Advanced forex trading systems
Many forget that beyond all the technology, technical analysis, tools, etc. If you choose a strategy that doesn't suit you psychologically, you are destined to fail. The biggest mistake beginners make when choosing forex trading strategies is to choose a strategy that seems logical enough to work and maybe it is — for someone with a different psychological makeup. They end up losing money and are unable to stick with the trade.
So they give up after having lost a sizable chunk of capital in the process. We want you to avoid becoming another statistic. So read on to figure out what you need to do to craft a strategy that works for you. How to Create a Strategy That Works for You We're going to go over some of the most popular strategies, give a brief overview of each, explain how it works and who it is suited for.
Hopefully after reading, you will have a much clearer picture of what trading strategy to use. Price Action Trading The first strategy we are going to look at is perhaps the simplest of all and the one that is most easily transportable across timeframes and forex pairs.
The price action strategy does not rely on the main technical indicators. Instead it looks exclusively at what prices are doing and whether there is a trend in prices. For this strategy, most traders rely on candlestick charts — so called because they look like a candle with a wick. Price action has one big advantage over most technical indicators. Most indicators lag behind, making use of old data. But price action is as up-to-date as possible.
So traders who use this strategy believe that they get the fastest representation of the market. The size of a candlestick says a lot about the underlying pair. For example, when you see a bar three to four times as large as the average candlestick, it is clear that there is a breakout happening. Likewise, some traders look at specific shapes and patterns that the candlesticks form on the chart.
Many traders around the world watch these patterns. And this wide following often reinforces the pattern itself as more and more people follow and act on these patterns. Another major component of price action trading is using lines.
This is done by drawing lines at the top and bottom of the current range, at the approximate angle of the trend. Drawbacks of Price Action Trading One big drawback is that if the currency isn't trending, then you won't have many trendlines to draw. However, many traders also draw horizontal lines around major price points. This can be a recent peak or a recent low a price that the currency has gravitated to a number of times or even large, round numbers, which many traders see as important.
Prices have a habit of retesting these levels of support the bottom price and resistance the top price. And these levels often act as intelligent price points at which to take profit or set a stop loss. Price action trading is great for beginners because of its simplicity.
It is also a strategy that can be easily combined with other strategies for higher accuracy. There is a reason that this is possibly the oldest trading strategy out there and is still in use. Range Trading Strategy Trading a range bound market is one of two strategies that are much more personality driven than price action trading.
With this type of market, your currency trades in a range of prices, going up and then back down. These can be a very tight, narrow range. And that usually signals an explosive move to either the upside or downside. Or the range can be very wide. Look at a long enough timeframe and you're likely to see the currency pair actually is in very wide trading range. But we are going to focus on the short- and intermediate-term range trading strategies. In a range bound market, prices keep bouncing off of the same support and resistance.
To use this strategy, buy the currency near the bottom of the range or short sell near the top of the range. Then set a stop loss in case the currency breaks out of its range. Risks of the Range Trading Strategy The main risk here is that you never can be sure when the range is going to break and the currency begins trending. An additional risk depends on how wide the range is. Sometimes the currency price starts toward the opposite end of the range but halts in the middle and comes back to where you entered.
To decrease risk, look at price action to see if there is a surge in buying or selling. Also watch the trading volume for the same clues. Some technical indicators work best in a range market. These include the RSI relative strength index. Here the technical indicator shows when your currency is relatively overbought or oversold and the price could reverse direction. This can be an excellent way to make your entries more accurate. Range trading strategies are great for those who are more inclined to be patient.
Many traders see range bound markets as a nuisance and sit on the sidelines. This means there is more room for traders comfortable in this kind of market. But there is no guarantee that the currency you are trading is really in a trading range.
It could just be taking a breather before continuing a trend, or it could be about to break out. Many traders think this strategy is too easy. They think currencies don't care about clearly defined lines and that you should treat ranges in general terms instead of a concrete line. Trend Trading Strategy The second major market regime is that of a trending market. Markets trend either upward think bonds since the s, in perhaps the longest bull market in history or downward think equities during the crash.
Currencies are no different, and most traders look to make money by riding the trend. Any person can spot a trend that has already happened, but knowing when a trend is going to emerge or when a trend is about to reverse is what separates traders from the lay person. Most traders look for a breakout to signal the beginning of a new trend. They find a currency in a range and look for an obvious piece of price action — such as a candlestick breaking through a line of resistance — to signal that the range market regime is over.
Using Moving Averages Many traders rely on technical indicators to help them judge the health of a trend and whether they should jump off or not. The most common technical indicator for this is the moving average. For example, if a trader wants to trade on an hourly order block, he should follow the trade only order flows from a daily or weekly time frame.
The trading strategy is the price breaks out the order block with impulsive pressure, and before moving further, it comes to the zone to test. The trading entry appears when the price comes to check the level and reject it. Scalping Trading Strategy It is pretty strange to see scalping in the list of top 5 advanced forex trading strategies. However, it is true. Most of the successful forex traders are scalpers, and they earn a lot of money by doing scalping only.
The significant difference between advanced scalping and ordinary scalping is that the advanced scalping strategy is considered a top-bottom analysis. What is top-bottom analysis? For example, you want to do scalping in the 5-minute timeframe. But before moving to the 5 minutes, you should read the market form daily, then H4, H1, and in the last 5 minutes.
The top-bottom means it is crucial to see what the higher timeframe traders are doing in the market. As we know, institutional traders usually trade in a higher timeframe.
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