The Simple Forex Day Trading Strategy

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The dance strategy is a simple Forex day trading method that allows you to find, open, and profitably close trades within an hour or two. Sometimes, the simplest strategies are the most effective. Unlike complex methods overloaded with technical indicators, this strategy uses only one type: the moving average, with three moving average lines on the chart.

The dance strategy is a simple Forex day trading method using moving averages for quick, profitable trades. In this article, we'll explore how to set up your chart, identify buy and sell signals, and manage trades effectively. We'll also discuss the pros and cons of this strategy and provide a comparison of brokers where you can apply these techniques.

What is the dance strategy?

A simple Forex day trading strategy involves identifying short-term trading opportunities using technical indicators like moving averages and the Relative Strength Index (RSI). Traders typically focus on major currency pairs such as EUR/USD or GBP/USD, using a 15-minute chart for entry signals and a 1-hour chart for trend confirmation.

Dance strategy was learned from a fellow trader over 15 years ago. Any claims that it originated with a 12th-century Chinese sorcerer or was a secret used by Shaolin kung fu masters are simply not true. This strategy has been a key part of a trading arsenal ever since it was learned and remains the most frequently used day trading strategy in the Forex.

The Dance strategy originated from the observation that many commonly used technical indicators in Forex trading, such as Fibonacci retracement lines and moving averages, often act as self-fulfilling prophecies. Trading based on support and resistance levels identified by these popular indicators often results in profitable trades because millions of traders use them.

For instance, while there's nothing inherently significant about the 20-period moving average, placing trades at this level can be effective due to the buying or selling pressure created by orders from traders worldwide.

No indicator guarantees profits, but using technical indicators with substantial trader support can provide a slight edge. In trading, even a small edge can be the difference between consistent profitability and losses.

The Dance strategy primarily relies on the moving average, perhaps the most widely used technical indicator.

Basic facts about the dance trading strategy

Here’s a simplified overview of the Dance trading strategy, perfect for beginners.

Chart setup

Use a 15-minute price chart.
Plot three moving averages: 5-period EMA, 10-period EMA, and 50-period EMA.

Buy signal

Identify the setup: Look for the price trading below the 50-period EMA.
Candle close above 50 EMA: Wait for a 15-minute candle to close above the 50-period EMA.
EMA cross confirmation: Ensure that the 5-period EMA is above the 10-period EMA. For a stronger signal, both the 5 and 10 EMAs should cross from below to above the 50-period EMA.
Alternative entry: Wait for the price to retrace close to the 50-period EMA before entering a trade.

Example: EUR/USD chart

EUR/USD chart

The above chart shows the EUR/USD currency pair on a 15-minute timeframe, displaying three exponential moving averages (EMAs): 5-period (red), 10-period (green), and 50-period (blue).

Dance strategy example

Here's a detailed explanation of how the Dance trading strategy applies to this chart:

Chart setup

Timeframe: 15-minute chart.
Indicators: Three EMAs (5-period, 10-period, and 50-period).

Buy signal analysis

Price below 50 EMA: Initially, the price is trading below the 50-period EMA, indicating a potential setup for a buy signal once conditions are met.
Candle close above 50 EMA: A significant bullish movement occurs, and a 15-minute candle closes above the 50-period EMA. This is the first indication of a potential buy signal.
EMA cross confirmation: After the candle closes above the 50-period EMA, the 5-period EMA (red) crosses above the 10-period EMA (green), confirming the buy signal. For an even stronger signal, the 5 and 10 EMAs should cross from below to above the 50-period EMA, which also occurs in this scenario.
Entering the trade: Once the candle closes above the 50-period EMA and the EMA cross confirmation is observed, a buy trade can be entered. In the present scenario at 1.0745.
Placing a stop-loss: Place a stop-loss order just below the most recent swing low before the buy signal. If the recent low was at 1.0735, the stop-loss should be set just below this level.

We suggest you familiarize yourself with the comparison table with brokers offering the most convenient conditions for traders. Here you can start your successful trading with dance trading strategy:

Comparison table of brokers with the most convenient conditions for traders
	Plus500	Pepperstone	OANDA	FOREX.com	Interactive Brokers
Demo
Min. deposit, $	100			100
Max. leverage	1:300	1:500	1:200	1:50	1:30
Min Spread EUR/USD, pips	0,5	0,5	0,1	0,7	0,2
Max Spread EUR/USD, pips	0,9	1,5	0,5	1,2	0,8
Open account	Open an account Your capital is at risk.	Open an account Your capital is at risk.	Open an account Your capital is at risk.	Study review	Open an account Your capital is at risk.

Pros and cons of the dance trading strategy

Simplicity: The Dance strategy relies on just three moving averages (5-period, 10-period, and 50-period EMAs), making it easy to understand and implement without the need for complex indicators or tools.
Clear signals: The strategy provides straightforward entry and exit signals based on well-defined criteria, which helps traders make quick and confident decisions.
Adaptability: While it's mainly used on a 15-minute chart, you can adjust the moving average periods to fit other time frames and trading styles.
Responsiveness: Exponential moving averages respond quickly to price changes, capturing short-term market movements well.
Robustness: Because it uses popular indicators like moving averages, it tends to work well as many traders follow these signals.

False signals: Like all moving average strategies, the Dance strategy can produce false signals, especially in choppy or sideways markets, leading to potential losses.
Requires discipline: Successful implementation requires strict adherence to the strategy’s rules. Deviating from the criteria or failing to manage risk properly can undermine its effectiveness.
Limited context: The strategy focuses solely on moving averages and may not take into account other important market factors such as news events, volume, or broader market trends, which can impact price movements.
No guarantees: No trading strategy guarantees profits, and the Dance strategy is no exception. Traders need to manage their expectations and be prepared for losing trades.
Potential lag: While EMAs are more responsive than simple moving averages, they can still lag behind rapid market movements, potentially causing delayed entry or exit points.

The Dance trading strategy stands out for its simplicity

The Dance trading strategy stands out for its simplicity and efficiency in Forex trading. As a seasoned trader, the elegance of this strategy lies in its reliance on a few key moving averages—specifically the 5-period, 10-period, and 50-period EMAs. This minimalistic approach reduces noise and allows for clear, actionable signals.

In practice, the Dance strategy's effectiveness stems from its ability to capitalize on common market behaviors. The use of exponential moving averages ensures that the strategy is responsive to recent price changes, providing timely entry and exit points. The reliance on these moving averages also aligns well with the collective behavior of many traders, making the signals more robust.

One of the notable strengths of this strategy is its adaptability. While it provides a clear framework, it also allows for individual customization, such as the choice between exponential and simple moving averages or the adjustment of stop-loss levels based on recent price action. This flexibility enables traders to fine-tune the strategy to fit their unique trading style and market conditions.

The Dance trading strategy is a valuable tool in a trader’s arsenal. It combines simplicity with effectiveness, offering a clear, straightforward method to navigate the complexities of the Forex market. For traders who appreciate a structured yet adaptable approach, this strategy is worth considering.

Summary

One of the primary advantages of the Dance trading strategy is that it is very low-risk. When a trading signal is generated, the initial stop-loss level indicated is typically no more than 10-12 pips from the trade entry price. Thus, the strategy is designed to prevent the kind of large losses that frequently wipe out Forex traders.

Another advantage of this strategy is, as mentioned at the outset, its simplicity. It doesn’t require a trader to have extensive expertise in technical trading.

As with any trading strategy, it is recommended that you first try paper trading in demo mode to see how it plays out and get comfortable using it before risking real money in the market.

FAQs

How does the Dance trading strategy determine entry and exit points?

The strategy uses three moving averages (5, 10, and 50-period EMAs). A buy signal occurs when a 15-minute candle closes above the 50 EMA and the 5 EMA crosses above the 10 EMA. Exit by setting stop-losses below recent lows.

Can the Dance trading strategy be used on different time frames?

Yes, it can be adapted to different time frames by adjusting the moving average periods and entry/exit criteria. Backtesting is essential to ensure effectiveness.

What are the main advantages of using the Dance trading strategy?

The main advantages of the Dance trading strategy include Its simplicity, clear signals, and use of common technical indicators make it easy to follow and robust, aligning well with market behavior.

How can I improve the performance of the Dance trading strategy?

To improve the performance of the Dance trading strategy, regularly backtest, implement stringent risk management, stay informed about market news, and continuously educate yourself about technical analysis and market dynamics.

Team that worked on the article

Chinmay Soni is a financial analyst with more than 5 years of experience in working with stocks, Forex, derivatives, and other assets. As a founder of a boutique research firm and an active researcher, he covers various industries and fields, providing insights backed by statistical data. He is also an educator in the field of finance and technology.

As an author for Traders Union, he contributes his deep analytical insights on various topics, taking into account various aspects.

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Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.

Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO).

Cryptocurrency

Cryptocurrency is a type of digital or virtual currency that relies on cryptography for security. Unlike traditional currencies issued by governments (fiat currencies), cryptocurrencies operate on decentralized networks, typically based on blockchain technology.

Forex indicators

Forex indicators are tools used by traders to analyze market data, often based on technical and/or fundamental factors, to make informed trading decisions.

Index

Index in trading is the measure of the performance of a group of stocks, which can include the assets and securities in it.

Day trading

Day trading involves buying and selling financial assets within the same trading day, with the goal of profiting from short-term price fluctuations, and positions are typically not held overnight.

Risk Management

Risk management is a risk management model that involves controlling potential losses while maximizing profits. The main risk management tools are stop loss, take profit, calculation of position volume taking into account leverage and pip value.

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