Trading forex on the daily charts has many advantages. It requires less time analysing charts and filters out a lot of market noise when compared to lower chart timeframes. However, when using a daily forex strategy there is going to be less buy and sell signals. You therefore need to make sure you are using a trading strategy that can make the most of any signals there occur. I will take a look at a forex daily strategy based on trend trading that can catch some big moves when implemented correctly.
Trading the daily chart
If you are short of time or just can’t handle the stress of trading intraday charts such as the 1-minute, 5-minute and 15-minute charts, then the daily forex charts can be a great solution. You will only need a couple of minutes each day to see if there is a valid entry or exit signal.
There can be some big forex market moves that reach hundreds of pips in just a couple of days on the daily chart timeframe. You would need to take a lot of successful trades if you were using a scalping strategy on the lower chart timeframes to make a similar amount of pips. This can cost you time and money in terms of brokers fees such as the spread, commission, swaps and slippage.
I find that technical indicators tend to be more reliable with daily forex trading strategies. They can be less susceptible to small movements. I can see lots of false signals when using forex indicators such as the MACD or Stochastics on the lower chart timeframes, but find the daily charts remove some of this unnecessary market noise.
Your success with trading the daily forex charts is likely to depend on your money management. If you are using a poor risk to reward ratio, then one bad trade can wipe out consecutive winners. I would instead be looking to cut losing trades short and let my winning trades run. This is especially beneficial on the daily charts as moves can be very big so it is a shame to get out too early. I might use a break even to lock in a good trade and use a trailing stop loss to maximise its potential.
Daily forex trend trading strategy
As mentioned, if you time your entry and exit well, you can catch some long-term trends on the daily forex charts. There are plenty of indicators for identifying the trend direction of a currency pair, including moving averages and the ADX. Once you have established if there is an uptrend or downtrend, you could time your entry using a pullback indicator such as the CCI or RSI. I would then confirm the trade by looking for candlestick patterns whilst being aware of any fundamental analysis that may impact the direction of the market.
- 50 SMA is above the 200 SMA
- Price is above the moving averages
- CCI (14) is oversold below -100
- Price breached recent resistance level
- Bullish price action
You can see from the USD/JPY daily chart below that there was golden cross to the upside, where the 50 moving average moves above the 200 moving average. Price has also broken through a resistance level that has now become support. The CCI is below -100 suggesting the market is oversold. There are a few continuation patterns to confirm bullish market sentiment. We could have placed the stop loss below the 200 SMA which would have been around 200 pips. Considering this trade went up almost 4,000 pips, there was plenty of opportunity to take profits along the way. You will also see the CCI became oversold again and again throughout the upwards move, presenting additional entry opportunities into the daily trend.
- 50 SMA is below the 200 SMA
- Price is below the moving averages
- CCI (14) is overbought above 100
- Price breached recent support level
- Bearish price action
In the GBP/USD daily chart below, you will see that there is a death cross with the 50 moving average crossing below the 200 moving average. Price is below both of the moving averages and there is a recent support level which has been breached and become resistance. The CCI is also overbought suggesting the buyers are running out of momentum and price will continue to fall which it does. This is confirmed by a hanging man candlestick pattern. Stop loss could again have been on the other side of the 200 SMA which would have been around 100 pips. This downtrend continued for over 3,000 pips which gives an excellent risk to reward ratio.
Daily forex strategies Pros & Cons
- Less time analysing charts
- Catch some big market moves
- Can be used on any currency pair
- Pay less in forex broker fees
- Less trading signals
- Wider stop loss
- Takes time to compound account
Conclusion: do daily forex strategies work?
Yes, daily forex strategies are some of my favourite for the reasons mentioned above. Primarily, I find the buy and sell signals on the daily forex charts to be more reliable. I also like the fact that less time is needed to sift through charts conducting technical analysis and price action analysis to identify setups as you would have to when day trading.
If you are looking for a way to trade that can be less stressful and you don’t mind holding trades for the mid to long-term, then I think a daily forex strategy can be a great solution. You might want to start on a forex demo account to begin with so you can practice your trading strategies risk free and build some confidence. You can get a demo account from most forex brokers at no cost.
Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading! Read more about me.