Forex trading is exciting and can be quite lucrative if the trader practices good trade discipline and money management. If you feel like you need to catch up an empty retirement or build an alternative income stream, trading currency pairs successfully provides the possibility to make that happen quickly.
Due to its nature, the Forex is a highly speculative market where prices are based more on perceptions and expectations than on any tangible assets or profits. Consequently, many Forex traders use one-, two- or four-hour charts to identify trends and to try to catch profitable moves as soon as they happen. SmartTrader users can improve their advantage by using multiple, shorter time frames to better refine entries to longer-term positions. Try SmartTrader’s state-of-the-art charting software
Exponential Moving Average (EMA)
Like all markets, Forex can trade flat and choppy, making it difficult to profit. Some of the best profit opportunities are found by following trends. A simple indicator such as a 14-day Exponential Moving Average (EMA) used on both a 5-minute and a 1-minute chart can help you identify the trend early and stay with it longer.
An exponential moving average moves a little quicker than a simple moving average because it gives more weight to recent time periods. Active traders often prefer an EMA to see these changes in a direction more quickly.
An example of this can be seen in the EUR/USD chart below. This uses a 14-period EMA on a 5-minute chart and a 1-minute chart (inset) to show this concept of early entry when the trend changes.
Notice the green candle at 13:35 on the 5-minute chart while the trend is still bearish. Yet the same 14-period EMA on the 1-minute chart already shows a change in direction at 13:36, giving the trader an extra profit edge.
Adjusting for Timeframes
A person using only the 5-minute chart for the trend would need to wait until sometime during the 13:40 period shown here. However, using the 1-minute chart to anticipate directional changes gives the trader an edge for getting in a little sooner and picking up a few more points. Similarly, a 1-minute chart will show reversal a little quicker, allowing the trader to keep more hard-earned profits.
Developing your skills in identifying and following trends in multiple time frames, practicing good trade discipline, and improving your portfolio management could set you up to be a more profitable Forex trader.
