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Because this is the time
frame often consulted by professional traders and fund
managers, some representing large institutions. Key levels
of support and resistance on the daily chart can be
significant and should be taken note of when considering
charts on lower time frames.
The Doji On The Daily
The currency trading strategy described here takes advantage
of a setup that occurs frequently through the month on a
variety of currency pairs. After each day is complete, preferably using GMT as the guide no
matter where you live in the world, examine the previous day's candle on the daily chart and see whether
it is the doji formation. A doji candle
typically has a very small body. Look for a doji candle with 50 pips
or less between the high and low for the day.
You can now focus in
on this day's price action on the lower time frames. Is the doji
candle around a strategic support or resistance level? Does it also
match up with a Fibonacci retracement level such as the 50 or 62%
mark on a 4 hour or 1 hour chart?
Then this could be a
reversal point and the current day's action could offer some nice
opportunities for trading.
How To Trade The
Doji On The Daily
The currency trading
strategy you choose to trade this setup will depend on your personal
trading style. Here are 3 possibilities
1. The Breakout
If you believe price
is going to reverse at this point then set an entry order 5 pips the
other side of the high or low of the doji candle and get taken in
when price moves.
Of course, there may
be a false breakout and your stop could be taken out. That's
trading!
2. The Re-Test
If you want a more
cautious currency trading strategy then wait for price to break the
high or low of the doji candle (you can mark the high and low on the
1 hour chart or 15 minute chart to get a closer view of the action)
and see if the candle on the 15 minute chart closes above or below
that level.
Price could then
continue on for 20 pips or so. However, often, not always, but
often, price will come back to retest the previous level of support
or resistance before continuing on. Take advantage of this
characteristic by putting your entry order in at that level or one
or two pips near it just in case price doesn't quite reach the
previous day's high or low.
Price will now take you in on the trade when it retraces. This
method gives you an optimum entry point and you can take your first
profit early when price reaches the new high it recently formed
before re-tracing. You might want to leave another one or two lots
in the trade to take advantage of a price run if price decides to
continue on after that.
3. The Straddle
This currency trading
strategy is for those who only want to examine the charts briefly at
the start of a new day, set their orders, walk away and let it run.
The straddle technique
involves setting an entry order 4 or 5 pips above the previous day's
high and setting another entry order 4 or 5 pips below the previous
day's low.
No stop needs to be set
as one trade will cancel the other in the event price moves in one
direction and then reverses and goes in the other.
As the doji candle on
the daily is 50 pips or less, that would be the maximum risk in this
case. Obviously you would need to have the equity to be able to
support a larger risk like this.
Now whichever way price
moves, you will get taken in. The risk of being whipsawed out is there
but the higher probability is that price will continue on once it has
broken the previous day's high or low.
Check Daily
So if you want to
develop a variety of methods and techniques in your overall currency
trading strategy, look for the "Doji On The Daily". It frequently
offers fine trading opportunities no matter which style you use to
trade.
by Michael A.
Jones
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