Introduction to Forex trading strategies
Successful trading requires a certain level of knowledge in Forex market. In order to increase your chances of profit, it is important to know as much as possible about the markets and trading strategies behind them. Forex trading strategies provide a roadmap for your Forex trading, which reduces hasty decisions caused by fear and panic at critical moments. By learning Forex strategies, you will learn how to maintain your decisive order, which is the key to successful Forex trading. Strategies guide you through your trades and give you the best chance of achieving successful results.
What are Forex trading strategies?
Deciding on Forex trading based on fleeting emotions is never a good idea. The most successful Forex traders are those who spend a lot of time learning about markets and developing a strong sense of risk management with the right use of trading strategies. Learning about the markets will help traders see the patterns, trends, and conditions in the markets little by little, and ultimately the strategies themselves will allow them to predict possible outcomes. Forex trading strategy definition refers to a technique of determining whether to buy or sell at any given time. They are designed based on technical analysis, fundamental analysis, and news-based events. Forex trading strategies generate market signals that may reverse traders’ positions. These strategies can be either manual or automated.
How to master Forex trading strategies?
All trades are risky, which is why learning about Forex strategies helps you manage that risk. All of this comes from experience, but one of the best ways to learn how to use them is to practice on a demo account that allows you to test your strategies in a real, lively environment, without the risk of losing capital. Demo account builds your confidence to start trading in the real world, so it’s best to practice as much as possible with ease at first.
Popular Forex trading styles
Before introducing Forex trading strategies, let’s take a look at some of the most popular trading styles.
Day trading refers to leaving the trade before the game closes. Day trading eliminates the risk of major potential price movements during the night.
Scalp trading refers to short-term trading, sometimes for just a few minutes. Scalp trading is all about hoping for a quick buy/sell spread.
Position trading is often used by experienced traders and requires a lot of patience and discipline. This strategy deals with long-term trends and aims to make the most of large price movements.
Swing trading is a medium-term trading style and strategy that enables traders to hold their positions for several days at a time. This type of trading is ideal for those who do not have the time to monitor the market charts. Swing traders seek to profit from short-term and medium-term price patterns and swings in the market.
Popular Forex trading strategies
Once you have decided what type of Forex trading style suits your goals best it is time to introduce some of the most popular Forex trading strategies.
Forex trading strategy based on candlestick charts is one of the oldest and strongest Forex strategies. Candlesticks represent all data points collected at one glance. Candlestick trading strategies help traders determine accurate timing of market entry based on patterns with high probability. It is notable that not all patterns offer the best chances for profitable Forex trading. However candlestick patterns come in a variety of sizes and shapes. Some of the winning candlestick strategies include Pin Bar, Three bar, Inside bars, Doji bars, bullish and bearish engulfing candlestick pattern, etc. However, most traders believe that candle Stick alone cannot be a trading strategy.
Bladerunner trading strategy
This strategy is when traders use the price trend to get the best payout, which is popular with beginners as well as experienced traders. The only technical indicator that is needed for this strategy is the exponential moving average(EMA). The strategy can be used in any time frame. The name, Bladerunner, is given because the EMA cuts the asset’s price in two like a blade. In case the price is above the EMA, it is assumed by the strategy that the market may continue the uptrend. In case the price is below the EMA, the market is likely to continue the downtrend.
Fibonacci Retracement strategy
The Fibonacci retracement strategy follows the Fibonacci sequence lines (ie, 1, 3, 5, 8, 13, etc.). Traders use the Fibonacci sequence on their price charts to predict future market rates. Traders often use this strategy to identify support and resistance levels, and place stop-loss orders or target prices to manage risks in trading and maximize their profits. A Fibonacci retracement is created by taking two extreme points on an asset’s chart and dividing the vertical distance by the key Fibonacci ratios. Forex traders specifically use this strategy with the aim of pointing entry and stop-loss orders as well. Fibonacci levels are commonly used by traders in Forex for identifying support and resistance levels. After any particular price movement which is significant in the market, the new support and resistance levels are pointed around these trend lines.
Bolly band bounce strategy
Bolly band bounce strategy is the measure of the standard deviation or fluctuation of a stock price. The Bolly range is around the short-term price range. This trading strategy works on the principle of reversion to the mean. In simple words once prices are at either of the extreme outer bands, prices tend to snap back to the moving average. Traders often use candlestick patterns as a confirmation that prices will bounce off the outer bands in using this strategy.
Overlapping Fibonacci strategy
This superficial strategy is higher than Fibonacci’s daily central trading and needs to show the Fibonacci sequence trading on the same trend but in different places. If the points overlap, it will indicate a strong support zone. The Overlapping Fibonacci is usually followed by Forex traders for traders after using the Fibonacci retracement signals. In this strategy, traders often use a combination of Fibonacci extensions or retracements with other indicators, such as pivot points, and resistance or support level, etc. In this strategy, two strong Fibonacci points are known as resistance and support region, to enable traders to take action base on them.
London hammer strategy
London hammer looks at the values that fall below their initial price and then jump back to the same opening price or at a closer level to it. London hammer trading strategy is pretty easy to employ since no specific indicator is required. The only thing that needs to be done is, monitoring the price chart to spot the hammer candlestick near support and resistance levels. Traders would take buy or sell positions in the direction of the hammer. Stop Loss is set a few points behind the tail of the hammer in order to control and reduce the risk.
Forex fractal strategy
Fractals are patterns that are recognized by traders as confirmation of the reversal of a trend. Fractals are simple five-bar reversal patterns in the price charts. The two important rules for identifying fractals are first a bearish turning point is when there is a pattern with the highest high in the middle and two lower highs on each side and second a bullish turning point is when there is a pattern with the lowest low in the middle and two higher lows on each side. one of the most important fractal strategies using by many Forex traders is trading with Elliott waves.
Forex Double Grid Strategy
This is when random volatilities signal a trend that is likely to reverse, which shows traders to change their position on that asset. A double grid strategy is applied by using two different types of networks simultaneously. This is usually a grid up and down combined with down-grid. This strategy enables the possibility of taking both a long and short position at the same point. The double grid is often used in highly volatile markets, where there is no clear direction.
Trend trading is one of the most popular forex trading strategies used by many traders and investors. It works based on identifying an upward or downward trend in a currency price. Determining entry and exit points based on the positioning of the currency’s price within the trend is how trend trading is beneficial.
Drop/Pop ‘n’ Stop
It is useful when the rate of an asset falls, fluctuates, and moves in a certain direction. With the right timing, you can make a profit. This occurs when traders take advantage of a quick and often short-term failure of a limited range, otherwise, they would be lost. Dealers use price-performance theories and patterns of eating candle bars to recognize this opportunity.
Indicators used in Forex Trading Strategies
Technical indicators are calculations that are based on the price and volume of an asset and are used both to confirm the trend and to confirm the quality of chart patterns to help traders identify trademarks. Indicators can be used to identify buying and selling signals individually or in conjunction with chart patterns and price movements.
The following indicators are among the most common indicators used by analysts, and at least one of them is used by each trader in his Forex trading strategy:
- Moving Average
- Bollinger Bands
- Relative Strength Index (RSI)
- Stochastic Oscillator
- Moving Average Convergence/Divergence (MACD)
There are certainly many other Forex trading strategies in this market that are not introduced in this article. However, it is notable that the best Forex trading strategy is not the same for all traders. Traders according to the characteristics of different strategies should choose and practice the best one that suits their goals. Although a consistent Forex trading strategy provides advantageous entry signals for Forex traders but is necessary that traders consider position sizing, risk management and plans on existing trades.
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