The hedge fund forex trading strategy as the name is used by forex hedge funds. Or maybe not? 

Either way, let’s see that it is a hedge fund trading strategy for now.

we saw this hedge fund trading system on the net and thought I’d put my twist on it.

What Is This Hedge Fund Trading Strategy?

  • This trading strategy is a 100% price action trading strategy, and it is based on the mt4 daily chart.
  • You are can use it as a swing trading strategy, meaning you let your trades run for days intending to make hundreds of good pips in profits.
  • You can trade any mt4 currency pairs with it.
  • The only forex indicator you need is for managing trailing stop loss: it is called the Average True Range Trailing Stop Mt4 forex Indicator (download link)

As I mentioned, the whole idea of the hedge fund trading system is to capture the significant market swings that move from 100-500 pips or more in the forex market.

And the way to do it is straightforward, and you need to follow only these two simple rules:

  1. trade using the larger mt4 daily timeframe
  2. And hang on to your forex trades for many days or weeks until you get stopped out of your open trade with a profit, or you take profit target(TP is hit.

With this hedge fund swing trading strategy, it can take only one trade to make 300 or 500 pips in a trade. And that can take a few days, a week, or even more than one week. The fact that you are forex trading this trading system daily gives you the potential to achieve such huge profits while managing your open trading risk properly.

Price Action Patterns Of The Forex Hedge Fund Trading Strategy

The forex hedge fund trading strategy is based on a four candlestick chart pattern.

These chart candlesticks must form one after the other.

There’s a bearish (sell pattern) and a bullish (buy entry) pattern.

Sell Pattern

A sell chart pattern is made up of 2 green days and two red days candlesticks:

forexcracked.com hedge-fund-forex-trading-system

Buy Pattern

A buy chart pattern is made up of 2 red days followed by two green day candlesticks:

forexcracked.com hedge-fund-forex-trading-strategy

It is straightforward.

Just getting a screenshot of the EURUSD daily chart, you can see the boxes of where I’veI’ve picked the buy and sell signals generated on the daily chart:

forexcracked.com hedge-fund-trading-system

Hedge Fund Trading System Rules

Here are the trading rules.

Buying Rules

  1. Two red days and two green days mean a buy entry signal.
  2. When that happens, place a buy stop order 1-2 pips above the high of the 2nd-day green candlestick or the highest point in the two green day candlesticks.
  3. place your stop loss two pips below the low of the “box”
  4. Since you are looking to make 100 pips profit by forex swing trading (letting your open trades run for days and weeks), do not set take profit (TP) targets, but use trailing stops to let the trade ride. You only exit a forex trade when your trailing stop loss gets hit.
forexcracked.com hedge-fund-trading-system-buying-rules

Selling Rules

  1. Two green days and two red days mean a sell entry signal.
  2. When that happens, place a sell stop order 1-2 pips above the low of the 2nd-day red color candlestick or whichever the lowest point is in the 2 read day candlesticks.
  3. place your stop loss two pips above the high of the “box.”
  4. profit target(TP) should not be set for this trade but use a trailing stop to ride out the market trend
forexcracked.com hedge-fund-trading-strategy-sell-rules

2 Ways On How To Avoid Forex Choppy And Ranging Markets

Trading in the daily forex chart allows you to reduce and minimize a lot of these choppy forex market behavior you will see when you switch down to lower or smaller mt4 timeframes like the 4hr, 1hr, and below.

Here’sHere’s a fact:

  • Daily mt4 charts, just because they can be classified as larger timeframe does not mean they are immune to ranging or choppy forex markets. Ranging and choppy forex markets can and will happen in daily mt4 charts.
forexcracked.com hedge-fund-trading-system-1

Here are a few suggestions to avoid forex trading in a ranging market. These will limit the number of live trades you will take, but at least you have the best chance to pick only the good trades that have the potential to move hundreds of good pips in a strong trend:

#1: Minimum of 3 Consecutive Red/Green color days rule

This means that we must have at least three blue or red day candlestick forms in a row; if a buy or sell entry signal forms after that, it is considered a valid entry signal.

Confused still? Let me give a simple example of what a buy entry trade setup based on the three consecutive day rule will look like:

Day 1=Red Day chart Candlestick

Day 2=Red Day chart Candlestick

Day 3=Red Day chart Candlestick

Day 4=Green Day chart Candlestick

Day 5=Green Day chart Candlestick

In this case, the buy entry signal is formed by the Day 2, Day 3, Day 4, and Day 5 chart Candlesticks.

Or it can also seem like this for a valid buy entry signal:

Day 1=Red Day chart Candlestick

Day 2=Red Day chart Candlestick

Day 3=Red Day chart Candlestick

Day 4=Red Day chart Candlestick

Day 5=Red Day chart Candlestick

Day 6=Green Day chart Candlestick

Day 7=Green Day chart Candlestick

In this case, the buy entry signal is formed by the day 4, day 5, day six, and day seven candlesticks.

Now, looking at this mt4 chart below again, by applying the three-day consecutive rule, you can see that many of the open trades in the ranging market would have been avoided, thus saving you a lot of grief:

forexcracked.com hedge-fund-trading-system-2

The number of the red candlestick that form does not matter as long as there are more than 3 in a candle a row, and then you have two green candlestick days.

For a proper sell trade setup using the three consecutive day rule, it’s the same thing, but this time, you need a min of 3 green candlesticks to form in a row, and then after that, you must have two red candlesticks, and that will classify as a valid sell signal.

Does it only have to be the three-day rule?

No, you can pick more than three days. Pick seven days in a row as an example, but here’s the problem:

  • the more the number of days you choose, the less you will have buy and sell signals generated for you to trade!

So what is a better number then?

We think you need to work with only two numbers.3 or 4, and select one of them.

We’d go for 3!

#2: Understand What Type Of Forex Market You Are Dealing With

This can be hard for a new trader to get quickly, but you will understand after some time.

You see, you like to get into a forex trade when you know and can see that the price is trending nicely.

The only way to do this using price action strictly is by watching for these two patterns:

  • When a market trends higher, it will make higher highs and higher lows.
  • When a forex market is trending lower, it will be making chart higher lows and chart lower lows.
forexcracked.com higher-highs-and-higher-lows-lower-highs-and-lower-lows

That is the kind of thing you want to see, and if that structure starts to become mixed up, you know, you may be entering a forex-ranging market. When that happens, do not trade.

They say the best forex trade is a trade, not placed!

The subject of forex trend trading, trend identification, etc., is a big subject of its own, and we don’t have the time to include it here, but maybe one day we will get down it and write about it.

Our site forex price action trading course covers it, and there’s a nice section on it, so check it out.

Advantages of The Forex Hedge Fund Trading Method

  • big profits
  • less stressful way to enter the trade; all you need is a few minutes a day to check and adjust your trailing stop loss(SL) for a trade that is in profit
  • You don’t need to spend too much time in front of the computer, which means it is a perfect forex trading system for those with day jobs or even a stay-at-home mum who is so busy looking after five children!
  • Trading on daily mt4 timeframes reduces a lot of noise found in the lower/smaller timeframes.

Disadvantages

  • It would be best if you had a lot of patience to sit through those periods where you see chart price reversing/retracing and eating into your profits.
  • You may not find many trading opportunities if you specifically focus on forex trading only one or two mt4 currency pairs. Therefore we suggest you have at least more than ten currency pairs to scan daily and look for good trading opportunities.
  • Not many forex traders will have the patience to sit idle most of the time and wait for good trading setups to form, and this trading strategy, the way it is set up, won’t be pumping out buy and sell signals daily, so if you are a trader that likes action, this strategy is not for you.
MinMax Scalper