Most Forex traders never bother with the weekly chart to help them obtain better market timing for their trading signals, they simply focus on the daily charts but this is a huge mistake – let's take a look at the advantage of using weekly charts in your trading strategy:
The Longer Term Trend
In terms of trading Forex the higher odds trades tend to made by trading the big long term trends and this is something we continually stress in our Forex education but most traders don't want to trade long term and that's a fact. They prefer to trade shorter term moves and don't see the advantage of using weekly charts in terms of getting better market timing and also making more profits per trading signal. This strategy is not based on trading high volume but focuses on, the longer term trends - the logic is to make bigger profits per trade and trade less volume to make bigger profits.
The Weekly chart allows you to see the “wood from the trees” and you while the big long term trend may not be easy to see on the daily chart, it's normally easy to see by looking at the weekly time frame.
The key to using weekly charts is to look at big levels of support and resistance, within the longer term trend and then, look to the daily chart to time the move. You can actually time off the weekly chart but this can only be done by well capitalized traders. For traders with smaller balances, its best to check the weekly levels and then move to the daily chart to time trading signals.
A Simple Currency Trading Strategy Based on Weekly Charts
So how can you win with a Forex trading strategy based upon weekly charts? Lets look at how to put together a simple trading system which can help you achieve long term currency trading success.
When looking at the weekly chart you are looking for levels of resistance or support which are important and will also line up with the SAME level on the daily chart.
The level can then be used to take a position in an existing trend, where the price has had a correction in a bear trend to an important level or resistance or in a bull trend, a correction has led to an important level of support being tested.
This strategy also works well with breakout methodology in terms of looking for a continuation of a bear trend on a break of support or a bull trend on a break of resistance. Which ever trading method you are using, you are looking at the weekly time frame to establish levels to trade off and then timing via the daily chart.
Follow a Large Number of Currency Pairs
When looking for currency pairs to follow, you should of course follow the majors but you should also consider all the major crosses which will give you around 20 pairs to look at for opportunities. If you do this, you will increase the number of trades taken ( although this is still a low volume trading strategy) and also have many uncorrelated pairs to look at which will decrease risk and increase the reward of the strategy.
Many traders might be thinking I should stick to the majors as the pip spreads are better and yes they are but pip spreads are still good on the crosses and keep in mind, this is not a short term trading strategy – were looking for hundreds of pips per trade in profit and the difference of 2 or 3 pips on the spread will not make much impact on the profitability of the strategy and offers you the advantage of trading uncorrelated pairs which can decrease the risk of the trading strategy while at the same time, increasing its profit potential.
When you trade the majors against the USD, you will find many trade in the same direction and f you are trading a few of them,your chances of getting hit and hurt on a price reaction against you are high. By trading the crosses you will find many will be moving in different directions to each other and the majors v the USD and this increases the potential for profit and decreases the risk overall on your trading account. You have more opportunities and better risk to reward which is great news for all traders.
This is a very simple trading strategy and trades all currency pairs in the same way – there is no pair which is better to trade all the time and it will depend on the chart set up at the time which is the best trade to take. While this strategy works in currency markets, it will also work on ANY financial market which trends and this includes interest rate futures, stock indices and commodities so its very flexible in terms of markets it can trade.
Best Trading Signals
The best trading signals are generated when an important level of support and resistance on the daily chart lines up with the same level (or close on the daily chart) Let's look at a hypothetical example in the British Pound, where you see important resistance in a bear trend at the 1.60 level in both daily and weekly time frames. Prices have bounced up to test the level from oversold and are now overbought in the short term trying to break resistance – this is an excellent opportunity to add shorts in a bear trend.
You simply wait for the level to be tested and trade the short side. Now let's assume the Pound is not in a down trend but in an up trend, it comes up to rest 1.60 as a resistance level and in this scenario, you are waiting to take a break above this level. All you do is wait for the break to occur and if your trading indicators back up the move and indicate an increase in momentum as the break takes place you would trade long.
In terms of this strategy, you can trade it using just price action and use no indicators but my own view is to use some to see how overbought or oversold the market is. In terms of a bounce in a bear market the more overbought the indicators are, when testing resistance the more likely the level is to hold and in a bull market the more oversold they are, the more likely the level will hold and the long term trend will continue.
When using a breakout strategy, on a break of support in a bear market you don't want the currency pair to be to oversold and in a bull market not to overbought when the breakout occurs. The reason for this is breaks that occur when the market is overbought to the upside or oversold to the downside, can be false breakouts.
A Simple Trading System for Big Profits
The above is a very simple trading system but its worked and is based on the logic that big trends last for many weeks and by studying price action longer term, you can find the really important levels of support and resistance and then trade them for profit. If you use weekly charts in your trading strategy in the way we have above, you will be trading all the biggest and best trending currency markets for profit and even better, it will take you very little time to do – just an hour or so a day. Discover a trading a strategy based on weekly charts and you will see, how effective it is in helping you, become a profitable currency trader from home.