So many forex traders have a bad habit of jumping around from one method to another, and it’s a road that you need to get off of sooner than later.
I’d like to share a story with you that will illustrate the value of staying focused on ONE strategy and NOT deviating, using impeccable risk management what is macd , and using a trading approach with very good reward to risk.
As you may know, I’m a personal coach for those wishing to learn how to trade the forex markets, and several years ago I did a coaching session with a client who had been suffering through the same things that afflict most traders-lack of consistency, poor money management, poor trade management, and on and on. I’m sure you know the story.
During our coaching session I showed him an approach to trading using MACD divergence, but qualified in a specific way. MACD divergence can be a great trading tool, but in my experience, you need to be a little selective about using it. In other words, you don’t want to trade off of this pattern at any old place. Specifically, you’ll find it most effective to initiate a trade when MACD is diverging at a key level in the market.
In addition to learning this forex technical trading pattern, we also spent a lot of time on risk management. Risk management means both money management (or account management) and trade management. I’ll give you a great piece of advice: understanding risk management is more important than your trading method.
Most people spend a tremendous amount of time searching for that system that “never” loses money, and when they think they’ve found it, they are very willing to throw excessive money at it (way over-leveraging) and inevitably end up blowing out their account (or multiple accounts).
The client I was working with made a total commitment to adhere to both the MACD divergence trading methodology, and most importantly, to the risk management that I told him would keep him in the game, even during streaks of losses. Psychologically, making this kind of an unwavering commitment is one of the most difficult, yet crucial things for a trader to do. But….all the consistently successful traders have done it.
So how did the story end? Well it ended the way I knew it would if he would stay committed, which he did. During the past 14 months, he has never risked more than 1% of his account on a trade, and yet he has returned just over 100% in his account.
The best part is, I recruited him to be one of the moderators in our LiveConnect service, and all he does is watch for qualified MACD divergence trades and alerts members when they set up! In addition to working with us, thanks to the outstanding statistics on his trading he has now been asked to manage money for a fund. Gotta love it!
Many traders lack the patience to watch their trade turn into a profit after a few hours or more. What they want is a forex strategy that turns into a profit within minutes of entering into the trade. These type of traders can’t see their trade going against them. They immediately abandon such a trade without waiting for a few hours for it to turn profitable.
For these type of traders short term momentum trading is the best forex trading strategy. The aim of this short term momentum trading strategy is to hit the profit target as early as possible. This is achieved by entering the market long or short when the momentum is on your side.
Let’s discuss this short term momentum forex strategy in detail now. In this momentum trading strategy, you will be using the 20 day EMA ( Exponential Moving Average), 100 day SMA ( Simple Moving Average) and the MACD ( Moving Average Convergence Divergence).
You will be using the default setting for the MACD. These setting are First EMA=12, Second EMA=26 and the Signal EMA=9. You will be trading on the 5 minutes chart.
So here are the rules for this short term momentum forex trading strategy: Open the 5 minutes chart. Look for a currency pair that is trading below the 20 day EMA and the 100 day SMA. Wait for the price action to cross above both the 20 day EMA and the 100 day SMA by at least 15 pips.