Novice traders who try to use these kinds of systems often don’t fare well. Shorter-term systems require more trading skill. You may be betting against a larger overall trend without knowing it. Weekly charts are more likely to reveal these kinds of trends. Forex trading is all about trading with the trend, so a weekly trading system is likely to produce better results. It’s about using indicators on a weekly chart that can help you stay on top of the direction of momentum. You’re less likely to get caught up in trading on minor shifts within the bigger trend.
Momentum Trading
You’ll notice that a currency pair rarely goes up and down if you take a look at any given forex chart. There’s almost always some larger rising or falling trend. This larger trend is the forex version of Newton’s First Law of Motion. Objects that are in motion tend to stay in motion unless they’re acted upon by some outside force. A currency that’s rising in value will often have many small ups and downs along the way, but it will have them within a larger, more consistent rising trend that keeps on until some market or outside event brings it to a halt.
Less Time Commitment
Weekly charts allow traders to better see the larger trend picture. They offer the added edge of being less labor-intensive than daily or intraday charts. Traders who use a weekly trading system can spend more time away from their monitors.
Trend Indicators
Four technical indicators can be very helpful in pinning down trends and trading options in a weekly forex chart.
Moving Averages (MAs)
Moving averages (MA) is the simplest of all the trend indicators. These charts plot the average price for a currency pair over a time frame that you select. The MA can be simple, with just the prices added up and divided by the number of prices, or it can be a weighted MA that gives more recent prices greater importance than earlier ones. Traders may choose to show MAs for two time periods. They can buy when the MA with the shorter time frame moves above the MA with the longer one. They can sell when the MA with the shorter time frame moves below the other MA.
Stochastics
This indicator differs from an MA chart in that it looks at the speed and pace of price changes in a currency pair. The currency appears to have an underlying strength if the speed is rising. That will likely go on, at least until something happens that stops it. It may be time to sell if momentum is waning.
Relative Strength Index
This index suggests when a currency pair may be overbought. It’s due to be sold or oversold. It plots relative strength on a scale of 0 to 100. A reading between 0 and 30 means it’s oversold, while a reading of 70 to 100 means it’s overbought. Crossing the centerline at 50 from above is seen as a sell signal. Crossing it from below is seen as a buy signal.
Bollinger Bands
The name of this indicator is a registered trademark of its inventor, John Bollinger. It relates to Moving Averages, but it uses a more complex process that involves standard deviations above and below a moving average price. Bollinger Bands consist of three lines. A price move above the upper band can be a signal to sell. A price move below the lower band can be a signal to buy.
Trading With Multiple-Indicator Charts
It’s not very common for all momentum indicators to point in the same direction on a given weekly chart. Sometimes you’ll have to wait to make a trade until they look better in the aggregate. The main point is to trade small. Be patient. Use a micro lot (1,000 units) instead if you trade a mini lot (10,000 units of a currency). The price changes for trades on a weekly scale can be much greater than when you’re trading over shorter time spans. Use stop-losses to limit the amount of money you’re putting at risk on a given trade. Use profit targets to set exit points for money-making trades.
