Forex Swing Trading Strategy # 2: ( Floor Trader’s Method)

Overview of the Floor Trader’s Method

The floor trader’s method is a trend following system which can be used effectively as a swing trading strategy. The floor trader’s
method is built on 3 important concepts:

1) it is a retracement-continuation trading method.

2)it uses moving averages to identify the trend and trades in the direction of that trend.

3) the trading setup or the trading trigger is a reversal pattern that forms after the retracement.

If you spend a little bit more time understanding some of the most common reversal candlestick patterns, then it would make it much easier for you to understand this trading method.

Retracements:

  • In a downtrend, the retracement (or pullback) is the minor rally upward
  • In an uptrend, the retracement(or pullback) is the minor rally downward

Timeframes: 1hr and above

Indicators: 9ema and 18ema

Short Entry Rules

(1) Wait for 9ema to cross 18ema to the downside. When this happens, it signals a downtrend.

(2) Wait for a retracement where price goes back up and touches the 9ema or both ema’s.

(3) Sell on the breakout of the Low of the candlestick prior to the current one

(4) Place stop loss 1-5 pips above the “peak” of the retracement.

Long Entry Rules

(1) Wait for 9ema to cross 18ema to the upside. When this happens, it signals an uptrend.

(2) Wait for a retracement where price goes back down and touches the 9ema or both ema’s.

(3) Buy on the breakout of the High of the candlestick prior to the current one

(4) Place stop loss 1-5 pips below the “trough” of the retracement.

Floor Trader’s Method Buy Setup

How To Manage Your Trade

Here are some suggestions on how you can manage your trades that are in profit:

  • move stop loss to break-even when the trade moves by the amount risked
  • you may consider taking some profits off the table when price moves twice the distance of the retracement where you took the trade on.
  • trail stop your trades behind each subsequent lower swing high that forms as price continues to move lower for a short trade.
  • trail stop your trades behind each subsequent higher swing low that forms as price continues to move higher for a long trade.

How To Setting Profit Targets

Here are a few ideas on how you can set your profit targets:

  • use fibonnaci tool to project your profit targets-the 161.8 & 261.8 fib levels are potential profit targets.
  • or you can use 2 to 3 times the distance of the retracement to calculate your profit targets.
  • Or you may not choose to set profit targets but trail stop your trades, locking profits as the trade moves in favour until you get stopped out.

Advantages of the Floor Trader’s Method

  • The trend is your friend. The floor trader’s method is a trend following trading system.
  • It is simple swing trading strategy, easy to understand and implement
  • Allows you to get into a trend in its beginning and you can ride out the trend if the first retracement happens happens quickly after the ema crossover.
  • Higher timeframes are much more reliable.
  • Trade Entry is dictated by Price Action
  • Stop Loss is not placed at any arbitary location but above resistance levels for a short order and below support levels for long orders and this reduces the changes of getting stopped out in a trade prematurely.

Disadvantages of The Floor Trader’s Method Forex Trading Strategy

  • Tendency to give a lot of false trading signals in a sideways trending market.
  • In a fast moving trending market, sometimes, the retracement will not happen close to the ema crossover and you may see that you have missed a massive part of that trendy move and by the time a signal is given for you to enter a trade, the market at most times would have lost its steam anyway and you will tend to get stopped out frequently.
  • The further away the retracements(pullbacks) happen away from the ema cross over, the less reliable the trading signal would be. This means “A” retracement is much more reliable than “B” retracement and “B” retracement is much more reliable than “C”.

Additional Floor Trader’s Entry Technique

The original floor trader’s method specifically talks about entering on the failure of a retracement when the high or a low of the candlestick prior to the present one is intersected. That’s one way to look at it.

However, we can take this a bit further by using reversal candlesticks to time our trade entries.

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4 Responses to “Forex Swing Trading Strategy # 2: ( Floor Trader’s Method)”

  1. chak says:

    Do you have a newsletter?

  2. Mangi Madang says:

    Chak,

    No, don’t have any.

    Cheers

  3. floren says:

    sir, do you have a simple trading methodology?

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