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Basic FX Trade Setups



For FX traders, there is a vast variety of methodologies and strategies to choose from. As with any other endeavor, however, sometimes simpler can be better. Whether you are a seasoned FX trader or have just opened your first account, highlighted below are a few oldies but goodies. These setups are based on a single indicator or just price action, and can also be tweaked using other indicators or inputs.

The moving average crossover

This trade setup only has two rules, but can potentially be very effective. The strategy has two guidelines: Pick a moving average pair. For example purposes, let’s discuss the popular 8 and 21 period moving averages. If the MAs are sloping higher, look to get long when the 8 crosses above the 21. If the MAs are sloping lower, look to get short when the 8 crosses below the 21.

This strategy can also be tweaked. Traders can use simple moving averages or may prefer exponential moving averages. Traders can also choose the time frame. The strategy can potentially work on anything from a 5 minute to monthly charts.

The oversold RSI

The oversold RSI indicator is another potentially useful tool in the trader’s toolbox. This strategy makes use of a single technical indicator. Start by applying an RSI to the time frame of your choice. (Larger time frames may potentially yield better results). When the market declines and the RSI registers a reading of 10 or less (using standard settings), look to get long. Attempt to ride the market higher until the RSI reaches a mid-point reading of 40-50 then take profits.

The gap fill

FX markets trade virtually around the clock, so gaps during the week may be few and far between. When the markets reopen on Sunday nights, however, sometimes there can be significant gaps in price. For example, if the GBP/USD pair ends the week at a rate of 140, and opens the new week’s trade at a rate of 141, then a 100 pip gap would exist. Although there are no guarantees, gaps do have a strong tendency to fill-sometimes within a matter of minutes or hours.

To fade a price gap, look to sell short on a gap higher of 50 pips or more and look to get long on a gap lower of 50 pips or more. Protective stop orders can be set based on the trader’s risk tolerance and other factors. Some traders will set the stop at a level that is 1.5 X the amount of the gap. Using the example above, the trader would set a stop order 75 pips away from the entry price. Because gaps have a strong tendency to fill, a high enough winning percentage can potentially allow for the use of wider stop orders.

The High/Low

This is another trade setup that can potentially yield some sizable winners. The idea is straightforward: In a market that is trending higher, look to get long if price breaks above the highs of the previous session. If the market is trending lower, look to sell short on a break of the previous low. This setup can potentially yield some large, favorable swings, but can also result in a lot of whipsaw trades and false breakouts.

While all of the setups highlighted above can be tweaked and adjusted based on the trader’s preferences, risk tolerance and market conditions; they will not provide good results without strong risk management. The choice of methodology or setup is actually not nearly as important as the use of solid risk management techniques and disciplined trading.

There is a high level of risk in Margined Transaction products, such as, Foreign Exchange (FX) and Metals trading which may not be suitable for all traders as it could result in the loss of the total deposit or incur a negative balance; only use risk capital. Prior to trading any products offered by ATC Brokers, please carefully consider your experience level and financial situation.
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