trades, because you won’t be forcing trades in the middle, away from the edges. Our recommended reward to risk ratio is 3:1, meaning I’ll risk $1 for every $3 of potential reward. However, when adopting this technique, I believe your reward to risk ratio should rise dramatically, to 5:1 or even 10:1 ratios.

Read the original article here - Let’s Stick to the Edges of the Chart

This content is intended to provide educational information only. This information should not be construed as individual or customized legal, tax, financial or investment services. As each individual's situation is unique, a qualified professional should be consulted before making legal, tax, financial and investment decisions. The educational information provided in this article does not comprise any course or a part of any course that may be used as an educational credit for any certification purpose and will not prepare any User to be accredited for any licenses in any industry and will not prepare any User to get a job. Reproduced by permission from OTAcademy.com click here for Terms of Use: https://www.otacademy.com/about/terms

Education feed

Editors’ Picks

EUR/USD modestly up for the day, still below 1.0900

The EUR/USD pair is trading marginally higher at the end of Wednesday, as panic eased. Nevertheless, concerns about the coronavirus possible effects on economic growth keep investors in cautious mode.

EUR/USD News

GBP/USD pressured under 1.2950 amid Brexit, coronavirus fears

GBP/USD has been unable to recapture 1.2950 as markets are somewhat less worried about coronavirus. The EU's mandate for post-Brexit talks confirmed demands for a level-playing field that the UK rejects.

GBP/USD News

USD/JPY: Lower lows still likely

Coronavirus spreading in Europe keeps investors on their toes. Wall Street set to extend its slump, despite two days of substantial losses. USD/JPY bearish as long as below 110.65, a Fibonacci resistance level.

USD/JPY News

Editors’ Picks

EUR/USD modestly up for the day, still below 1.0900

The EUR/USD pair is trading marginally higher at the end of Wednesday, as panic eased. Nevertheless, concerns about the coronavirus possible effects on economic growth keep investors in cautious mode.

EUR/USD News

GBP/USD pressured under 1.2950 amid Brexit, coronavirus fears

GBP/USD has been unable to recapture 1.2950 as markets are somewhat less worried about coronavirus. The EU's mandate for post-Brexit talks confirmed demands for a level-playing field that the UK rejects.

GBP/USD News

USD/JPY: Lower lows still likely

Coronavirus spreading in Europe keeps investors on their toes. Wall Street set to extend its slump, despite two days of substantial losses. USD/JPY bearish as long as below 110.65, a Fibonacci resistance level.

USD/JPY News

Crypto Today: Bitcoin bears force devastating break of $9000

BTC/USD is currently trading at $8740 (-6.50%), the bears have smashed the big $9000 mark to the downside. 

Read more

Gold surrenders early gains, refreshes session low around $1630 region

Gold surrendered its early modest gains and has now drifted into the negative territory, refreshing session lows around the $1634-335 region.

Gold News

RECOMMENDED LESSONS

7 Ways to Avoid Forex Scams

The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?

What Are the 10 Fatal Mistakes Traders Make

Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.

Strategy

Money Management

Psychology