Please Select Please select a country. In technical analysis, it is common to see a series of numbers following a given technical indicator, usually in brackets. They are also prone to emotional errors and various psychological biases. Similar to Kagi and Point and Figure charting, Renko ignores the element of time used on candlesticks, bar charts, and line charts.
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It takes time and effort to build your own trading strategy or to adapt an existing one to your trading needs and style. Most frequently, a trading strategy is a set of entry and exit rules , which a trader can use to open and close positions in the foreign exchange market. This rules can be very simple or very complex. Simple strategies usually require only few confirmations, while advanced strategies may require multiple confirmations and signals from different sources.
Additionally, a trading strategy may contain some money management rules or guidelines. Martingale can be centered strictly around position sizing techniques. These tools are usually charts, technical or fundamental indicators, some market data or anything else that can be used in trading.
When choosing a strategy, you need to understand, which of the required tools you have in possession. It is important to choose a strategy or system that is easy to follow with your daily trading schedule and that can be applied successfully with your account balance size. Forex strategies that are traded based on strict mathematical rules with no ambiguous conditions and no important trading decisions to be made by the trader are called mechanical.
A good example of a mechanical system is a moving average cross strategy, where MA periods are given and positions are entered and exited exactly at the point of cross. When working with mechanical trading strategy, it is easy to backtest one and determine its profitability. You can also automate such system via MetaTrader expert advisors or any other trading software. The usual drawback of such strategies is their lack of flexibility before the fundamental changes in the market behavior.
Mechanical strategies are a good choice for traders knowledgeable in trading automation and backtesting. Strategies that retain some uncertainty and cannot be easily formalized into mathematical rules are called discretionary. Such strategies can be backtested only manually. They are also prone to emotional errors and various psychological biases. On the bright side, discretionary trading is very flexible and allows experienced traders to avoid losses in difficult market situation, while offering an opportunity to extend profit when traders deem it feasible.
Newbie currency traders should probably stay away from discretionary trading, or at least try to minimize the extent of their discretion in trading. In this Forex strategy repository, you will find various strategies that are divided into three major categories:. Indicator Forex strategies are such trading strategies that are based on the standard Forex chart indicators and can be used by anyone who has an access to some charting software e. These FX strategies are recommended to traders that prefer technical analysis indicators over everything else:.
Price action Forex strategies are the currency trading strategies that do not use any chart or fundamental indicators but instead are based purely on the price action. These strategies will fit both short-term and long-term traders, who do not like the delay of the standard indicators and prefer to listen as the market is speaking.
Fundamental Forex strategies are strategies based on purely fundamental factors that stand behind the bought and sold currencies.
It is common knowledge that any technical indicator, be it moving averages, or oscillators such as Stochastics or RSI, all these indicators tend to use price as the base.
For example, a simple moving average is constructed as an average of price over a specified period of time. Therefore, proponents of price action believe that it is better to use price as an indicator itself and trading with price directly rather than having to use any indicators. The chart above is typically reflective of how price action traders trade. As you will notice, there are no indicators on the chart, but rather some trend lines , support and resistance and so on.
What are the basic building blocks of price action trading? Price action trading is built upon the analysis of the following: The candlestick approach of price action deals with a certain behavior of price depicted in the candlestick charts. Of course, at times the OHLC bar chart is also used. Although both the bar chart and candlestick charts tend to reflect the same sentiment, candlesticks are used as they are easy to recognize.
There are many more candlestick patterns but the above are some of the important price action patterns that traders often look to and are also easy to identify with. Although the candlesticks come with different names, they basically reflect the market sentiment. The example below shows a bearish engulfing candle.
In other words, this two candle price action formation indicates that the sentiment in the market is bearish as price failed to make a higher close and the lower close was much lower than the previous open. Trading can in fact be done by reading the price candles alone. The following example shows how a long position could be traded by simply looking at and understanding the price action that is unfolding.
We first spot a very bullish candle, which clearly engulfs the previous candles bearish price action. So a long position is initiated at the high of this candle. The next candle closes bullish but leaves a long upper wick, indicating some kind of rejection. The following two candles are lower, but the fact that they have long lower wicks is indicative that there are more buyers and then sellers. So the long position is kept open.
After the two bearish candles, we see a series of bullish price action with subsequent closes higher. It is after the appearance of the doji candle, is when the long position would be reduced. This approach, as you can see requires a bit of skill and understanding of the market s and of course price action itself. If we look to the same chart but with indicators , we can notice how the buy signal has been triggered a bit lately.
Besides analyzing the candlestick patterns in isolation, price action can be more effective when combined with support and resistance. For example, a bullish engulfing candle near a key support level offers a great probability of taking a long position than having to trade merely off the candlestick pattern with no reference to past price. This is where support and resistance can help the traders.