Many people think that trading foreign exchange (FX) requires a lot of time to research the market and to identify trading opportunities. However, I believe the 24 hour nature of FX makes it easier for traders to take advantage of trends in currencies because they are not bound by when an exchange allows them to trade. So regardless of what your busy schedule is like, there are trends in the market you can take advantage of with as little as 30 minutes of time invested per week.
There are several different ways to approach the market if you are short on time. Today, I want to share with you one of these strategies to trading FX in your spare time. Today’s strategy is called the Simple DNC Breakout. I chose this strategy because the tools involved in identifying trades are fairly intuitive even if you have never traded FX previously.
Before I get into some specifics of the strategy, you may be wondering how a trader can effectively find good trades if they are not constantly watching the market? You see, the essence of this approach is that you will place orders to enter into the market at strategic price points. When the market trades through these prices, this will be our signal to enter the trade and your resting order with your broker will take care of the entry and exit automatically.
So the strength of this strategy depends upon the strength of the trend. We want to utilize the strongest trends in the market at the moment…the stronger the trend the better. When these strategic price points are reached, we want to enter the trade in the direction of that strong trend.
As a result, there are 2 significant benefits to this type of strategy.
- No need to baby sit the trades. Place orders to enter the market at specified prices then simply let the market enter you into these trades at these strategic prices. Many of these trades will trigger while you are away from your computer, sleeping, or busy with other time commitments.
- This strategy can keep you out of SOME losing trades. Don’t get me wrong…you will still have losing trades. However, it happens frequently where you will be wrong on a trading idea but you never get entered into the trade…which would have been a losing trade. You see, if the market never trades to your strategic price point, then your entry into the market does not get triggered. This means you are kept away from the losing trade.
The Simple DNC Breakout Strategy
*A price chart set to the daily bar
*A strong trend
*30 minutes of time to identify strategic price points
To get started, open up a price chart of a currency pair that has been in a strong trend. The Australian Dollar has been one of the strongest currencies for the past 3 years. So the AUD/USD is a good place to start. A daily price chart means each bar or candle on the chart represents one day’s worth of price action.
Secondly, add the DNC indicator to the chart (most charting packages include this for free). The DNC indicator will calculate the highest high and the lowest low price for the past X number of bars.
Set the input value of the DNC indicator to 8. This means we want to see the highest high price and the lowest low price for the past 8 days worth of trading. Your chart should look like this.
(Created using FXCM’s Marketscope 2.0 charts)
Identifying the Strategic Price Points
Now comes the fun part. Since the AUD/USD has been in a strong up trend for the past 3 years, we want to filter our trades so that we are only looking to buy this strong up trend. Conversely, if we were trading a strong down trend (like the EUR/AUD), then we would filter for only sell trades. Setting up the trade is a simple 4 step process.
(Created using FXCM’s Marketscope 2.0 charts)
Rules to Buy:
- We will use the upper DNC line as are strategic price point to enter our position as a buyer (green circles).
- We will use the lower DNC line as our stop loss.
- Manually trail the stop loss at the lower DNC line.
- Exit the trade when price reaches the lower DNC line (pink circles).
The opposite is true for selling a strong down trend.
- Use the lower DNC line as the strategic price point to enter a sell trade.
- Use the upper DNC line as the stop loss point.
- Manually trail the stop loss at the upper DNC line.
- Exit the trade when price reaches the upper DNC line.
You can see in the above chart, there were 3 trading opportunities from October 2011 to the present. When price tagged the upper line, we are entered into the market as a buyer. Our exit point in the trade is the lower DNC line.
While logging into your charts, most of your time will be spent reviewing the location of the upper and lower DNC lines. If the location of these lines moved since your last review, then you would change the entry orders in your brokerage account according to the strategy rules.
Since we are interested in the highest high price for the past 8 trading days, these price points likely won’t move much on a day to day basis which affords us the opportunity to check on them at least 1 time per week. As you can imagine, it doesn’t take very long for check the change in the strategic price points and it can usually be completed within 30 minutes.
---Written by Jeremy Wagner, Lead Trading Instructor, DailyFX Education
To contact Jeremy, email firstname.lastname@example.org. Follow me on Twitter at @JWagnerFXTrader.
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