What is Forex’s trading strategy?
There is a system used by Forex traders to determine when to buy or sell a currency pair using various forex strategies e.g. Technical analysis, or instead to apply fundamental analysis. A good Forex trading strategy allows traders to analyze the market and execute their transactions with confidence with sound risk management techniques.
Strategies in technical analysis
Technical analysis is mainly to use charts and anticipate the next move based on past quotes. With trends, ranges, support, resistance levels, chart patterns, and multiple timeframe charts, traders can use a variety of tactics.
Strategies in technical analysis are the most popular strategies and are basically made up of past market movements. Technical analysis is more about using technical analysis tools to determine future market movements than determining the value of an asset.
Trend-based trading strategies
Trends are the most essential concept of technical analysis. All technical analysis has one and for the same purpose. It is about discovering market trends.
The meaning of Forex trends is not so different from the general meaning of trend, it means the direction of the market. The trend of the foreign exchange market is not a straight line, but a fluctuation with high and low. As mentioned above, the Forex market has high, low, peak and bottom fluctuations. Many people think that there are two directions in the Forex market, up and down, but there are actually three trends.
The trader has three choices. You can buy it and make it long, sell it and make it short, or wait without doing anything. You should buy when the market is up and sell when the market is down. If you have not decided on the direction of the market yet, you should wait without trading.
Range trading strategy
The range trading strategy, also called channel trading, is a strategy that can be used when there is no market trend and the direction is not clear. Range trading begins with discovering price fluctuations within the channel and finding the range there. This process connects the high and low levels of the horizontal trend line to find the major support and resistance levels of the “trading range”.
Range trading is most advantageous during liquid market conditions and intra-channel fluctuations. It is necessary to make effective use of stop loss even in range trading.
Best forex trading strategy
The best Forex Strategy is one that contains only clear and simple rules. This quick decision is based on simple rules that are secrets that traders do not want to share with others.
- Simple rules are easy to implement
For example, many professional traders use a fixed lot mode for position volumes in the intraday trading system. For example, one lot is opened each time. The reason is also simple. A fixed lot mode has a speed of execution because the complex position volume formula is too slow, which is an advantage in terms of implementation convenience.
- Simple rules make it easy to see what you expect
This is also easy to understand. If the system has 5 or 6 rules for opening positions, traders will know which rules have positive expectations for the system and which rules have negative expectations for the system. Is difficult to distinguish. The verification method is time-consuming and labor-intensive.
- Simple rules are not easy to fall into curve fitting traps
Conversely, “almost without exception” complex systems fall into the curve fitting trap. An overly complex system is not a manifestation of the nature of the market, but a multi-degree-of-freedom system (the market has a high degree of randomness and some of the randomnesses cannot be explained). You will see a model with good results, but the good points of this kind of system are limited to the historical market at a particular stage, and the current transaction does not give you a satisfactory return.
- Promote improvement with simple rules
As the nature of the market changes, a simple system can quickly find rules that cannot be adapted to the new market and allow further improvement.
- Easy rules for rewinding
If many of the system rules are very complex, resuming is almost impossible. Reversible system processes need to be short and fast, which is useful for traders to statistically summarize and improve.
If it is too complicated, it will inevitably slow down decision making and even create contradictions. This means that multiple rules will conflict with each other and you will not be able to make decisions.
- Using the non-collinear indicator. For example, the price indicator and volume indicator are non-collinear indicators.
- Remove multiple collinear indicators. For example, you do not need to use moving averages and trend lines together to determine trends.
- Remove vague and difficult rules and replace them with quantitative and qualitative rules.
In the candlestick chart, basically, when the positive line appears continuously, it can be seen as an “uptrend”, and when the negative line continues, it can be seen as a “downtrend”.
- Since it is an uptrend, we will proceed with transactions centered on buying.
- Since it is a downtrend, we will proceed with transactions centered on selling.
- However, please note that in the case of selling, swaps may turn into payments.