Forex trading is the act of buying and selling currencies in the global foreign exchange market. It is one of the most popular and liquid forms of trading, with an average daily turnover of over $6 trillion. Forex trading offers many benefits for investors, such as:
- Access to a 24-hour market that operates five days a week
- Ability to profit from both rising and falling markets
- Low transaction costs and high leverage
- Diversification of portfolio and exposure to different economies
However, forex trading also comes with some challenges and risks, such as:
- High volatility and unpredictability of the market movements
- Risk of losing more than your initial investment due to leverage
- Difficulty of finding a reliable and regulated broker
- Need for constant monitoring and analysis of the market conditions
That’s why many forex traders are looking for a simple and effective way to trade forex with only one hour a day. This is where the one-hour strategy comes in. The one-hour strategy is a forex trading method that uses the 1-hour chart as the main time frame to identify and execute trades. The one-hour strategy consists of five main steps:
- Step 1: Choose a currency pair and a time frame
- Step 2: Identify the trend and the key levels
- Step 3: Wait for a signal and confirm it with other indicators
- Step 4: Enter the trade and set the stop loss and take profit levels
- Step 5: Manage the trade and exit at the right time
In this blog post, we will explain each step in detail and show you how to apply the one-hour strategy to trade forex with only one hour a day. By following this strategy, you can reduce your stress, save your time, and increase your profits in forex trading. Let’s get started!
Step 1: Choose a currency pair and a time frame
The first step of the one-hour strategy is to choose a currency pair and a time frame that suit your trading style, risk appetite, and market conditions. There are many factors to consider when choosing a currency pair, such as:
- The liquidity and volatility of the pair
- The correlation and divergence of the pair with other pairs
- The economic and political events that affect the pair
- The trading sessions and hours that the pair is active
Generally, there are three types of currency pairs: majors, minors, and exotics. Majors are the most liquid and widely traded pairs, such as EUR/USD, USD/JPY, and GBP/USD. Minors are less liquid and more volatile pairs, such as EUR/GBP, AUD/NZD, and CAD/JPY. Exotics are the least liquid and most volatile pairs, such as USD/ZAR, EUR/TRY, and GBP/MXN.
Depending on your trading style, you may prefer different types of currency pairs. For example, if you are a scalper or a day trader, you may want to trade majors or minors that have low spreads and high volatility. If you are a swing trader or a position trader, you may want to trade minors or exotics that have higher spreads and lower volatility.
Another factor to consider is the time frame of your chart. Different time frames show different levels of detail and noise in the price movements. Generally, there are four types of time frames: long-term, medium-term, short-term, and intraday. Long-term time frames are daily, weekly, and monthly charts. Medium-term time frames are 4-hour and 8-hour charts. Short-term time frames are 1-hour and 2-hour charts. Intraday time frames are 15-minute, 30-minute, and 5-minute charts.
Depending on your trading style, you may prefer different types of time frames. For example, if you are a scalper or a day trader, you may want to use intraday or short-term time frames that show more frequent signals and opportunities. If you are a swing trader or a position trader, you may want to use medium-term or long-term time frames that show more reliable signals and trends.
For the one-hour strategy, we recommend using the 1-hour chart as the main time frame for your analysis and execution. The 1-hour chart offers a balance between accuracy and frequency of signals. It is not too noisy like the intraday time frames that may give false or misleading signals. It is not too slow like the medium-term or long-term time frames that may miss some opportunities or changes in the market.
The 1-hour chart also fits well with the one-hour strategy’s goal of trading forex with only one hour a day. You can check the 1-hour chart once every hour or once every few hours to see if there is any signal or opportunity to trade. You do not need to spend hours staring at the screen or waiting for the next candle to close.
Therefore, the first step of the one-hour strategy is to choose a currency pair and a time frame that suit your trading style, risk appetite, and market conditions. In this blog post, we will use EUR/USD as an example currency pair and the 1-hour chart as an example time frame for our demonstration. You can choose any other currency pair or time frame that you prefer for your own trading.
Step 2: Identify the trend and the key levels
The second step of the one-hour strategy is to identify the trend and the key levels on the 1-hour chart. The trend is the general direction and momentum of the market price movements. The key levels are the horizontal lines that indicate the areas of support and resistance, where the price tends to bounce or break.
To identify the trend and the key levels, we can use various technical indicators, such as trend lines, moving averages, and other tools. Here are some examples of how to use them on the 1-hour chart:
- Trend lines: Trend lines are straight lines that connect the higher lows or lower highs of the price movements. They show the slope and direction of the trend, as well as the potential breakout points. To draw a trend line, we need at least two points that touch the line. The more points that touch the line, the stronger and more valid the trend line is. For example, in the following 1-hour chart of EUR/USD, we can see a downtrend line that connects four lower highs and acts as a resistance for the price. We can also see an uptrend line that connects three higher lows and acts as a support for the price.
- Moving averages: Moving averages are lines that show the average price of a certain period of time. They smooth out the price fluctuations and show the direction and strength of the trend. There are different types of moving averages, such as simple, exponential, weighted, and others. To use moving averages, we need to choose a period and a type of calculation. The longer the period, the smoother and slower the moving average is. The shorter the period, the more responsive and faster the moving average is. For example, in the following 1-hour chart of EUR/USD, we can see two moving averages: a 50-period simple moving average (SMA) and a 200-period SMA. The 50-period SMA is faster and follows the price more closely than the 200-period SMA. The 200-period SMA is slower and shows the long-term trend more clearly than the 50-period SMA.
- Other indicators: There are many other technical indicators that can help us identify the trend and the key levels on the 1-hour chart, such as Fibonacci retracements, pivot points, Bollinger bands, Ichimoku cloud, and others. Each indicator has its own advantages and disadvantages, and they can be used in combination or separately. For example, in the following 1-hour chart of EUR/USD, we can see Fibonacci retracements that show the potential reversal levels based on the previous swing high and low. We can also see pivot points that show the daily support and resistance levels based on the previous day’s high, low, and close.
Therefore, the second step of the one-hour strategy is to identify the trend and the key levels on the 1-hour chart using various technical indicators. By doing so, we can have a better understanding of the market situation and prepare for our next step: waiting for a signal and confirming it with other indicators.
Step 3: Wait for a signal and confirm it with other indicators
The third step of the one-hour strategy is to wait for a signal and confirm it with other indicators on the 1-hour chart. A signal is a sign that indicates a possible change or continuation of the trend direction or momentum. A signal can be generated by various sources, such as candlestick patterns, price action, volume, and others. To confirm a signal, we can use other indicators that measure different aspects of the market, such as momentum, trend, volatility, and others.
One of the most common and reliable sources of signals on the 1-hour chart is candlestick patterns. Candlestick patterns are formations of one or more candles that show the price behavior and psychology of the market participants. There are many types of candlestick patterns, such as reversal patterns, continuation patterns, single-candle patterns, multi-candle patterns, and others. Some of the most popular and effective candlestick patterns on the 1-hour chart are:
- Pin bars: Pin bars are single-candle patterns that have a long upper or lower wick and a small body. They show a rejection of a certain price level and a reversal of the price direction. Pin bars can be bullish or bearish, depending on the direction of the wick and the body. For example, in the following 1-hour chart of EUR/USD, we can see a bullish pin bar that formed at the support level of 1.1700 and signaled a reversal of the downtrend.
- Engulfing bars: Engulfing bars are two-candle patterns that have a large body that completely covers or engulfs the previous candle’s body. They show a strong shift in the market sentiment and a continuation of the price direction. Engulfing bars can be bullish or bearish, depending on the direction of the body and the previous candle. For example, in the following 1-hour chart of EUR/USD, we can see a bearish engulfing bar that formed at the resistance level of 1.1800 and signaled a continuation of the downtrend.
- Dojis: Dojis are single-candle patterns that have a very small or no body and long upper and lower wicks. They show indecision and uncertainty in the market and a possible change in the price direction. Dojis can be neutral or directional, depending on the shape and location of the candle. For example, in the following 1-hour chart of EUR/USD, we can see a directional doji that formed at the support level of 1.1700 and signaled a change in the downtrend.
To confirm these candlestick patterns, we can use other indicators that measure different aspects of the market, such as momentum, trend, volatility, and others. Some of the most popular and effective indicators on the 1-hour chart are:
- Stochastic: Stochastic is an oscillator that measures the speed and direction of the price movements. It shows whether the market is overbought or oversold and whether there is a divergence or convergence between the price and the indicator. Stochastic has two lines: %K and %D. The %K line is faster and shows the current momentum. The %D line is slower and shows the average momentum. The stochastic values range from 0 to 100. Generally, values above 80 indicate overbought conditions and values below 20 indicate oversold conditions. For example, in the following 1-hour chart of EUR/USD, we can see that stochastic confirmed the bullish pin bar at 1.1700 by showing an oversold condition and a divergence between the price and the indicator.
- MACD: MACD is an indicator that measures the difference between two moving averages: a fast one (usually 12 periods) and a slow one (usually 26 periods). It shows whether the market is in an uptrend or a downtrend and whether there is a crossover or divergence between the moving averages and the indicator. MACD has three components: MACD line, signal line, and histogram. The MACD line is faster and shows the current trend. The signal line is slower and shows the average trend. The histogram shows the difference between the MACD line and the signal line. Generally, when MACD crosses above zero or above signal line, it indicates an uptrend. When MACD crosses below zero or below signal line, it indicates a downtrend. For example, in the following 1-hour chart of EUR/USD, we can see that MACD confirmed the bearish engulfing bar at 1.1800 by showing a downtrend and a crossover below zero.
- RSI: RSI is an oscillator that measures the strength and direction of the price movements. It shows whether the market is overbought or oversold and whether there is a divergence or convergence between the price and the indicator. RSI has one line that ranges from 0 to 100. Generally, values above 70 indicate overbought conditions and values below 30 indicate oversold conditions. For example, in the following 1-hour chart of EUR/USD, we can see that RSI confirmed the directional doji at 1.1700 by showing an oversold condition and a convergence between the price and the indicator.
Therefore, the third step of the one-hour strategy is to wait for a signal and confirm it with other indicators on the 1-hour chart. By doing so, we can increase our confidence and accuracy in our trading decisions and prepare for our next step: entering the trade and setting the stop loss and take profit levels.
Step 4: Enter the trade and set the stop loss and take profit levels
The fourth step of the one-hour strategy is to enter the trade and set the stop loss and take profit levels on the 1-hour chart. The stop loss level is the price at which we exit the trade if it goes against us and limit our losses. The take profit level is the price at which we exit the trade if it goes in our favor and secure our profits.
To enter the trade, we can use either market orders or limit orders. Market orders are orders that execute immediately at the current market price. Limit orders are orders that execute only when the price reaches a certain level that we specify. The advantage of market orders is that they guarantee execution, but they may incur slippage or a worse price than expected. The advantage of limit orders is that they guarantee a better price, but they may not execute or miss some opportunities.
Depending on our trading style and risk appetite, we may prefer one type of order over another. For example, if we are confident in our signal and want to enter the trade as soon as possible, we may use a market order. If we are cautious in our signal and want to enter the trade at a more favorable price, we may use a limit order.
To set the stop loss level, we need to consider three factors: the risk-reward ratio, the volatility of the market, and the key levels. The risk-reward ratio is the ratio between the potential loss and the potential profit of a trade. It shows how much we are willing to risk for how much we expect to gain. A common rule of thumb is to use a risk-reward ratio of at least 1:2, which means that for every $1 we risk, we expect to gain $2.
The volatility of the market is the degree of variation and fluctuation of the price movements. It shows how much the price can change in a given period of time. A high volatility means that the price can move a lot and unpredictably, while a low volatility means that the price can move little and steadily. To measure the volatility of the market, we can use indicators such as average true range (ATR), standard deviation, or Bollinger bands.
The key levels are the horizontal lines that indicate the areas of support and resistance, where the price tends to bounce or break. They show where the market participants are likely to place their orders and where the price may face obstacles or opportunities.
To set the stop loss level, we need to combine these three factors and find a balance between them. We need to place our stop loss far enough from the entry price to avoid being stopped out by random noise or minor fluctuations, but close enough to limit our losses in case of a major reversal or breakout. We also need to place our stop loss near or beyond a key level that acts as a barrier for the price movement.
For example, in the following 1-hour chart of EUR/USD, we can see how to set a stop loss level for a long trade based on a bullish pin bar signal at 1.1700. We can use an ATR indicator with a period of 14 to measure the volatility of the market. The ATR value is 0.0015, which means that the average range of the price movements in the last 14 hours is 15 pips. We can use a risk-reward ratio of 1:2, which means that for every 15 pips we risk, we expect to gain 30 pips. We can also use the key levels of 1.1700 and 1.1750 as support and resistance, respectively. Therefore, we can set our stop loss level at 1.1685, which is 15 pips below our entry price and below the support level of 1.1700. We can set our take profit level at 1.1765, which is 30 pips above our entry price and above the resistance level of 1.1750.
To set the take profit level, we need to consider three factors: the target price, the trend direction, and the key levels. The target price is the price at which we expect the price to reach based on our analysis and signal. It shows our potential profit and exit point for our trade. The trend direction is the direction and momentum of the market price movements. It shows whether the market is in an uptrend or a downtrend and whether it is likely to continue or change. The key levels are the horizontal lines that indicate the areas of support and resistance, where the price tends to bounce or break. They show where the market participants are likely to take profits or enter new positions and where the price may face obstacles or opportunities.
To set the take profit level, we need to combine these three factors and find a balance between them. We need to place our take profit close enough to our target price to achieve our desired profit, but far enough from our entry price to justify our risk. We also need to place our take profit near or before a key level that acts as a barrier for the price movement.
For example, in the following 1-hour chart of EUR/USD, we can see how to set a take profit level for a short trade based on a bearish engulfing bar signal at 1.1800. We can use a Fibonacci retracement tool with a period of 1.1900 to 1.1700 to measure the target price based on the previous swing high and low. The Fibonacci retracement levels are 23.6%, 38.2%, 50%, 61.8%, and 76.4%. We can use a risk-reward ratio of 1:2, which means that for every 20 pips we risk, we expect to gain 40 pips. We can also use the key levels of 1.1800 and 1.1750 as resistance and support, respectively. Therefore, we can set our take profit level at 1.1760, which is 40 pips below our entry price and near the Fibonacci retracement level of 23.6%. We can set our stop loss level at 1.1820, which is 20 pips above our entry price and above the resistance level of 1.1800.
Therefore, the fourth step of the one-hour strategy is to enter the trade and set the stop loss and take profit levels on the 1-hour chart. By doing so, we can execute our trade with confidence and discipline and manage our risk and reward in forex trading.
Step 5: Manage the trade and exit at the right time
The fifth and final step of the one-hour strategy is to manage the trade and exit at the right time on the 1-hour chart. Managing the trade means monitoring the trade and adjusting the stop loss and take profit levels according to the market conditions and your trading plan. Exiting the trade means closing the trade and securing your profits or losses at the right time.
To manage the trade, we need to keep an eye on the 1-hour chart and see how the price moves in relation to our entry, stop loss, and take profit levels. We also need to be aware of any changes in the trend, momentum, volatility, or key levels that may affect our trade. Based on our observation and analysis, we may decide to modify our stop loss and take profit levels to protect our profits or reduce our losses.
There are different ways to adjust our stop loss and take profit levels, such as:
- Trailing stops: Trailing stops are stop loss levels that move along with the price in our favor. They allow us to lock in our profits and follow the trend as long as it lasts. To use trailing stops, we need to set a distance or a percentage that we want our stop loss level to trail behind the price. For example, if we set a 20-pip trailing stop for a long trade, our stop loss level will move up 20 pips every time the price moves up 20 pips or more. If the price moves down, our stop loss level will stay unchanged. This way, we can secure our profits and exit the trade when the trend reverses.
- Time-based exits: Time-based exits are exit points that are based on a certain period of time that we want to hold our trade. They allow us to avoid holding our trade for too long or too short and follow a consistent trading plan. To use time-based exits, we need to set a time limit or a deadline that we want to close our trade by. For example, if we set a 4-hour time limit for a long trade, we will close our trade after 4 hours regardless of the price movement. This way, we can avoid overtrading or undertrading and exit the trade when our time limit expires.
- Signal-based exits: Signal-based exits are exit points that are based on a new signal that contradicts or invalidates our original signal. They allow us to react to the market changes and exit the trade when our signal is no longer valid. To use signal-based exits, we need to look for a new signal that shows a reversal or a continuation of the opposite direction of our trade. For example, if we entered a long trade based on a bullish pin bar signal, we will exit our trade when we see a bearish engulfing bar signal or a bearish pin bar signal. This way, we can respect the market signals and exit the trade when our signal is no longer valid.
To exit the trade, we need to choose one or more of these methods and apply them according to our trading style and risk appetite. We also need to be flexible and adaptable to the market conditions and follow our trading plan.
For example, in the following 1-hour chart of EUR/USD, we can see how to manage and exit a long trade based on a bullish pin bar signal at 1.1700. We entered the trade at 1.1705 with a stop loss at 1.1685 and a take profit at 1.1765. We decided to use a trailing stop with a distance of 20 pips and a time-based exit with a limit of 4 hours.
As we can see from the chart, after entering the trade, the price moved in our favor and reached our take profit level at 1.1765 after about 2 hours. However, instead of closing our trade at this point, we decided to let our profits run and follow the trend using our trailing stop. Our trailing stop moved up along with the price and locked in our profits as long as the price stayed above it.
After about 3 hours, the price formed a bearish engulfing bar signal at 1.1780, which indicated a possible reversal of the uptrend. At this point, we decided to close our trade based on this signal-based exit method. Our trailing stop was at 1.1760, which was also near our original take profit level. Therefore, we exited our trade at this level and secured a profit of 55 pips.
Alternatively, if we did not see any signal-based exit method, we would have closed our trade after 4 hours based on our time-based exit method. Our trailing stop would have been at 1.1770 at that time, which was also near a key resistance level of 1.1780. Therefore, we would have exited our trade at this level and secured a profit of 65 pips.
Therefore, the fifth and final step of the one-hour strategy is to manage the trade and exit at the right time on the 1-hour chart. By doing so, we can optimize our trading performance and achieve our trading goals in forex trading.
Conclusion
In this blog post, we have explained how to use the one-hour strategy to trade forex with only one hour a day. The one-hour strategy is a simple and effective forex trading method that uses the 1-hour chart as the main time frame to identify and execute trades. The one-hour strategy consists of five main steps:
- Step 1: Choose a currency pair and a time frame that suit your trading style, risk appetite, and market conditions
- Step 2: Identify the trend and the key levels using various technical indicators, such as trend lines, moving averages, and others
- Step 3: Wait for a signal and confirm it with other indicators using candlestick patterns, such as pin bars, engulfing bars, and dojis, and oscillators, such as stochastic, MACD, and RSI
- Step 4: Enter the trade and set the stop loss and take profit levels based on the risk-reward ratio, the volatility of the market, and the key levels
- Step 5: Manage the trade and exit at the right time using trailing stops, time-based exits, or signal-based exits
The benefits of the one-hour strategy are:
- It reduces your stress and saves your time by allowing you to trade forex with only one hour a day
- It increases your confidence and accuracy by using multiple indicators and tools to confirm your signals and decisions
- It optimizes your performance and achieves your goals by managing your risk and reward in forex trading
However, the one-hour strategy is not a magic formula that guarantees success in forex trading. It is only a guide that helps you to develop your own trading plan and skills. To succeed in forex trading, you need to follow your trading plan, manage your risk, and practice your skills consistently.
We invite you to try out the one-hour strategy on a demo account or a live account with small amounts. You can use any currency pair or time frame that you prefer for your own trading. You can also modify or customize the one-hour strategy according to your own preferences and needs. The most important thing is to find a strategy that works for you and stick to it.
We hope that this blog post has been helpful and informative for you. If you have any questions or feedback, please feel free to leave a comment below. Thank you for reading and happy trading!
