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Forex Trading Strategies
Forex Trading Strategies
The first thing to know before starting trading is that non-systemic intuitive trading will lead to a loss of deposit.
What is a Trading Strategy
Trading strategy is a set of rules that define all the actions of a trader during the trading process.
A trading strategy is also called a system, algorithm or plan. The strategy should specify the steps that must be taken by the trader under different market conditions. For example, if a trader opens or closes a position, then he must clearly understand why he did this.
The Main Benefits of a Trading Strategy
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Discipline
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Emotion control
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Risks control
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Market understanding
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Critical thinking
Lack of discipline and emotional trading are the main enemies of any trader. This is often the cause of large losses. Beginners usually make the main mistake when they start trading on the Forex market using their own beliefs and intuition. This approach is wrong, and even if it brings a small profit at the beginning, it will finally lead to the loss of the deposit. Skilled traders trade only using strategies, which allows them to make good money.
Types of Trading Strategies
There are many trading strategies on the market. These are one of the main ones:
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Trading by indicators
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Trending strategies
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Patterns systems
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Trading levels
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Universal strategies
Trading by indicators is one of the most popular strategies. Trades are open depending on the signals that can be seen on the chart of the indicator. For example, by using a Stochastic Oscillator, you can monitor the intersection of its lines as a buy or sell signal. Usually, a combination of 1 to 3 indicators is used to obtain a more accurate signal.
Trend strategy is another most common type of trading system. It is based on assumptions about the trend of rising or falling prices in a certain direction. Thus, it turns out to be either a growing trend or a downward one. It should be noted that what is defined as a trend on the daily chart often turns out to be a market correction in the monthly perspective.
Pattern systems are used in addition to other trading strategies. Patterns are figures on the chart formed by price dynamics.
The most well-known patterns include such technical analysis figures as "Head and Shoulders", "Double top and double Bottom" and others.
Trading level strategy is based on the assumption that prices move between resistance and support levels. Buy trades are opened near the support level, and sell trades are opened near the resistance level. A combination of oscillator indicators with resistance and support levels is possible.
Universal strategy is considered the most reliable, since it is based on a combination of the various systems described above, and not only.
Strategies are also divided into long-term, medium-term and short-term. Any Forex trading strategy must be tested on a demo account before using it on a real account. This helps to understand all the features of the trading system, learn how to work with it on your own mistakes, and to reduce future trading risks.
Skilled traders use several different types of trading systems at the same time to diversify risks and increase profits in trading.
An Example of a Combination of Trading Strategies
This strategy is based on Stochastic Oscillator and RSI (relative strength index), as well as using a trend line.
After the trend is determined – it is upward in this example – the trader opens a buy deal, providing that the stochastic lines intersect in the oversold zone and the RSI line is above its 50 level.
At the same time, you need to pay attention to the point that the price is near the trend level, which serves as a support level in this example. Indicators should be used not only to enter a trade, but also to exit. Therefore, the position is closed when the stochastic line intersects in the overbought zone as shown on the picture.
Each type of trading system chosen by traders depends on the market situation, experience of use and their own skills. Therefore, any trader must get to know system trading, that is, trading according to the rules of strategies. This serves as a kind of simulator for discipline and self-control, which are characteristic of any successful trader.