The floor traders method is a forex trading strategy designed to capture the continuation of a trend. It is a very good swing trading strategy you can use if a currency pair is trending very well.
In order to fully understand the floor traders method, you need to know these 3 important concepts about this trading system:
- the floor traders method is a retracement-continuation trading method
- the floor traders method uses moving averages for trend identification and then trade in the direction of the trend
- the floor traders trading signal/trading trigger is a reversal pattern that forms after the retracement
WHAT ARE RETRACEMENTS?
In the context of the floor traders trading method, this is what retracement means:
- in a downtrend, the retracement is the minor price rally upward. Let me explain a little bit more. If you are in a downtrend market, sometimes you will see that price will move back up even though the overall trend is down. This up move is only temporary. Eventually, price will fall back down to follow the established downtrend.
- in an uptrend, it is the minor rally downward. This is the exact opposite of above. What you will see in an uptrend price move, sometimes price will fall back down a little bit but then later continue to move up.
What I’ve explained above are price retracements.
What Are The Best Timeframes to Use?: 5mins and above
Forex Indicators To Use: 9 and 18 exponential moving averages
(1) First, 9 ema must cross 18 ema to the downside. This indicates that the market is now in a downtrend.
(2) Then wait for a price retracement where price goes back up and touches the 9 ema or both ema’s.
(3) As long as a candlestick touches either the 9ema or 18 ema and if the low of the prior candlestick is broken, then that is your trading signal to sell.
(4) Place stop loss 1-5 pips above the “peak” of the retracement.
(1) First 9 ema must cross 18 ema to the upside. This signals an uptrend.
(2) Wait for a retracement: this is when price goes back down and touches the 9ema or 18 EMA.
(3) then watch thigh highs of the candlesticks: if a previous candlestick’s high is broken after touching the 9 or 18 ema, this is your buy signal so buy on the breakout of the High of the candlestick.
(4) Place stop loss 1-5 pips below the “trough” of the retracement.
Not all trades can go according to plan and hit your profit targets and therefore you should have options on how to manage your traders. Here are are some ideas on how to manage your trade if it is in profit:
- move your stop loss to break even if price moves by the amount that you risked initially.
- or if price moves two times the amount risked, take half the profit off and leave the other half running.
- you can also trail stop your trades behind each subsequent lower highs that form for sell trades and higher lows for buy trades.
Here are some options for setting profit targets:
- set your take profit target 3 times the amount your risked, for example, if you risked 30 pips, then your profit target should be 90 pips.
- you can also use the Fibonacci tool to project profit target level at 161.8 & 261.8 and use those as your take profit price levels.
ADVANTAGES OF THE FLOOR TRADERS METHOD FOREX TRADING STRATEGY
- this is a trend trading strategy/swing trading strategy that has the potential to catch the trend at its very beginning and if you ride it out, you can make a lot of pips easily.
- trade entry dictated by price action
- stop loss place above resistance and below support levels reduces the chances of you getting stopped out prematurely
- reversal candlesticks can be used to enhance the trade entry signal
DISADVANTAGES OF THE FLOOR TRADERS METHOD FOREX STRATEGY
- In a sideways trending market, this forex strategy tends to give a lot of false signals.
- sometimes in fast moving markets, the retracement happens not close to the ema cross over and a big move has already happened prior to the sell or buy trade signal is given.
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