The floor trader’s method forex trading system is, in my opinion, one of the best moving average trading systems around.
In here, I will put my own twist to it and you will learn its trading rules and what the trading setup looks like so you can be able to spot and trade it.
Table Of Contents
What Is The Floor Traders Method?
The floor traders method trading system is a reversal continuation method.
What does that mean? Well, what reversal continuation method means is this:
- the market has already established its direction either up or down
- and there will come a time when it will do a minor reversal which fails and then price continues in the original direction.
And the key to this strategy is trying to buy or sell when the minor reversal is happening.
In order determine these two factors above, you need:
- moving average cross-overs to establish trend. The moving averages typically used are the 9 exponential moving average and 18 exponential moving average.
- Once these two exponential moving averages cross-over, it indicates a change in trend:
- if the faster 9 ema crosses the 19 ema to the upside, it indicates that the trend is up
- if the faster 9 ema crosses the 19 ema to the downside, it indicates that the trend is down
So, how do you buy and sell then, on the crossover? Nope… You see…
The best thing about this trading system is you wait for a retrace or minor reversal to happen against the trend and when that is happening, you keep your eye open for a forex reversal candlestick pattern to form: this gives you the buy or the sell signal.
I may be confusing you here but once you see the charts below, you will really being to understand how powerful the floor traders method forex trading system is.
Required Timeframes To Trade
You can trade any timeframes using this system.
For currency pairs will smaller spreads/tight spreads, even 1 minute timeframe can be used but I would advice against using the floor traders method on currency pairs with large spreads on 1 minute and even 5 minute timeframes.
Currency Pairs To Trade
You can use the floor traders method to trade any currency pair.
The only thing is what I’ve mentioned above: if you are trading currency pairs that have large spreads, use at least 15 minute timeframe and above.
Forex Indicators Used
The floor traders method is based on the 9 ema and the 18 ema but you can try other moving average combinations like:
- 7 ema & 14 ema
- or 10 ema and 20 ema
- or 25 ema and 50 ema
The trading rules will still be the same.
Price Action Trading Signal To Buy Or Sell
It is suggested that you really know these 12 amazing forex reversal candlestick patterns as they are the ones you are going to look for to buy or sell when they form.
- 9 ema crosses 18 ema to the upside signaling that the trend is up. You want to see price move away completely from the two ema lines as if escaping from them but later, it will reverse and come down and touch one or both of them.
- As soon as price comes back and touches the ema’s, watch for a “bounce” up signal provided by a bullish reversal candlestick pattern.
- Place a buy stop pending order 1-2 pips above the high of the bullish reversal candlestick pattern
- Place stop loss at least 5-10 pips below the low of the bullish reversal candlestick pattern
- For take profit target, I suggest you aim you use previous swing highs (peaks) or if not, use risk:reward of 1:3 and calculate where to take profit.
- 9ema crosses 18ema to the downside signaling that the trend is down. You want to see price move away completely from the two ema lines as if escaping from them but later, it will reverse and come up and touch one or both of them.
- As soon as price comes back and touches the ema’s, watch for a “bounce” down signal provided by a bearish reversal candlestick pattern.
- Place a sell stop pending order 1-2 pips below the low of the bearish reversal candlestick pattern
- Place stop loss at least 5-10 pips above the high of the bearish reversal candlestick pattern
- For take profit target, I suggest you aim you use previous swing lows (troughs) or if not, use risk:reward of 1:3 and calculate where to take profit.
The Different Levels Of Trade Setups
There are different levels of setups that come with varying degrees of success.
The highest percentage of success in the floor trader setups comes from those first pullbacks after the 9ema and 18 ema cross-overs. And after that, each setup that forms has less change of being profitable.
This chart below should clarify what I’m writing here:
So, what this means is that you really need to aim to only trade the 1st pullback or possibly the 2nd pullback.
Disadvantages of The Floor Traders Method Forex Trading System
- this is a trend trading system so when the market is not trending, this system will perform very badly.
- sometimes, price will escape from the exponential moving average indicators for a very long time and by the time it comes back to touch them to give a buy or sell signal, most of the market moves has already happened so when you see such a situation, avoid trading it. This chart below shows an example of what I’m talking about:
Advantages of The Floor Traders Method Forex Trading Strategy
- works well in a trending market
- when used with larger timeframes like the 4 hr and the daily, the potential to make 100 to 200 – even 500 pips profit is there, if you can manage your trade properly and ride out the trend.