High Probability Trading in the Forex Market

Traders with limited experience who trade the foreign currency market, begin to realize that we are not trying to capture every possible market move. We want to better our odds and reduce our frustration by targeting high-probability trades. We need to understand these forex trading strategies when analyzing Forex charts when trading the Forex market.

With the use of trendlines and Fibonacci techniques, they can provide powerful signals for higher probability trading. We already know that trendlines (trendline analysis) have some validity, and so do Fibonacci studies. We need to combine these two, to improve our chances.

The charts below are the USD/GBP (British Pound). The daily chart is of October 5, 2005. I drew a red downsloping trendline connecting the two recent swing highs.

Price has moved down on the chart since early September , making a downtrend of consecutive waves with lower swing highs and lower swing lows. There were several opportunities to take advantage of this move down. In this tutorial we will focus on the opportunity we had on October 6.

In a downtrend we want to sell short the swing highs, and take profits on swing lows. We really don't want to short every time we think we have a swing high. If you have tried that, you know about the whipsaws and fakeouts already. We only want the best trades, those which are more likely to be successful. So how do we decide what an optimum entry point would be?

Our odds are greatly improved if we have a swing high near a downsloping trendline (red on the chart). The market tend to reverse at certain Fibonacci levels. These are known as Fibonacci Retracements. So if you have a significant resistance level close to a trendline, we have an even better chance of successful trade.



The next chart shows the British Pound with Fib resistance levels. Notice the Resistance level. This is an area of significant resistance, with a higher probability of a price reversal. If you are new to Fibonacci studies and retracements, those studies may look like a confusing set of colored lines on the chart. Learning how to properly use these Fibonacci studies, and which of them are stronger, or higher probability, is not that difficult! There are two video seminars that explain this in FibMaster.

That Resistance level, in addition to a trendline is an optimum price shorting zone. If the market reaches that area, and if the market resists at that price point, we want to take a short position or sell short this currency pair. Once the resistance materializes, it will be hard for the market to move against us.




Most traders do not trade the daily chart, but we can use the longer-term charts to find powerful trends and Fibonacci levels. The next chart is a 60-minute chart. I choose 60-minutes because it clearly shows when resistance has materialized. You may prefer to use a 30 minute chart or a 5 minute chart. Remember to always be looking for support and resistance lines when working with Forex charts and your Forex chart analysis.


The 60-minute chart below shows how the GBP rallied to the resistance level, and the trend-line. It rallied over those, then tested them briefly, then retreated. There are many ways to determine whether resistance has materialized. There are some very powerful techniques for that purpose. However we want this tutorial to focus on some of the basics. For now we will focus on the obvious breaking of the rising trend as our trigger.

During that upward rally, the 60 minute chart has a number of higher swing highs and higher swing lows. Once we broke the highest swing low (the last bar on the above chart), we know that uptrend has completed its run. So we want to start selling short the rallies and take profits on dips as shown on the next chart 60 minute chart below.


Notice how the market headed down and never looked back! That is what happens when you combine trendlines with Fibonacci techniques. The best trades go your way and keep going in your direction. That's a characteristic of high probability trading.

If this tutorial makes sense to you, you should take your trading to the next level. Use these powerful techniques to your trading advantage and watch some video seminars at FibMaster.