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Using a Weekly Forex Trading System

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Forex trading on weekly charts is one of my favorite ways to make trades. Many forex systems encourage trading on 5 and 15 minute charts which can be exciting, but if you don't have a lot of experience with the way currencies move, particularly whatever it is you're trying to trade, it can be frustrating and you can lose money.

If you approach this right, it's an easy way to make money with forex trading. You'll need to stay armed with thoughtful risk management and a good dose of patience.

When looking 5 minute charts and such, you are typically looking at a range of 100-200 pips at the most. When looking at a weekly chart, the range may be thousands of pips, depending on the pair. The good news is, you really still trade these the same way, only it takes much longer, and you have to trade in smaller amounts. You might normally trade mini lots, which comes out to around $1 a pip on average, a good whipsaw move on a smaller time frame might take $100 out of your account if it hits the stop. If you made the same type of trade on a weekly chart and were taken out on that kind of dip, you could lose $1000.

On one hand, yes the potential to lose in higher dollar amounts does exist, but the bright side of that is that it takes much longer to get there. 1000 pip whips on a weekly chart are not very common. They usually only happen when something rocks the world markets, such as the disaster in 2008. Typically 1000 pips of movement may take from a month to 3 months, and some currency pairs really just range back and forth over that time.

Taking all of that into account, you probably want to know how you can get started trading those weekly charts.

The rule of thumb for most markets, is that if the price is above the 200 week moving average, it's a buy, and if it's below it's a sell. I like to take this one step farther by also adding a 50 week moving average to the chart. I do this because the difference between the current price and the 200 moving average can be large, and I like to use the 50 moving average as a filter. If the current price falls between the two averages, I skip the trade and look for something else. This is just my personal rule of thumb, you can develop your own filters.

The main thing to remember is trade small and be patient. If you normally trade forex mini lots, use micro lots instead. Weekly charts are easy to manage, but the distance in price is usually bigger than it appears, so use caution.

Just like trading on any other time frame, you should still use stops and set targets and make a trading plan. The difference is, you don't have to plan at the speed of light, you get the benefit of calculating your plans over months instead of hours.

As long as your patient, and observe the right caution, this is one of the safest ways to trade. Obviously you need to follow forex risk management and use common sense, but this is one of the easier ways to trade. The money builds up slow, but it's much less stressful to make using this method.

If you've learned something from this, or you have a question, feel free to email me at forextrading@aboutguide.com, or follow me on facebook.

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