At first glance I was amazed, as numerous moves involved a simple breakout from the 20 -day EMA. Many of these prices stayed above or below the moving average for the majority of the trend. And as you might have expected, my optimistic eye picked out all of the perfect trades and well-chosen examples. Classic historical moves such as gold in the early s, sugar in the mids, coffee in and the yen in sparked my interest Figures 1 through 4.

Copyright c Technical Analysis Inc. A 20 -day moving average-based trend-following system can be on the right side of powerful trends, such as the bull market in gold in late and into early The currency markets have offered some very strong trends in the past. Sometimes a trend is so strong that the futures contract will not trade due to exchange-imposed price limits the dashes for the trading day. Again, the 20 -day moving average-based trend-following system captured some nice trends. I noticed that although there were large trends, significant market movements were often preceded or followed by periods of trendless price activity.

In many cases, there would be numerous false reversal signals. During period A, the trend-following system suffered numerous false signals until the breakout at point B. The upward trend stayed above the 20 -day moving average all the way to point C. From this experience, I realized that a breakout filter would be needed in an attempt to avoid false signals. Although by simply buying when prices rose above the moving average and selling when prices fell below would be profitable in the long run, in the short term you could get whipsawed.

Further, you could become discouraged, lose your confidence and not take the next trade - and that trade would invariably have been the inevitable big winner.

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Figure 5, showing August feeder cattle, is a good example. Continuing my search for a filter, I observed that the price has a tendency to return to the 20 -day EMA technically, this is known as mean reverting. As long as there were no breakouts, the price range remains close to or intersects the 20 -day EMA.

In most cases, true breakouts occurred only after the entire day's range in price had cleared the 20 -day EMA. During an upside breakout, the low of the price bar shouldn't intersect the EMA. For a downside breakout, the high should be lower than the 20 -day EMA. Upon further observation, in most cases profitable trends began after the prices Copyright c Technical Analysis Inc. Landry cleared the 20 -day EMA for at least two days.

The refore, for a buy alert the last two lows should not intersect the 20 -day EMA. For sell signals, the highs should not intersect the 20 -day EMA. To ensure that the trade is placed correctly in the trend direction of the possible breakout, use an open-stop order placed 10 ticks above the highest high in the two-day setup for buy signals or 10 ticks below the lowest low in the two-day setup for sell signals. This is akin to a secondary filter, and is one additional check to avoid whipsaws. Setting stops.

What Is Mean Reversion In Trading?

Once in a position, setting stops poses a dilemma. Too tight a stop will almost always be hit and guarantee a loss on a trade. This can be frustrating, as all too often, the commodity resumes its original trend. Too loose a stop, on the other hand, gives the position a chance to work, but puts too much at risk. Because this system is based on a breakout of the 20 -day EMA , if the contract trades back to the 20 -day EMA , it is a sign of a possible reversal. With this in mind, this is the maximum point at which the stop should be placed to limit the loss.

Contract selection. What contracts to trade? I have found that the system works especially well in contracts such as currencies where breakouts holding for more than two days are usually followed by some intermediate- to long-term fundamentals. Before trading any commodity with this or any other system, you should test it thoroughly.

Remember, each market will have its own nuances. What works with one commodity won't necessarily work with others. No system should be blindly applied to all markets. Number of contracts to trade. This is a breakout system that attempts to catch large moves that may take some time to develop.

Catching a longer-term move requires a wider stop see the paragraph on setting stops. Although a wider stop will increase your potential losses per trade, it should decrease the number of trades and reward you with larger profits once the elusive trend is caught.

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With this in mind, the idea is to trade fewer contracts in an attempt to catch larger moves. Resist the temptation of maximizing leverage. You can make healthy profits with a good breakout system by trading only singles with one contract per signal. Here are the results of using the trading rules on continuous data for the yen futures contract from January through October The line represents the equity and the histograms are the individual profits and losses.

The next step is obviously to determine what currency pairs to buy and what currency pairs to sell.

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This is what will determine the success of this strategy. The currency pair selection will be done according to which currency pairs are moving in tandem with the US dollar and which currency pairs are moving against the US dollar strength. Our currency portfolio would look something like this:.

After the first trading day, the sum of all of our positions would be pips. Now, with this approach, some positions will inevitably generate some losses. Another approach that you can use to implement the forex basket trading method is to use a forex currency index, like the US dollar index. A currency index is an index that measures the value of one currency against a basket of foreign currencies.

Some trading platforms have built-in different currency basket index that you can use for free.

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For this forex basket trading system, we would need to use a combination of a minimum of three instruments. This basket trading strategy involves gauging the strengths and weaknesses of currency pairs by studying the price structure and the relationship between the currency pairs. What we mean by this is we look to find clues in the price action for possible divergence signals between the currency pairs. And, then act based on that information.

A Profitable RSI Mean Reversion Trading Strategy

If the British Pound index makes a new higher high, but one of the GBP crosses fails to make a new higher high that is a sign of weakness and a possible reversal signal. But at the same time, we can sell the whole GBP crosses to spread our risk evenly across multiple currency pairs. Now, as you can tell, basket trading can be implemented in various ways. You can experiment with different types of trading scenarios and come up with your own unique forex basket trading strategy.

In summary, losing trades can be a good thing if you prepare strategically by implementing successful forex basket strategies. In order to be a consistent trader, you need to be involved with multiple currency pairs as this will increase the probability of your success. Interested in learning more? Read this guide about the best forex trading strategies here.

We specialize in teaching traders of all skill levels how to trade stocks, options, forex, cryptocurrencies, commodities, and more. Our mission is to address the lack of good information for market traders and to simplify trading education by giving readers a detailed plan with step-by-step rules to follow.

TradingStrategyGuides frequently provides interesting 'food' for thought, that I can incorporate into my Strategy, for Back Testing! Thank you, Ian Stewart. Visit: www. Forex Factory Calendar - What is an economic calendar Forex. Forex Factory Calendar. Forex Factory is a financial exchange trading forum website. It provides many members with advice from experienced traders. Information is huge on this site, and along with the regulations of the forum, new traders and all traders are able to get resources, tools, and trading systems, and strategies. People use the Forex Factory calendar , to get insights towards anticipating market movement and events ahead of time, using a Forex focused based economic calendar.

So traders want to know select information that relates to real market data. They want to know this information, each day, week, month, and for the next day as well. Along with this information current news, with analysis from traders on economic news reports are given as well. Knowing ahead of time what Trading News reports mean, can help traders learn how to identify a trend. Calendar This is a forum where professional trader can connect, with all other traders to discuss brokers, News reports, trades, market behavior, and the economic calendar.

If you want to really get a revision of information about how you can use the economic calendar on Forex Factory website, there are videos on YouTube that explains how you can use the calendar to trade. Forex Factory. Questions: 1.