What are Forex strategies and why are they needed.
DavidTraderSignalsWhat are Forex strategies and why are they needed.
Imagine a dark and unfamiliar room. It is clear that without light, you can stumble and fall, hit various objects and break something. If you turn on the light, you can easily bypass all obstacles and reach the right place. In this situation, the meaning is as follows, light is a forex strategy, using it in your trading becomes easier to work with, as it helps to "see" the market and predict its movements. If a trader does not apply a strategy in trading, then he is in the dark, makes mistakes, and as a result loses money, drains the deposit.
What to pay attention to when choosing a strategy
1. Analysis of the market situation. It is necessary to be able to analyze the market, because the basis of any trading system is analysis. There are two main types of analysis: fundamental and technical. Fundamental makes a forecast based on the news, and technical analysis is based on indicators.
2. The type of operations based on the duration. The choice of a trading strategy in most cases depends on how often the trader plans to trade and what the duration of the transactions will be.
3. Risk management. The choice of strategies also depends on her aggressiveness. If you need a quick acceleration of the deposit, then you can choose a more aggressive trade, which increases the risks of draining the depot. Classic trading guarantees slow but steady profit growth.
4. A trading account with the highest order execution speed is required. The faster your order is triggered, the more likely it is to enter/exit the market at the best prices.
Classification and types of Forex strategies
Often, professional traders use several different types of systems in their trading at the same time, in order to reduce risks and increase profits. Let's look at what types and classes of trading strategies there are.
1. Trending trading strategies. This type of system is the most common. Undoubtedly, strategies based on trend movement are very popular among traders. The model of these systems is based on the fact that the trend is considered as a steady price movement. In other words, if the trend has started, it will persist for a long time. Usually, most of these systems are based on the Moving Average indicator. However, in this case, it is necessary to clearly know which trading interval will be used. This is important, since the usual consolidation on the daily timeframe can be a pretty good trend on the hourly chart.
2. Trading in the flat. The key idea of these systems is that trades are carried out only when the price is flat. In this case, the trader often determines the scope of consolidation, and trades from them. For example, when quotes approach the upper limit, it is necessary to sell, when quotes are closer to the lower limit, you need to look for points to enter the purchase. Trading robots can also be used to trade using this strategy.
3. Countertrend strategies. In this case, the trader should be able to catch a correction against the existing trend. Many people believe that such trading does not make sense, since the trend is quite strong and can easily take down a position, but it is no secret that the market likes to surprise, and in this case there is a chance to make a good profit. Such trading requires experience and certain skills, and it is advisable for beginners to refrain from using such strategies.
4. Systems based on different patterns. In this case, the trader uses mostly graphical market analysis. In other words, he monitors the formation of different patterns in market conditions, and as soon as they appear, he opens a position. The number of patterns can be large, but often, a trader finds several formations that he understands and trades based on these patterns.
Pyramid strategy
This strategy involves increasing the scale of a winning operation.
In other words, it is a strategic purchase or sale in order to increase the size of the available position after the market makes a strong movement in the intended direction.
The picture below shows a market in a northerly trend, creating increasing highs and lows.
This is a step-by-step model where the market continuously breaks through resistance levels, and then tests these marks as support. Such market conditions are perfect for scaling profits in a winning operation.
The first buy order in the above picture is activated when the market tests resistance again as a new support level.
The second and third purchase deals are similar to the first, and work in the same way when the market tests the strength of the previous resistance mark as support.
It should be borne in mind that the price should break through each level, and then show signs of consolidation so that the build-up of the initial position is justified.
It is for this reason that an important condition for creating a pyramid is the presence of a strong trend.
Let's look at the mechanisms underlying this strategy
The most important thing on the way to success using this strategy is to constantly maintain the necessary risk-reward ratio. That is, the risk should never be more than half of the potential income.
So, if the profit target is 200 pips, the stop-loss must be placed at a distance of no more than 100 pips. Such a step will make it possible to obtain a risk-reward ratio of 1:2.
The Pyramid strategy can be a very good option to increase the deposit from a profitable operation.
Despite the advantages, do not forget about the subtleties. This strategy should not be abused. If the Pyramid is used for more than one transaction per month, then there is a high probability that the trader is not very selective about these transactions. You need good experience and skills to be able to determine when you can use this strategy.
Scalping strategy based on the Bollinger Band indicator
To date, the Bollinger band strategy is one of the simplest, most understandable and at the same time profitable. The strategy involves the use of Japanese candlesticks on the chart, and this is fundamentally important, other types of charts will be inconvenient.
The key indicator is the Bollinger bands with standard settings (the period of the moving average is 20, the standard deviation is 2).
Bollinger bands are a kind of channel consisting of three lines, it is superimposed directly on the price chart.
The central line, which is the main one, is a regular moving average, often with a period of 20. Side lines, or stripes, are often a double deviation (according to standard settings) from the middle line.
Most of the time, the price is in the channel, and when it leaves it, it tends to get back into the channel. This is the key idea of this trading strategy.
You can choose any timeframe. A five-minute timeframe is recommended to
the number of signals received was higher. It is possible to use a shorter time interval, however, problems may arise with the moment of entry into the position.
Entering into a deal
• The Japanese candle on the chart goes beyond the Bollinger channel, with the larger half of the candle body located outside the channel boundary. If the candle goes beyond the upper band, then you need to prepare to sell, if beyond the lower band, buy.
• The oscillator is in the overbought zone (value greater than 80) when the candle goes beyond the upper Bollinger band, or in the oversold area (value less than 20) when the candle goes beyond the lower Bollinger band.
Let's summarize the results
The strategy is a developed system of rules that a trader must strictly follow in order to be able to increase his capital. Thanks to the strategy, you can confidently enter and exit a deal, and not just open deals, counting on luck.
The strategy can be compared with a traffic light: green color – you need to open a deal, yellow color you need to wait, and with red color you need to "sit on the fence" and not consider the possibility of entering the market.