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Online Currency Trading: Trading the Box..

One thing that most traders know is that markets will never move straight up or straight down forever. While the market can certainly trend higher for a long time, it was some point has to rest, or do what is known as consolidation. Much like a human being can only run for so long, the market will also have to take a rest after sprinting for a while.

When speaking of box trading, recently talk about a consolidating market that is resting before its next move higher or lower. A period of a horizontal consolidation that has at least two tests of the highs and lows is what you are looking for ideally. Once you get a couple tests, you are looking to buy a breakout of the consolidation zone, or box. These boxes can form an all time frames, although in general the higher the timeframe the more reliable they tend to be. These boxes can set up at any time, so they can be utilized by anybody on any time constraints.

Online currency trading rules for going long. (Shorts are reversed)

1. Make sure your chart shows a lease the last 24 hours, so that overnight activity can be accounted for.

2. A simple bar chart on the timeframe that you are looking at is more than sufficient for this trading strategy, as any other indicators will simply end up being a distraction.

3. As the market moves along, take a horizontal line and start marking the highs and lows. It's pretty common to have to readjust this several times. Once you get at least two tests of one of the lines, a potential box trading set up could be developing.

4. Now that one of the lines is set, now it's time to see if there is another test on the opposite side of the potential box. As an example, let's say that we get all of our tests on the two lines and the width of the box is 50 pips.

5. Now that the boxes are laid out place two orders. Place a buy stop order one pip above the high end of the box. Conversely, please a sell stop order one pip below the bottom of the box. Once the market breaks in a direction, my order will be filled.

Let's say my buy stop is hit. I place a limit sell order 50 pips (the width of the box) away from the entry point. I leave myself stop in place, as it becomes the stop loss for the order on this trade. This gives me a risk reward ratio just slightly over 1 to 1.

This type of trading strategy will get you on the correct side of the market most of the time, as the market needs to break and build momentum in order to fill your orders. If you look at historical charts, you will see that consolidation is the norm, and it is normal for the width of each of these boxes to be the size of the move once price breaks out of them.