Three types of trading strategy

1 day max - do not hold positions overnight.
Table of contents

• Introduction to Types of Trading: Fundamental Traders
• Introduction
• 1. Fundamental Analysis
• 6 trading strategies every trader should know

Trend-following systems use indicators to inform traders when a new trend may have begun, but there's no sure-fire way to know of course. Here's the good news: If the indicator can establish a time when there's an improved chance that a trend has begun, you are tilting the odds in your favour.

The indication that a trend might be forming is called a breakout. A breakout is when the price moves beyond the highest high or the lowest low for a specified number of days. For example, a day breakout to the upside is when the price goes above the highest high of the last 20 days. Trend-following systems require a particular mindset, because of the long duration - during which time profits can disappear as the market swings. These trades can be more psychologically demanding.

When markets are volatile, trends will tend to be more disguised and price swings will be greater. Therefore, a trend-following system is the best trading strategy for Forex markets that are quiet and trending. A good example of a simple trend-following strategy is a Donchian Trend system.

Donchian channels were invented by futures trader Richard Donchian , and is an indicator of trends being established. The Donchian channel parameters can be tweaked as you see fit, but for this example, we will look at a day breakout. A Donchian channel breakout suggests one of two things:. It's called Admiral Donchian. To upgrade your MetaTrader platform to the Supreme Edition simply click on the banner below:. There is an additional rule for trading when the market state is more favourable to the system.

This rule is designed to filter out breakouts that go against the long-term trend. In short, you look at the day moving average MA and the day moving average.

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• 2. Technical Analysis;
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The direction of the shorter moving average determines the direction that is permitted. This rule states that you can only go:. Trades are exited in a similar way to entry, but only using a day breakout. This means that if you open a long position and the market goes below the low of the prior 10 days, you might want to sell to exit the trade and vice versa. One potentially beneficial and profitable Forex trading strategy is the 4-hour trend following strategy which can also be used as a swing trading strategy.

This strategy uses a 4-hour base chart to screen for potential trading signal locations. The 1-hour chart is used as the signal chart, to determine where the actual positions will be taken. Always remember that the time-frame for the signal chart should be at least an hour lower than the base chart. For this Forex strategy, two sets of moving average lines are chosen for the best results. One will be the period MA, while the other is the period MA. To ascertain whether a trend is worth trading, the MA lines will need to relate to the price action.

The MA lines will be a support zone during uptrends, and there will be resistance zones during downtrends.

Introduction

It is inside and around this zone that the best positions for the trend trading strategy can be found. Below is a daily chart of GBPUSD showing the exponential moving average purple line and the exponential moving average red line on the chart:. Counter-trend strategies rely on the fact that most breakouts do not develop into long-term trends.

Therefore, a trader using such a strategy seeks to gain an edge from the tendency of prices to bounce off previously established highs and lows. On paper, counter-trend strategies can be one of the best Forex trading strategies for building confidence, because they have a high success ratio.

However, it's important to note that tight reins are needed on the risk management side. These Forex trade strategies rely on support and resistance levels holding. But there is also a risk of large downsides when these levels break down. Constant monitoring of the market is a good idea.

The market state that best suits this type of strategy is stable and volatile. This sort of market environment offers healthy price swings that are constrained within a range. It's important to note that the market can switch states. For example, a stable and quiet market might begin to trend, while remaining stable, then become volatile as the trend develops. How the state of a market might change is uncertain. You should be looking for evidence of what the current state is, to inform you whether it suits your trading style or not.

Many types of technical indicators have been developed over the years. The great leaps made forward with online trading technologies have made it much more accessible for individuals to construct their own indicators and systems. You can read more about technical indicators by checking out our education section or through the trading platforms we offer. The best Forex trading strategies for beginners are the simple, well-established strategies that have worked for a huge list of successful Forex traders already. Of course, many newcomers to Forex trading will ask the question: Can you get rich by trading Forex?

It's important to understand that trading is about winning and losing and that there is always risk involved. In some cases, you could lose more than your initial investment on a trade. There are no easy Forex trading strategies which are going to make you rich over night, so do not believe any false headlines promising you this. Trading Forex is not a 'get rich quick' scheme. However, through trial and error and the use of a demo trading account, you can learn about the Forex market and yourself to find a suitable style.

It can also help you understand the risks of trading before making the transition to a live account. Traders that choose Admiral Markets will be pleased to know that they can trade completely risk-free by opening a demo trading account. Instead of heading straight to the live markets and putting your capital at risk, you can practice your Forex trading strategies on a FREE demo account.

Click the banner below to get started:. Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8, financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today! This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.

1. Fundamental Analysis

Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks. We use cookies to give you the best possible experience on our website.

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Understanding how economic factors affect markets or thorough technical predispositions, is essential in forecasting trade ideas. Entry and exit points can be judged using technical analysis as per the other strategies. The Germany 30 chart above depicts an approximate two year head and shoulders pattern , which aligns with a probable fall below the neckline horizontal red line subsequent to the right-hand shoulder. In this selected example, the downward fall of the Germany 30 played out as planned technically as well as fundamentally. Brexit negotiations did not help matters as the possibility of the UK leaving the EU would most likely negatively impact the German economy as well.

In this case, understanding technical patterns as well as having strong fundamental foundations allowed for combining technical and fundamental analysis to structure a strong trade idea. Day trading is a strategy designed to trade financial instruments within the same trading day. That is, all positions are closed before market close. This can be a single trade or multiple trades throughout the day.

Trade times range from very short-term matter of minutes or short-term hours , as long as the trade is opened and closed within the trading day. Traders in the example below will look to enter positions at the when the price breaks through the 8 period EMA in the direction of the trend blue circle and exit using a risk-reward ratio. The chart above shows a representative day trading setup using moving averages to identify the trend which is long in this case as the price is above the MA lines red and black.

Entry positions are highlighted in blue with stop levels placed at the previous price break. Take profit levels will equate to the stop distance in the direction of the trend. The pros and cons listed below should be considered before pursuing this strategy. Scalping in forex is a common term used to describe the process of taking small profits on a frequent basis.

This is achieved by opening and closing multiple positions throughout the day. The most liquid forex pairs are preferred as spreads are generally tighter, making the short-term nature of the strategy fitting.

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Scalping entails short-term trades with minimal return, usually operating on smaller time frame charts 30 min — 1min. Like most technical strategies, identifying the trend is step 1. Many scalpers use indicators such as the moving average to verify the trend.