Making a trading plan and trading according to plan

Understanding Forex Trading Strategies and Most Used Indicators.

In this article, we will show you the most popular and used Forex trading strategies that are deemed successful by many traders.

Making investment decisions based on intuition is difficult to make a profit. That’s why many successful traders test different systems and strategies to make buying and selling decisions.

Having a principle of determining entry and exit timings based on chart analysis can help rule out trader sentiment and generate more steady returns. Chart indicators signal when an entry or exit occurs. It should be borne in mind that trading is inherently risky and does not guarantee returns.

Always test your strategy in a safe, simulated environment to familiarize yourself with it. Opening a demo account allows you to practice your strategy in a live environment without risk of loss. You can also test your strategy without risking a loss by applying it to historical charts to see the results.

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1. Day trading

Day traders make several iterations of short-term trading using volatility to achieve relatively low returns. This is a very focused and stressful trading style, so you need to be able to focus 100% on the market conditions and react immediately to market movements.

As the name suggests, day traders open a position and close it within the same day, holding the position for just a few hours. Day trading avoids the risk of holding a position until the next day.

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2. Scalping Trading

Scalping trading is a more extreme form of day trading. Perfect for traders who can stare at monitors all day long as they need to keep an eye on all market movements. You need to be accustomed to making quick buying and selling decisions and have a high risk-taking propensity, so two or three big losses can ruin your profits for the day.

Scalping traders aim to repeat very small returns multiple times with ultra-high frequency trading in response to intra-day price movements. Hold positions for only a few seconds or minutes and aim for a small profit by trading along the trend.

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3. Position trading

Position trading approaches the market from a longer-term perspective than day trading or scalping trading, so it is a style suitable for traders who do not want to stare at the monitor all day. However, you must have the patience to withstand price corrections (assuming a short-term correction).

Position trading is investing for profit based on an uptrend. In general, position traders select stocks to invest in through fundamental analysis and use chart analysis as an auxiliary tool to determine the most effective entry and exit points.

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4. Swing trading

Swing trading follows the same basic premise as position trading, but focuses on the medium term (unlike day trading, which focuses on the short term). Swing trading is effectively used in volatile markets where there is no clear uptrend. In general, it can be viewed as lying between day trading and position trading.

Swing trading focuses on stocks that are expected to undergo short-term profitable price movements. Holding a position until the next day increases the risk that the market will be impacted by an unexpected event while not looking at the monitor.

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5. Bladerunner Trading

Like the movie title, this strategy uses a 20-period exponential moving average (EMA) or Bollinger Bands midline. This is a particularly popular strategy for traders who use short-term chart cycles.

The EMA line, or Bollinger Bands midline, is the line that effectively ‘splits’ the price in two. A break above this line or multiple tests will trigger a buy signal. This confirms that the long-term trend is unlikely to reverse in the short term before consolidating.

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6. Daily Fibonacci Pivot Trading

Daily Fibonacci Pivot Trading is a combination of daily pivot points and Fibonacci retracements to create a single strategy. It is designed to help identify areas of potential for strong support and resistance.

When trading long positions in an uptrend, wait for the Fibonacci retracement line and the pivot support line to come together. The main criterion for judging is Fibonacci, which is then confirmed by pivot points.

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7. Bolly Band Bounce Trading

This strategy is based on the principle that prices usually revert to the mean. Traders use the Bollinger Bands as a secondary indicator when deciding when to buy or sell. This strategy works best in relatively sideways markets moving within a certain range.

The basic premise is not to break the support and resistance lines. Bollinger Bands marks this point with two lines confining it to the top and bottom. When it hits resistance, it bounces off the band and returns to its mid-point, and when it hits support, it bounces back in the opposite direction. The most basic usage is to sell when it reaches the upper band limit and buy when it reaches the lower limit. However, it should be noted that there are many cases where the movement is vaguely not repulsed at the boundary line.

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8. Overlapping Fibonacci Trading

It is trading that uses the Fibonacci line in a more sophisticated way. Those who prefer this trading strategy are said to only use this strategy when trading. When used in conjunction with other indicators, a more convincing signal can be obtained.

The basic idea is to map the Fibonacci sequence to different points in the same trend, looking for overlap. It is effective when used when the trend is strong. For example, in an uptrend, draw a Fibonacci sequence from the overall low to the trend high. The second sequence draws from the low to the high of the second wave. An overlapping line indicates strong support (or resistance in case of a downtrend).

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9. London Hammer Trading

The strategy is to take advantage of the volatility that occurs when the London market opens. This is a particularly popular strategy when trading gold.

A hammer pattern is a pattern that forms on a candle chart. Occurs when the price declines from the starting price and then recovers above or near the starting price to form a hammer shape (short body with a long tail). The underlying assumption is that the London market is the earliest signal for the direction of the market for the day. To apply this strategy effectively, you need to have a solid understanding of resistance and support levels. For example, when the tail of a candle is above resistance, it is a sell signal.

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10. Fractal Trading

A fractal is used as an indicator to confirm the existence or emergence of a trend. If the market is showing chaos, it can help you identify a clear direction. In its most basic sense, a fractal is a pattern that can identify a trend reversal.

A fractal pattern that is a bullish transition signal is when there is a low in the middle and highs on either side. A fractal pattern that signals a bearish reversal is the case of highs with lows on both sides. The indicator commonly used with fractals is ‘Alligator’. A tool that created three lines using a moving average to help identify trend reversals.

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11. Dual Stochastic Trading

Dual Stochastic trading uses a stochastic oscillator that generates a signal when a trend reversal is possible. This allows traders to prepare for position changes in advance.

This strategy measures trend momentum by comparing fast and slow oscillators. When the extreme levels marked on the Stochastic level (above 80 and below 20) are reached, they are either overbought or oversold, indicating that a trend reversal is imminent. Traders usually wait for the trend to get stronger and watch if the Stochastic indicator moves towards the opposite end. When used in conjunction with other indicators, this strategy is effective in determining the best time to enter.

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12. Pop ‘n’ Stop Trading

Pop ‘n’ Stop trading is a profitable strategy when a sudden breakout occurs in a narrow box. Conversely, the risk is that you may miss a good opportunity and fail by entering a trade too late in a state of excitement.

Pop ‘n’ Stop trading refers to a strategy to stop right before the price rises when it breaks above the previous box range. At this point, it’s important to look for signs that will tell you the direction of the future. In this case, you need to use the price movement theory in conjunction with other indicators such as the rejection bar candle pattern. Risk is usually managed by setting a Limit order 1-2 pips before the rejection bar.

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13. Drop ‘n’ Stop Trading

Drop ‘n’ Stop trading is used for a downward breakout as opposed to a Pop ‘n’ Stop. Both strategies are often used during intraday trading volumes.

Like the Pop ‘n’ Stop, the Drop ‘n’ Stop is applied when a movement falters before the direction becomes clear after breaking out of the existing box. This move can be a great opportunity for traders if they enter and exit in a timely manner.

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Test your strategy on a demo account

It’s important to test different strategies and indicators before trading for real money until you’re sure you’ve found a method that works for you. As mentioned earlier, this will depend on the amount of time you want to invest in trading, your propensity to take risks, and your proficiency in making quick trades.

With FXPro’s demo account, you can participate in the foreign exchange market without risk of loss and practice under real market conditions. Everything is real except for the mock funds!

You can’t just practice Forex trading with an FXPro demo account. FXPro also offers opportunities to trade contracts for difference (CFDs) in commodities, major indices and stocks. Trading CFDs gives you access to more financial markets with lower entry costs.

Advantages of a demo account are:

  • Fast registration and verification process
  • Low spread
  • Elastic Leverage
  • Super fast fastening speed
  • Swap Free Account

FXPro provides the flexible leverage* for the competitive advantage you need.

*Leverage is provided according to the knowledge level and experience level of the client.

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AUXILIARY INDICATOR – Important Indicators for Forex Trading

1. MACD Indicator

MACD is a popular indicator that helps you determine trend strength and direction and predict price movements.

MACD uses the difference between two exponential moving averages (using the closing price) (typically a 12-day EMA and a 26-day EMA are used). It then marks a “signal line” above the MACD (the 9-day SMA of the MACD itself). It is called a ‘signal line’ because when the MACD curve and the signal line cross, it is a buy or sell signal.

When the MACD curve crosses above the signal line, it may indicate an uptrend and it could be a buy time. If the MACD curve crosses below the signal line, it may indicate a downtrend and it may be time to sell. Similarly, when the MACD crosses the base line upwards, it is bullish and a buy signal. On the other hand, when the MACD goes below the baseline, it indicates a downside and a sell signal is generated.
This is when the price line and the MACD have different directions. This indicates a possible trend reversal and helps traders to spot trading opportunities.
Dramatic upside
If the slow EMA and the fast EMA show a significant difference (ie a steep rise in the MACD curve), this is a sign of overbought conditions.

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2. Parabolic SAR – Moving Average Convergence Divergence

Like MACD, Parabolic SAR is a trend-following indicator that helps you buy on an uptrend and sell on a downtrend. It is displayed as a continuous dot above or below the price bar (depending on the direction of the trend) and is calculated using the most recent highs and lows and an acceleration factor.

Basically, Parabolic SAR makes it easy to see an uptrend (when the dot is below) and a downtrend (when the dot is below). This indicator is useful when you have a clear idea of ​​the current price direction and when it is possible to enter and exit. A signal occurs when a dot crosses from top to bottom. It is most effective at judging short-term momentum and can be of great help to day traders.

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3. Stochastic Oscillator Indicators

A stochastic oscillator consists of two curves (%K and %D) that determine the closing price versus the high and low ranges of an adjustable period. A typical cycle is 14 cycles, but you can change the cycle to increase or decrease your sensitivity to the market.

Originally created to track momentum and rate of price movement, it is now more used to determine overbought or oversold conditions. A reading above 80 is considered overbought (there is a possible trend reversal, so you should sell), and anything below 20 is considered oversold (there is a possibility of a trend reversal).

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4. Relative Strength Index (RSI)

Like the Stochastic Oscillator, the RSI is a limited-range indicator that helps determine overbought and oversold conditions. It is an indicator that analyzes price fluctuations over time by comparing average gain and average loss over a set previous period. Although they do not appear on the actual price charts, several patterns can be found with the RSI.

Anything above 70 is considered overbought. When the RSI goes below 30, it is considered oversold. Also, 50 is usually used as a criterion to identify a trend (above 50 is up, below 50 is down).

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5. Bollinger Band Indicators

Bollinger Bands are the simplest way to measure market volatility. This indicator consists of two curves surrounding the price bar (standard deviation tracking) and a simple moving average line in the middle. The outline expands and contracts according to the volatility of the closing price.

There are several patterns that can help you predict market movements. In sideways, the upper and lower bands act as resistance and support, respectively, and tend to return to the middle of the band in a phenomenon known as a ‘Bolinder bounce’. A ‘walk the band’ (rising or falling to the top or bottom of the band and staying within the band) can be seen as a signal that the trend is strong and likely to hold the trend in the near term.

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6. Ichimoku Index Indicators

The Ichimoku Table is a comprehensive auxiliary indicator that provides all necessary information at a glance. It can be difficult to understand at first because it consists of five curves. The Ichimoku Table is an indicator of momentum and predicts support and resistance zones.

The five curves (Conversion Line, Baseline, Leading Span A, Leading Span B, and Trailing Span) are calculated using the highest and lowest prices from several historical periods. These curves represent various important levels, including support and resistance lines, reversal signals, and strategic stop loss points. Although the Ichimoku Table is a comprehensive indicator, most experts recommend using it in conjunction with other JAT analyzes.

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