Five Minute Forex Strategy

Foreign exchange, or forex, is the global marketplace where various countries' currencies are exchanged for one another. Currency traded on forex is priced in pairs as they relate to one another. For example, EUR/USD represents the euro priced in dollars. The five-minute trading strategy is a system that utilizes intraday forex price charts set to five-minute intervals. That is, each price bar on the chart represents the price for a five-minute period of time.

Setting Up Your Chart

The five-minute forex trading strategy seeks to profit from quick price bursts on a five-minute chart. It utilizes two

chart indicators. A chart indicator is a tool created by formula using various combinations of a currency pair's price behavior. First, plot a 20-period exponential moving average (EMA) on the price area of your chart. This will appear as a line representing the average price over the past 20 five-minute periods. Next, plot a moving average convergence-divergence (MACD) histogram below the price area of the chart. The MACD is plotted as a histogram on a graph that oscillates above and below a zero line. When the histogram is above the zero line, it turns green, and when it moves below the zero line, it turns red.

Buy Rules

First, the price of the currency pair you are trading should be below the 20-period EMA and the MACD should be red. Wait for the price to turn higher, moving above the 20-period EMA line, then check to see if the MACD has moved up above the zero line turning green. If both criteria are met, buy when the price moves at least 10 pips above the 20-period EMA. A pip is the smallest percentage of price movement a forex pair can make. With most currency pairs, a pip represents 1/100 of a percentage point.

Stop Loss Placement

A stop loss order is an order you place with your broker that will automatically sell your position if it moves below a specific price. Stop loss orders are designed to limit the amount of money you can lose when the price falls below your entry price. After you have bought a position, place a stop loss order 20 pips below the 20-period EMA.

Taking Profit

Once the price has risen 20 pips above your entry price, sell half of your position and move your stop loss order up to the price where you entered the position. If the price of your remaining position continues to rise, continue moving the stop loss higher, keeping it 20 pips below the price.

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