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Almost all forex traders use technical analysis and technical indicators. This raises the question: Does Forex Technical Analysis Work For Trading? The surprising answer is no, it does not. Technical analysis and indicators will produce a few pips here and there but traders will wind up churning their own account with at best a 50/50 chance of success. The most likely outcome is losses and frustration, and a trading account that goes sideways or down in value.

Forex technical analysis and all of the associated indicators are confusing and wind up costing forex traders large amounts of time and wasted effort. We will review forex technical analysis and indicators in this article, and we will also give forex traders much more logical and much better alternatives for very easily increasing the amount of pips that they can make.

What is Forex Technical Analysis

Web searches for “forex technical analysis” reveals a large set of confusing indicators. Trend lines, channels, candlestick patterns, Bollinger bands, RSI, Fibonacci, pivot points, point and figure charts, stochastics, oscillators, etc. and it goes on and on from here. It is endless, confusing and there is no logic behind any of the indicators, and forex traders are now worn out by all of this. The world of forex technical analysis has thousands of scenarios. There over 150 forex technical indicators and over 100 candlestick chart formations alone, and that is based on just one time frame or period setting. Here is a list of over 100 of the commonly used indicators. There is no way to verify the results of technical indicators on forex trading, much less combinations of such indicators, of which there are literally, millions.

Forex technical analysis is very difficult to define, since there are so many possible combinations of indicators, and the end user has so much discretion. Technical analysis basically has limitless possibilities, and the forex traders who use it every day more than likely would each give you a somewhat different answer if you asked them to define it. So in practice the actual definition of forex technical analysis varies.

Just pick one indicator at random like relative strength index. This index can be applied to any one of 10 time frames and you can start with RSI 14 (period 14) and see if it “works”. If it does not “work” then you can try RSI 15, 16 then 17 then it pretty much goes on from there. There is an infinite number of combinations from there. But remember all of these RSI periods are on just one time frame!! You would have to start over and try RSI for various periods on a different time frame and then go through at least 10 time frames seeing if it “works” again. The result will be a lifetime of research from the start but at the end of the day there are no pips in your trading account, or possibly financial losses. Many thousands of traders have been through this scenario, some frustrated for many years.

Do Forex Traders Use Technical Analysis?

Yes, the vast majority of forex traders use technical analysis and technical indicators. This is obvious from the many forex forums out there and the discussions taking place. We would estimate that 95%, maybe more, of forex traders use technical analysis and technical indicators.

Is Technical Analysis Enough For Forex Trading?

No it is not enough, as a matter of fact you can look forward to years of frustration and making a few pips here and there with technical indicators. In this article we will present individual currency analysis methods, which will open up 8 currencies and 28 pairs of pips to forex traders. The individual currency analysis methods are far superior to any technical indicators or combination of indicators that you will find. Forex technical analysis is a huge problem, but we offer a great alternative and solution for making pips.

Does Forex Technical Analysis Work

Do Technical Indicators Work For Forex Trading?

The short answer is no. Look at the image above and total chaos of the indicators. Traders will never consistently make anything but a few pips with forex technical analysis and indicators. In a best case scenario it is hotly debated and highly disputed, but in real life they are completely worthless except for scalping a few pips here and there. The fact that this is hotly debated should be a warning sign to most traders. In order to prove something “works” you would have to get an independent research group or university students to design statistically significant tests in a controlled environment so that the specific indicators tested had a written procedure for use. Then a large group of traders would have to use the indicators correctly for a long period of time.

If you are interested in making a few pips here and there, yes they do work. If you are interested in making 75-150 pips per trade entry, with an occasional small loss or breakeven stop, they do not work at all. Forex traders have a paradigm that at the end of the week if they have made 25 pips that it was a good week. The paradigm for success should be 500 pips per week using much better trading systems than technical analysis and technical indicators.

Then the results of the trading and the study following the strict guidelines could only be reported based on the market conditions during the testing period. The overall forex market conditions could be trending, oscillating or choppy and we know that the forex market condition varies over time among these three. Also defining the market condition would have to have exact criteria not subjectivity.

Fundamental Flaw Of Forex Technical Analysis and Indicators

When you apply a forex technical analysis technical indicator to a pair you have already failed. You must first split any currency pair into it’ two individual currencies and then analyze each currency in the pair separately to be a successful forex trader. For example, to properly analyze the NZD/USD, split the pair into the NZD and USD and analyze each currency separately, to maximize your odds of success. Since all technical indicators are applied to pairs, all technical analysis indicators are immediately disqualified from ever working correctly, because they ignore the fact that there are two separate currencies in the pair. Forex traders want a trading system that is simple and profitable, forex technical analysis indicators provide none of this.

Who Is Pushing The Use of Forex Technical Analysis And Indicators?

Forex brokers push technical analysis very hard. The subsequently, traders begin to push the same technical indicators on forex forums and online communities. This is because technical indicators encourage traders to trade more frequently and perhaps make a few pips, which is just enough for them to keep their accounts open and give them some hope. Many other education websites and forex forums push technical indicators, because these sites are loaded with click ads from brokers to encourage opening broker accounts. All of this self-fulfilling prophecy results in no success for traders. Traders feel like they have no choice.

These indicators have proliferated across the majority of forex traders because the indicators are conveniently located on all trading platforms. When a new trader opens up a live or demo trading account with a broker, there is an assumption that the technical indicators that come with the platform will help them to make pips. In reality the number of pips you can make with these confusing indicators is highly limited to a few pips here and there.

Combinations of Forex Technical Indicators

Look at the example forex technical analysis chart above. Layers and layers of indicators, which are so crowded and chaotic that you cannot see the price chart. Forex traders deal with this every day, but there are much better alternatives with the individual currency analysis methods we will show you in this article.

If you use two forex technical analysis indicators together with different combinations of periods and time frames you now have, mathematically, an infinite number of combinations based on different period manipulations and time frames. If you devote the proper time to seeing if any indicators on one period and one time frame works properly, it would take a couple of months to demo trade each scenario to see if that particular combination of indicators was effective, or in almost all cases, ineffective.

If you project this over 100 indicators and multiple time frames, you have just spent your entire lifetime seeing if a handful of indicators “work” and you never placed one trade you just kept testing and testing indicators with no proof anywhere that they actually work. Knowing that there are over 150 different indicators, 10 different time frames, and infinite combinations of period adjustments, I can say that actually defining technical analysis is now not even possible for most forex traders. Development of good forex technical analysis strategies becomes impossible and traders fall into this abyss, desperate for simpler alternatives.

Also, since almost all forex traders use technical analysis or forex robots based on the same indicators we have just defined hundreds of thousands of traders wasting thousands of hours each testing indicators that don’t work for months or years of their lives.

Strong Alternative To Forex Technical Indicators

The reason forex traders should not use technical indicators at all is because these indicators do not consider whether or not the base currency is strong or weak or neutral, then repeat the process for the cross currency. Without this information failure is sure for any trader who uses them.

If you are a forex trader that is ready to dispose of forex technical analysis indicators in favor of logic and common sense, this trading system should be for you. There is a simpler approach to forex trading that is far superior to technical indicators. This is based on the fact that currency pairs are comprised of two separate currencies, and this fact can and should be leveraged by traders with parallel and inverse analysis on a day-to-day basis.

A much simpler approach to forex trading would be when one currency is strong on a pair and the other currency is weak to consider a trade. This basic approach is what we use in the Forexearlywarning trading system, and it works. Forex technical analysis indicators do not measure these individual currency strength quantities and the technical indicators are fundamentally flawed. Technical indicators do not take individual currency strength or weakness into account and therefore, can never really be effective.

Start by setting up some simple forex trend indicators and arranging them by individual currency. For example, all of the JPY pairs would be side by side in a group. If the USD pairs are all grouped together, like shown below, then traders can more easily determine if the US Dollar USD is strong or weak with all 7 USD pairs moving in the same direction. This is much simpler and more logical than forex technical analysis indicators.

Forex Technical Analysis Alternative

Once the pairs are grouped together like this, traders can use great tools like our forex market analysis spreadsheet to determine if up to 8 currencies are consistently strong or weak. We also analyze the forex market trends every day using these individual currency techniques. For example, if we want to perform an analysis of the USD/JPY, we analyze all of the USD pairs together, and then analyze all of the JPY pairs together. The results of this analysis technique will give traders the condition of the USD/JPY. We will know if the JPY is strong or weak, and if the USD pairs are trending or ranging, so we can prepare an accurate trading plan for the USD/JPY or any other pair. This analysis method can be repeated for any currency pair with some simple moving averages.

The next step in simplifying your forex trading is managing trade entries. Look at the system below. This live signal system for trade entry management is called The Forex Heatmap® forex heatmap. This system is not tied to any forex technical analysis indicators and works great for managing all of your trade entries for 28 pairs. The buy and sell signals are clear for the GBP strength, and the JPY weakness, resulting in strong movement on the GBP/JPY pair. Isolating the currencies and individual currency analysis is a clear winner for making pips.

Forex Technical Analysis Alternatives

Forex Technical Analysis Alternative

Using momentum-based trade entries will result in much more success, and additional pips when trading in the direction of the trend. Look at the above example. 75 – 100 pips were easily possible on one trade in one trading session, and multiple pairs could have been traded for even more pips. You can set price targets with support and resistance levels of the 28 pairs we follow. Drilling down the charts daily across 8 currencies will allow you to set trading plans for the best available opportunities and trends.

Conclusions about forex technical indicators and analysis: So now traders have a set of professional tools and a complete suite of forex alert systems to assist with market analysis and trade entries. These simpler systems are easier to interpret than forex technical analysis indicators. If traders add in other system components like the forex news calendar and scheduled news drivers, you have begun building a complete forex trading system, without any standard forex technical analysis indicators of any kind. This great trading system is fully detailed on our website, and it is the best forex trading system in the retail forex trading space.

Forex candlestick charts are in wide use by forex traders, but how effective are they at helping traders to trade more profitably? The short answer is probalbly no. If used correctly we see a small amount of potential, but there are much more effective ways to analyze the forex market and set up your charts and indicators.

What Is A Forex Candlestick Chart

Forex candlestick chart patterns are a form of charting analysis used by forex traders to identify potential trading opportunities. Sometimes they are called forex candlestick charts or Japanese candlestick charts.

Forex Candlesticks

Most Commonly Used Forex Candlestick Patterns

Some of the most popular forex candlestick patterns include the doji family, tweezer tops / tweezer bottoms, the hammer family, three inside ups / three inside downs, evening star / morning star. In total there are around 50 recognized forex candlestick patterns. If you combine these 50 candlestick patterns with 9 time frames most traders use, you start to see potential problems developing for their use. For example, what is the best time frame to use candlesticks on?, and why. Some candlestick patterns are considered bullish or bearish, but this is only for a few pips on the smaller time frames, on one or two pairs, with high risk. Much better chart setups are available for traders without candlesticks to make strong profits with lots of confidence at the point of entry.

How Do Forex Traders Use Candlesticks

Typically, forex traders don’t have much of a strategy for using candlesticks. They simply do what is convenient, then suffer the consequences. They set up candlesticks on one currency pair, then use popular candlestick chart patterns for entering trades on one or maybe two pairs. Almost all forex traders who use candlesticks do this. Forex traders use candlesticks because they see other traders using them and they have not researched other options which are much better. Their approach to using candlesticks is random.

Randomness does not account for any momentum in the individual currencies in each pair and will never result in more than a few pips on any one trade entry. The risk of doing this is too high with almost no pips in return. The reward versus risk in unacceptable. Traders defaulting to scalping the smaller time frames will be the result. Any positive pips on any trade will be random results, considering that there are over 50 candlestick patterns and 9 time frames or more. There is no upside or advantage of using candlesticks in this manner.

Do Forex Traders Need To Use Candlesticks

Forex traders do not need to use candlesticks, if forex traders used barcharts (open, high, low charts) without the candles, then set the barcharts up the way we show you to below, candlesticks would not be necessary at all. Candlesticks offer no advantage to forex traders, not even a few pips of profit advantage.

Barcharts Versus Candlesticks

Barcharts give you the same information as candlesticks, so in this regard candlesticks have no advantage at all. They provide a different visual look, but if you attach barcharts or candlesticks to individual pairs you will still fail as a forex trader because you have no confirmation of the trade entry.

Are There Better Alternatives To Candlesticks

Yes most definitely so. We suggest setting up barcharts instead of candlesticks. Next step would be to install some exponential moving average trend indicators with the barcharts across 28 different pairs. After that rearrange the charts by individual currency. Using this plan for chart setup you would group all of the USD pairs together, then all of the CAD pairs together, etc. and repeat the process for the top 8 most liquid currencies.

Barcharts With Moving Averages

Why would you group the pairs together with one common currency? Because, for example if all of the EUR pairs are trending up on the D1 time frame, you know that the EUR is strong and you can buy one of the EUR pairs. In some cases, you can trade all of them based on EUR strength. If you do this across 8 currencies you are starting to build a powerful trading system for currencies across 28 pairs, without any candlestick charts.

Example Trade Without Candlesticks

Look at the example USD pairs trades below with logical chart setup. On this trading day in the main forex trading session, the USD was weak on all pairs, causing considerable price movement. With the live heatmap indicator and consistent chart setuo with barcharts, you have eliminated the need for candlestick charts and at the same time created a much better trading system. Traders can set up their charts this way with proper correlated pairs for 28 forex pairs plus gold pairs.

USD Weakness Live Trading Signals

Forex Candlesticks USD Pairs

Without the use of any forex candlesticks, you could have captured a great movements on the USD pairs in one trading session while trading with much higher confidence. The overall movement in all of the USD pairs was hundreds of pips. The live indicator you see for trade entries and momentum is The Forex Heatmap® forex heatmap , a live visual map of the forex market. This same trading system works for 8 currencies and 28 pairs. Compare this simple trading system with a stand-alone chart with a candlestick chart formation attached to one pair. In this regard forex candlesticks have no value to traders.

Conclusions about forex candlesticks: Forex candlesticks are in wide use by forex traders. But their effectiveness at making more than a few pips here and there is questionable by attaching them to one pair. In this article we give forex traders a clear simple, easy to set up alternative to candlesticks that will get the momentum of the market on their side across 8 currencies and 28 pairs, while bringing in many more pips into their forex trading. Forex candlestick charts are popular with traders but we have no idea why. Using candlestick charts because they are popular is the wrong reason.

In this article we will show traders an effective forex day trading system that is profitable. All indicators, rules and alert systems will be described, with example trades. We will also show traders how to improve on day trading results by focusing on the higher time frames across 28 currency pairs.

What Is Forex Day Trading

The classic definition of a day trade is to open and close a trade on one instrument on the same trading day. The forex market is a 24-hour day continuous market, so we would modify this definition to one trade open and closed in the same trading session or movement cycle. This is because the forex market has two trading sessions every day. The the main trading session and the Asian trading session, which are the best time to trade the forex market. You can day trade in either session.

An Effective Forex Day Trading System

One big mistake for forex traders to avoid is the use of technical indicators when day trading. Forex day traders need a reliable, momentum based system to get their pips faster, then exit the market in a shorter period of time. Each trade entry must maximize pip totals. The Forexearlywarning trading system is adaptable to day trading.

Indicator Set And Alert Systems

Now we will show traders what indicators to use, how to set them up, and how to be notified when day trades are happening, in real time, across 28 currency pairs. Look at the indicator below, The Forex Heatmap® forex heatmap. This indicator gives live trading signals for 8 currencies and 28 pairs. The example you see is for the CHF pairs. The CHF is weak on all pairs against the major currencies. This is a clear sell signal for the CHF/JPY.  Also, the CAD/CHF moved up strong.

The CHF/JPY dropped about 80 pips on this trading day. A forex day trade could have netted about 40 pips of that fairly easily. Getting 40 pips on a day trade is more than most forex day traders make in a week scalping the same pairs over and over. This is one intraday movement cycle and the combined pips of all CHF pairs on this day was in the hundreds of pips. So clearly, day trading 28 pairs is possible with this trading system.

Forex Day Trading

Part of your indicator set for forex day trading would be a good set of trend indicators. Forexearlywarning provides all traders with a set of free forex trend indicators. Look at the image below to see how they look on the intraday time frames.

Forex Day Trading Chart

Our mobile app is shown below. The Forexearlywarning mobile app scans the market across 8 currencies looking for valid entry and day trading signals. When our forex mobile app algorithm sees consistent signals, it notifies the trader/end user via push alert on their cell phone or mobile device.

Forex Day Trading Alerts

The CHF weakness push alerts go to your phone, then you can check the trends and heatmap signals to see if a forex day trade is possible. We also have several other professional forex alert systems that notify day traders when the market is moving.

A Simple Set Of Rules For Forex Day Trading

So now we can write down a set of forex day trading entry rules. The trader would set up the proper alert systems, like our mobile app. Then, when the alerts hit, mostly in the main trading session or after forex news, we would check the heatmap signals and support and resistance levels to see if a day trade is possible. The day trader would focus on the smaller intraday time frames like the M5, M15 and M30 time frames for day trading, an example chart is above.

Money management rules for day trading are fairly simple. If the trade stalls or goes nowhere within the first 30 minutes in the trade we would exit with a small gain or loss. If the trade proceeds into positive pips, the trader would exit with a profit or when the prifit target is reached. Day traders should always trade with a stop order.

Day Trading The EUR/USD 

The most popular pair to day trade is the EUR/USD. Forex traders focus on this pair due to the liquidity and low spread. This pair is also popular with scalpers.

There are four possible scenarios for successfully day trading the EUR/USD. For buying the EUR/USD, the EUR must be consistently strong or the US Dollar must be consistently weak. For selling, the EUR must be consistently weak, or the USD must be consistently strong. An even better scenario is when one currency is strong and the other one is weak, in this case the movements will be very strong.

Day Trading EUR/USD

EUR Pairs Chart Setup

In the example above, the EUR is consistently strong weak the seven other major currencies, so this should be a great live signal for day trading and selling the EUR/USD. When the EUR is consistently strong you can get movement cycles that are much stronger than traders can get with technical indicators. If the EUR/USD is quoted at 1.2020, a 1% movement is about 120 pips, and your EUR/USD day trades are safer and much more productive as far as potential pips. The Forex Heatmap® is a very strong tool for EUR/USD day traders to use. In this example the EUR/AUD was also an excellent choice for day trading as the AUD was slightly strong. 

The chart setup is consistent with our live indicator and should be set up this way for 8 currencies and gold using the metatrader profiles.

Excellent Alternative To Forex Day Trading

If the forex market is ranging on the smaller time frames, in ranges of under 100 pips, we believe forex day trading is a viable method of trading. But if the forex market is trending across many pairs on the larger time frames, or ranging in wide ranges, we believe there is a better way to trade the forex market than day trading.

In a trending or wide ranging market we urge traders to utilize all 28 pairs composed of the 8 major currencies for increasing the number of trading opportunities, instead of getting stuck forcing trades into the EUR/USD. Always go with strongest movers, momentum and best trading signals. If the market is trending you can make more pips for almost no extra effort.

Look at the trade example above on the CHF/JPY. In a tight ranging market of less than 100 pips, we would likely advise exiting the trade as a short term day trade. However, if the CHF/JPY is in a strong downtrend on the D1 time frame, or ranging in a 250 pip range, we would advise scaling out lots and holding on to some lots. The CHF/JPY can then continue lower in the trend or range to the next major support area. The trader can continue to profit from the remaining lots with almost no additional effort, keeping the breakeven stop in place.

Forex day traders need to be aware of the other forex trading styles. When the market conditions change from tight ranging or choppy, they might be able to start swing trading on the H4 time frame or trend trading on the D1 or W1 time frames. When trading in the direction of the larger time frames, one trade entry point can make them pips today and also tomorrow, with no additional effort.

Here is our video overview of forex day trading on Youtube.

Conclusions about forex day trading: If you would like to day trade the forex market, you can do so with the indicator and alert systems provided by Forexearlywarning. But we will suggest that if you enter a trade in the direction of the major trends, that you make a good effort to stay in the trade as long as possible and let the trend do the work at getting you more pips.

In this article we will examine risk to reward ratio for forex trade entries. We will show traders how to greatly reduce and minimize risk, and possibly even eliminate risk on their forex trades with some strong and steady rules for entries. Forex traders need to increase their expectations for making pips, while lowering their risk to reward ratio, trade after trade.

How to Calculate Risk Reward Ratio

Risk to reward ratio is the inverse of number of pips you expect to make on a trade divided by the number of pips at risk. Example: If you enter a buy trade on the GBP/USD at 1.3780 and set a stop order at 1.3750 you have 30 pips at risk. If you expect the GBP/USD to go up to 1.3900, you expect to make 120 pips. 120/30 equals 4, this is your risk to reward ratio for this trade.  You expect to make 4 pips for each one you risk in this example.

What Is A Good Risk Reward Ratio

If you look around the internet and on many forex websites, they continue to spread a bold lie that a good risk to reward ratio for a forex trade is about 1.5 and 2.0. We believe that this is silly and preposterous. Forex traders should never settle for less than 3.0 or 4.0 to 1, and also we see many trades that are 10 and 20 to 1 and even higher. It is clear that forex traders need to re-think their risk to reward approach to trading

Scalping the EUR/USD with technical analysis indicators on the smaller time frames is the reason that forex traders accept such a low reward for the risk they take, and if you continue reading this article you will see why. If forex traders moved away from the technical indicators to momentum and trend based trading system, that takes into account price targets, they would have much higher rewards using the techniques and tools that we provide.

Is Negative Risk Reward Ratio Possible

Yes and some forex traders trade this way! If you are scalping the EUR/USD on the smaller time frames you might be trading with a negative risk to reward ratio. If your goal is to make 10 pips with a 30 pip stop order or no stop order at all you are upside down. Technical indicators are ineffective and this is what most traders do. Also, scalping without a stop order has unlimited risk, and this practice is very bad. But this is what forex traders are doing with their trading accounts. Keep reading this article for some good strategies and solutions to this.

Three Proven Ways to Lower Risk and Improve Reward

Traders are ready for some proven forex risk reward strategy ideas to incorporate into their trading. We will now present three strategy ideas. 1)trading entry points with strong momentum in one direction, 2) using the larger time frames, and 3) the 30 minute rule for trade management or exits. Combine all three of these risk reward strategies and you have maximized pip potential for all of your trades.

Risk Reward Strategy 1 – Strong Momentum On Entry

One way to reduce risk and increase potential reward on all of your forex trades is to use strong and consistent momentum across at least one currency at the entry point. Look at the example below.

Forex Risk Reward Ratio

Forex Risk Reward Ratio Chart

Using this live signal system, The Forex Heatmap® forex heatmap, a traders could execute a sell on the GBP/CHF and make pips with confidence. When the pair starts to stall at intraday support they could scale out lots and move their stops to breakeven. Then, if this pair is trending down on the higher time frames, they could retain some of the sold lots in their accounts for further profit in the direction of the trend.

Using a sell point of 1.2950, this pair dropped as much as 300 pips in one trading session. Using an initial stop of 30 pips, this translates to a 10 to 1 or 0.10 risk to reward ratio, which is much higher than forex traders are used to. If this pair is trending down on the larger time frames like the D1 or W1 time frame, many more pips are possible. Plus, by scaling out lots, you increase your account equity and the stop order on the remaining lots is at breakeven. So you have zero risk on the remaining lots.

Using strong and consistent momentum across at least one currency in the pair is a proven method of reducing entry risk while preserving high reward on trade after trade. This same technique works on 8 currencies and 28 pairs total.

Risk Reward Strategy 2 – Use the Higher Time Frames

Another proven way to reduce risk and increase potential reward on all of your forex trades is to use the higher time frames and trends. Look at the example below:

Forex Risk Reward Strategy

This is the CHF/JPY on the MN time frame. If you enter a buy on a price breakout of 118.80 resistance area, this pair has a chance to move up to the 129.00 to 131.00 resistance area. This is upside potential of 1000-1200 pips. Assuming an initial stop order of 30 pips, the risk reward ratio would be between 33 and 40. This is outstanding risk reward ratio.

Traders can monitor this pair with price alerts or any one of our professional forex alert systems, then use The Forex Heatmap® to manage the trade entry to a break even stop. Using the higher time frames, like the H4 and larger, will result in much higher potential rewards, trade after trade.

Risk Reward Strategy 3 – 30 Minute Rule For All Trade Entries

Another way to reduce risk is by using the 30 minute rule on all forex trade entries. Here is the rule: If you enter a forex trade, if you are not profitable enough to move your stop to breakeven and scale out lots after 30 minutes to one hour, then go ahead and exit. If you follow Strategy 1 above this should not be an issue. Your trade entry must be solid and profitable or you must exit after about 30 minutes to one hour. If you have a successful entry, scale out lots and move your stop order to breakeven. This reduces your risk to zero, plus by scaling out lots you have increased your reward by increasing your account balance. Using strong momentum on your trade entries is the key (Strategy 1). Great tools like The Forex Heatmap® will prove invaluable to setting and moving stops to breakeven and reducing the risk on many of your trades to zero.

Combine All 3 Strategies on Every Trade Entry

If you combine all three of these strategies on all of your trade entries you have created a powerful risk to reward management system for all of your trades, with little or no room for improvement.

Other Risk Reward Ratio Strategies

It should go without saying, but all forex trade entries should be accompanied by a stop order to prevent large losses. Then, by moving the stop to breakeven you eliminate all risk. Trading in the direction of the major trends of the forex market will increase the reward sie of the ratio. If you enter a trade into a trending pair, you can move your stop to breakeven and let the trend do the work from there. Larger time frame trends always will have the most pips. If you can enter a trade at the beginning of a trend cycle, that lowers your risk and increases your potential reward at the same time. Avoid standing orders, also called buy stops and sell stops, they have too much risk. With great tools like The Forex Heatmap® they are not necessary. Go with market orders that have strong momentum on entry.

As far as position sizing, all trades don’t have the exact same characteristics. If you do some level of demo trading you will see this more clearly. If you are comfortable trading 6 minilots on all of your trades, but you sense that you might have a risky trade entry in front of you, you have a choice of not trading at all or trading less lots, like 2 minilots for example. This reduces your risk on a percieved riskier trade. When you see a clear trade entry with all of your rules for trade entries fully met, you can trade the full 6 minilots you are accustomed to.

Conclusions about forex risk reward ratio: Currently, forex traders accept risk reward ratios that are much too low. Trying to make 2 pips for each pip you risk is simply not worth it. Too much risk, not enough reward. Using the tools and techniques we have shown you in this article, traders should be looking for risk reward ratios in the range of at least 3-4 on the intraday movements, and up to 20-30 on pairs that are trending on the higher time frames.

If a forex trader knows what makes currency pairs move, then they can start to cash in on the movement cycles in the highly liquid spot forex market. In this article we will show traders all of the reasons that cause movement of currency pairs. Without movement, currency traders cannot profit.

Currency Fundamentals Makes Pairs Move

Over the long term cycles and trends, the interest rates or direction of interest rates will cause currency pairs to develop long term trends and move in one direction. The pairs with the biggest interest rate differentials between the two currencies would be the best choice for buying or selling. Currency interest rates for both currencies in any pair would be great information to have.

For example if you wanted to buy the USD/JPY pars, you would want to know the USD interest rates as well as the currency interest rates for the JPY. Since most traders focus on the eight most liquid currencies we would advise knowing the current interest rates and also the direction of interest rates for these currencies. Central banks publish this data. Forex fundamental analysis and knowledge of world interest rates trading is one approach to finding currency pairs that move.

Currency Strength Causes Movement

Over the short term having one currency strong and one weak in the same pair will cause the most movement in real time, or over the course of a few days. This is called currency strength trading, and we have more than one currency strength indicator in our trading system. In the short term what causes a currency pair to move? Currency pairs move for one simple reason. One currency is strong and the other currency in the pair is neutral or weak. Here are some examples:

The EURUSD is a popular pair for spot forex traders, so let’s use this pair for an example pair to illustrate this concept.

If the EUR is strong and the USD is neutral or weak, the EUR/USD movement will be much stronger, and traders can take advantage of this.

If the EUR is weak, and the USD is neutral or strong, the EUR/USD average daily movement will be strong and this pair will move down, and traders can also take advantage of this.

The average pip movement per currency pair is not nearly as important as knowing if one currency is strong or weak on the same pair. Traders can use these simple concepts to make pips every day, because this is what causes currency pairs to move. These simple concepts work for any pair. Since most traders only trade a few pairs, this opens up a lot of opportunities to make move pips by choosing a pair to trade that fits these basic conditions across the most popular 28 different pairs.

See below a real time forex indicators called The Forex Heatmap® that uses currency strength to tell traders what is the best pair to trade with consistent strength in one direction. It works for 28 pairs.

What Makes Currency Pairs Move

The average daily pip movement forex is somewhat meaningless. What matters is that if one currency is consistently strong and one currency is consistently weak on the same pair. In this case you will always have big movement cycles and have a chance to capture those movements. The fluctuation of two currencies against each other in the same pair is what you need to know, not the average daily pip movement.

The Forexearlywarning trading system uses these currency strength concepts across 28 pairs, and almost all of them have good liquidity and low spreads in the main trading session, so all of these pairs are great candidates for trading.

Some traders say that supply and demand will ultimately impact the price movement. We know this has to be true but the currency supply and demand on the two currencies in a pair will ultimately be reflected in the prices, which is measured by the heatmap in real time. Trend tools like moving averages are price based, so ultimately whatever factors affecting demand and supply of currency will eventually show up in the short term movements and long term trends in the market. Trend indicators are discussed below.

Capturing Strong Currency Pair Movements

As a trader your objective it to capture strong movements on currency pairs when they occur. This means that you must have some professional forex alert systems at your disposal to notify you of when the market starts moving. This would include Metatrader 4 alarm systems, audible price alerts, forex news calendar, and currency strength alert systems available to you. You can learn more about these professional forex alert systems in this article.

Market Trends are Also Important

Traders can also use market trends to help them determine why certain currency pairs are moving. Using forex market trends will help to determine what pairs will move, especially trends on the larger time frames.

Here is a forex trend strategy you can use: If all of the JPY pairs are moving up on the D1 time frame trend, this means that the JPY is weak. By having the USD/JPY, CAD/JPY, GBP/JPY, etc. on one screen traders can make much better decisions when they enter trades based on the trends of the market. This same forex trend technique applies to any group of pairs with one common currency. Learn more about this forex trend technique in this article about multiple time frame analysis by individual currency.

Forex News Can Cause Price Movement

Forex news drivers and scheduled news can cause a lot of price movement on currency pairs. If any of the eight major currencies have a scheduled news driver or unexpected news, the currency markets can move fast, depending on the outcome of the news. There are no EUR/USD news or USD/JPY news per se. Just news drivers for the individual currencies that comprise the pair. Traders should learn all they can about how forex news can impact movement. Traders can see the exact times of potential currency movement on the forex news calendar. See the JPY news items in red below on the calendar.

Forex News Calendar

Forex Technical Indicators Are Ineffective

Almost all forex traders scalp with technical indicators like RSI, Bollinger bands, Aroon, Divergence, etc. But these technical indicators are massive failure for traders and a waste of time. Will technical indicators help a trader to determine the cause of why a currency pairs move? No they will not, technical indicators are just drawings on a piece of paper or computer screen, they will not tell you why a currency pair moves. They are completely flawed. We recommend not not using forex technical analysis and indicators as part of any good forex trading system, they simply do not work.

Some Currency Pairs Move Faster Than Others

Some currency pairs are more naturally volatile than others. Of the top 28 currency pairs, a 1% movement can be much more or less than another pair. For some pairs 1% movement can be 250 pips, and other pairs a 1% movement can be 75 pips. To learn more about the 1% rule we have a great article about currency pair characteristics where you can estimate forex volatility for any pair. This is not a tool like a forex volatility calculator, but a technique that allow you to quickly estimate the volatility of the pair you are trading.

A low volatility currency pair can become much more volatile if one currency is consistently strong and one pair is consistently weak, we refer to this as a “slingshot”. The example below shows an 80 pip movement for the AUD/USD pair just because the AUD was strong and the USD was slightly weak. If you have a more volatile pair with one currency consistently strong and the other consistently weak, these pairs can move 250-300 pips in one trading session. This type of movement is somewhat regular using The Forex Heatmap®  currency strength signal system.

Fast Moving Currency Pair

Fast Moving Currency Pairs

When Is The Best Time Of Day For Lots Of Currency Pair Movement

The forex market is 24 hour market. But the best time to trade forex market is a much narrower window of time called the main trading session. It is about 5 hours every Monday through Friday. Learn more about the forex trading session and the best time to trade the forex market, and spend less time in front of the computer and still have the best chance to make pips, every day.

Conclusions about what makes currency pairs move:

We know that fundamentals like interest rates, currency strength, economic news, unexpected news, supply and demand, and natural high volatility of certain currency pairs causes a lot of movement. As traders we must have accurate alert systems, signals, and knowledge of the market conditions like trending or ranging to cash in and make consistent pips from these movements.

We advise avoiding technical indicators and trading on the smaller time frames. Examine individual currencies daily and trade in the direction of the major trends for better price movement and more net pips into your trading account.

The first step in trading forex breakouts is to identify current behavior of the pair you are interested in trading. We would look for a pair that is moving sideways and consolidating, or consolidating after a movement in the direction of a major trend on the H4, D1, or W1 time frame. We have two breakout examples to present here.

Next, traders should identify the breakout points. Either a resistance or support breakout point, or both in some cases. Look at the pair below in the image. This is the EUR/CHF pair, it is moving completely sideways on the D1 time frame trend, so it is a candidate for a price breakout in either direction. Sometime pairs move sideways like this for 10-15 days because the forex market lacks volatility, or both currencies (EUR and CHF) are both strong or weak at the same time. Either way it is an opportunity to catch the next breakout and formation of a new trend.

Forex Price Breakout

When a pair is moving sideways like this traders can set audible price alerts to intercept the next breakout and movement. In this case you can set two price alerts to intercept the movement in either direction. Setting two price alerts on either side of the sideways channel consolidation is called a straddle alert. See the yellow lines for the location of the price breakout alerts.

What To Do When The Breakout Alerts Hit

When the price breakout alerts hit, you need to verify your trade entry. With this trading system , you can check the live signals on The Forex Heatmap®. In this case the live signals indicated that the CHF weakness was consistent across many pairs and was driving the movement that caused the breakout to occur.

Forex Price Breakout Signals

Forex Price Breakout Chart

On the smaller time frames like the M15 timeframe shown above you can see the intraday movement cycle more clearly, just over 100 pips. After the pair makes its intraday breakout movement, then you must re-assess the related market pairs on the higher time frames to see if you should continue to hold the trade. Traders must re-assess larger time frames and price targets after the EUR/CHF pair starts to consolidate and or retrace. You can scale out lots or exit as daytrade. If the EUR is strong or the CHF is weak on at least the H4 time frame, the best course of action is to scale out some of your lots, then also hold some lots in case the pair continues higher in the newly established h4 or D1 uptrend to the next resistance target.

Along with audible price alerts, Forexearlywarning also has a complete suite of professional forex alert systems, including push alerts to your cell phone. We can provide forex traders with various ways to monitor the market for price movement and breakouts across the top 28 most liquid pairs.

What Is The Best Time To Trade Forex Breakouts?

The best time to trade forex breakouts is in the main forex trading session. You can also trade breakouts in the Asian trading session on the AUD, NZD and JPY pairs after significant news drivers that can be tracked on the forex news calendar. Breakouts on 28 pairs and all 8 of the major currencies can be traded in the main trading session. This includes all combinations of the USD, CAD,  EUR, CHF, GBP, AUD, JPY and NZD pairs.

Trending Pairs Also Have Price Breakouts

If a currency pair is trending up or down on the H4 time frame or larger, you can set a breakout alert to intercept trend continuation movements and directional trades. Look at the example below:

Forex Price Breakout Alerts

This pair is trending up on the D1 time frame. It starts to consolidate and form a bull flag chart pattern. Traders should go to the shorter time frames like the M15 time frame pictured above and set a price breakout alert on this pair. Once again, when the price alert hits, go check the signals on The Forex Heatmap TM and look for consistent strength on the base currency or consistent weakness on the cross currency, or both. This will create momentum and a strong entry point.

Conclusions About Forex Breakouts – In this article we outline effective ways to intercept and profit from two kinds of forex breakouts on trending and non trending pairs. Put these procedure into practice to improve your forex trading and pip totals.