Overview
This forex day trading strategy will focus on one of the best analysis method for forex trading - the use of multiple time frames.
Basically, in this strategy, we will use the longer timeframe (chart #1) to define our support and resistance price levels and the shorter timeframe (chart #2) for our trading entry, stop-loss and exit levels.
Also, for confirmation and momentum measurement we will use slow stochastic oscillator indicator (one of the best momentum indicators).
Forex day trading strategy rules:
- We use two time frames, long time frame - 4 hour and short time frame - 15 minute.
- We identify the support and resistance price levels on the longer timeframe a day before.
- We apply the stochastic indicator in both time frames to determine if we enter long or short position in our next intraday trading.
Case study - Forex (Foreign Exchange) USD/JPY Multiple Time Frame Bar Charts
USD/JPY 4 Hour Bar Chart (Chart #1)
Indicators and Parameters:
Support and Resistance Price Levels (Gray) - we use the swing pivot points of the previous day (yellow rectangle); 116.15,116.27,116.43,116.70 and 116.76.
Slow Stochastic Oscillator (lower window) - we set the stochastic indicator parameters for both time frames, as follow: %K period = 8, %D period = 3, Slowing = 3 (optional).
Forex day trading strategy practical analysis:
Chart #1 displays the 4 hour timeframe for the previous day (14 August).
What we can learn from this chart?
1. Resistance and Support price levels for the next day, our trading day, 15 August.
- High = 116.73 (bar 6)
- Low = 116.15 (bar 1)
- The High of the swing move 0-1 = 116.43 (also the high of 11 August)
- The High and Low of the swing move 4-5 = 116.70 (high) and 116.27 (low)
Note: as an opposite from calculated pivot points our price levels are generated from actual swing trading on this day.
2. What type of trading position we will favor the next day; short or long?
As you can see, the stochastic oscillator create diversion with this currency pair price (green line), i.e. the momentum is weakening; plus the stochastic indicates on an overbought situation (above 80 level). So, the next day (15 August), we will try to find conditions to enter a short position.
USD/JPY 15 Minute Bar Chart (Chart #2)
Forex day trading strategy - our trading day, 15 August:
At Chart #2 we can see the previous day - 14 August (yellow rectangle), our support and resistance price levels that we already identify, and the open price of our trading session at 116.62 (bar 1).
Because the open price of this day (116.62) is contained within a support/resistance horizontal channel, 116.43-116.70, and we want to place a short position, we have two options:
- We can enter short at 116.70, when the price retrace toward the resistance line.
- We can enter short at 116.38, when the price penetrate the support line (5 pips to confirm breakout).
In this case, USD/JPY currency price carried out the 116.70 short order (point A). As always, we placed immediately a stop-loss order at 116.81, 5 pips above the upper resistance price level; and a profit target order at 116.43, the next support level (point B).
Forex Day Trading Strategy Implementation
You can implement this forex day trading strategy on any fx currency pair. The mentioned setup and rules can be found almost everyday in the foreign exchange market. Good trading...
