This is probably one of the most neglected parts of trading plans that I’ve seen. The FX Market is open 24 hours a day and many traders want to use this to their benefit. The fluid nature of price being traded around the clock is a compelling prospect for traders, particularly those such as myself that came from other markets such as equities or commodities; markets in which gap risk can greatly influence a trading approach. Since FX is open 24 hours a day, there are fewer gaps simply because the market doesn’t close as often as most equities, futures, and commodities markets.

An important element of note is that the various trading sessions can exhibit different ‘characteristics,’ around the way that prices move.

Traders who use the MACD indicator often are critical of the fact that it will signal an entry after the initial move has begun and therefore leave pips behind. As such, many traders wanting to enter a trade sooner dismiss it as a “lagging” indicator.

In the case of the MACD indicator, the most widely used entry signal is when the MACD line crosses over the Signal Line in the direction of the Daily trend. Since these two lines are simply two moving averages, by their very nature the crossover will not occur until the move itself is under way. And, since that crossover is the entry signal, this will get you into the trade after the initial move has begun. Some traders prefer this method of entry as it offers more confirmation that the move is more likely to continue in that direction.

For more aggressive traders who are not interested in the additional confirmation and are simply looking for an early entry, they may prefer a less widely used entry signal based on the histogram bars.

As seen on the 1 hour chart of the EURUSD below, as soon as price action begins to move to the downside, the green histogram bars will begin to shorten. As soon as a bar does not close above the previous bar, that means that upside movement by price has subsided for that moment in time. An aggressive trader can use that as a signal to short the pair at that point.

The most important consideration in trading is the direction of the overall trend. This is especially true in Foreign Exchange as trends tend to stay in place longer than in any other market. The reason is that FX reflects actual money moving from one economy to another. Whether the flow of money from one economy to the other is caused by trade between the two economies or investments (capital flows), once those natural forces are in place, they can stay in place for extended periods of time. It is sort of like a fully loaded supertanker in the open ocean at full speed, even if you cut the power, it will continue to drift in that same direction for an extended period of time.

How do we determine the overall trend? The first step is to just look at the chart. The strongest trends should be visible from across the room. A currency pair’s position in relation to the 200 Day Simple Moving Average is also a popular method. Support and Resistance lines can help the trader look for entries in the direction of the overall trend.

• The trade begins when a trader takes a long position based on a Slow Stochastics crossover signaling a buy. When the trade is entered at that point, the stop is located at the level labeled “Initial Stop”.

As the trade progresses to the upside, and as price action takes out each successive high, the stop is moved up to the next higher low.

Looking at the chart for example, when price moves above the high labeled #1, the stop is moved from the Initial Stop level to Stop #1. As price takes out the next high at #2, the stop is trailed from Stop #1 to Stop #2. This procedure continues as long as price continues to advance and make higher highs and higher lows.

We can see, however, that price retraces below Stop #4 thereby taking the trader out of the trade with a profit of about 325 pips.