From the July 01, 2012 issue of Futures Magazine • Subscribe!

Capturing trends in forex

Despite the effectiveness of the first two examples, don’t assume this is a golden goose technique. In “Downside drift” (below), the market hit our stop before price moved in the predicted direction. Such outcomes can be painful psychologically, but it’s critical to never widen your stop with this method. If it’s hit, it’s hit. Get out and wait for the next opportunity.

For the record, we bought on Jan. 31 at 1.3138 with a 1.3038 stop loss and a profit target of 1.3438. On Feb. 2, our stop was hit and we closed the trade with a 100-pip loss.

Trading can be simple — though never easy — and because of this simplicity, there is no reason for traders to lack confidence in their ability to trade profitably. Confidence can power results, and this further compels you to trade longer and absent emotion. Over time, this simple two-indicator approach to identifying key entry points in currency trends can make money.

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