My dollar cost averaging forex strategy
Dollar Cost Averaging (DCA) is actually a strategy used by stockmarket investors where they buy stock at fixed intervals even when the price is falling. So instead of just buying 1,000 stock at $10 per share on one day, they split the buying into different days.
On day one they can buy 10 shares, on day two they buy another 10 shares, on day three another 10 shares etc.
The idea behind this kind of buying is that on some days, the stock price would have fallen so the investor benefits from buying at a lower price.
In this strategy, I will apply the same DCA to trading currency pairs.
So in the attachaed chart we can see the price is falling from top to bottom and our sell trigger is the blue and red candle combo at the three tops. Normally when we see this most traders will sell after the trigger plus continuation is spotted (sell 1) which is okay. The DCA comes in sell 2 where you place a pending order to sell when price climbs up, thus you sell for higher an set a smaller stop loss than you would have set for sell 1. This is classic Dollar Cost Averaging style trading. So after spotting your entry trigger you wait for confirmation then enter the first trade. You then set pending orders above for selling or below for buying to capture a better entry price.
For the first trade on the left, sell 1 was at 1.1630 and sell 2 was around 1.1634 on the average the sell price is (1.1630 + 1.1634)/2 = 1.1632
For the second (middle) trade, sell 1 was at 1.1633 and sell 2 was around 1.1637 so the average sell price is (1.1633 + 1.1637)/2 = 1.1635
The idea behond this DCA strategy is that even if your first trade entry was sloppy and you were forced to set a wide stop loss, this strategy can help bring improve your average entry price if you place pending orders at better prices and wait for them to be triggered.
