Forex Market - a huge financial ocean. He lives by its own laws. Wave after wave rolled. Wave it high, then low, there are tsunami. A trader can not control the waves, the motion of waves is determined by global rules and events. But like surfers trader can balance between the waves, staying afloat on a small board in the middle of a great ocean. Some predict the waves behavior, knowing the season, the wind direction, while others focused on the basis of what is now the waves, suggesting what they might do next. All statements are more or less probability, but you can not say certainty what will be the wave of the one in which we are now. Forex can be very surprising.
The success of the trader is primarily related to the strong discipline during trading. Forex - does not forgive mistakes. To avoid loss the deposit it is necessary to adhere strictly to the trading system. In some cases, need to be able to lose in order to win more. Ability to save and not to get lost - it's a big part of success in Forex trading. Therefore, the trader first and foremost need a trading system.
The trading system - is an algorithm (a set of instructions and actions), to be followed by the trader at the time of the trade. The algorithm should be specific and avoid interpretations. It includes:
- trading strategy - methodology or theoretical foundations, methods of entry and exit from the market, the general principles of management of deposit used forex indicators. Trading system may include several strategies
- the rules of risk management - management rules of deposit: a lot size that used to open a position, where to set the stop loss and take profit
- currency pairs and the number of pairs used in trade
- time periods (timeframes)
- time of the trading session, for example, for certain currencies active trade takes place at night, but for others, day or evening
Before the start of a serious trade newbie trader needs to choose one, or preferably several trading strategies, work out their trading system on a demo account: select the size of the lot, principles of "stop" and "profits", choose currency pair, time of the trade and then use their skills on a real account trade. Successful traders use several strategies to diversify risks. To select the strategy you need to understand the characteristics of each and classification of strategies.
According to the criteria strategies are classified:
- by the type of analysis
- using technical analysis - this kind of analysis suggests that the history of the prices movement already include the laws of the future behavior of prices and expectations of market participants, ie, forecast future price movements can be built on the basis of pricing models and price history on price charts with technical indicators, or directly on the chart
- using fundamental analysis - which predictions are based on significant economic events and indicators that allow you to treat a certain way the balance of supply and demand on the market; it uses fundamental indicators (consumer confidence index and so on.), the economic performance of countries and companies (GDP, revenue, profitability, budget deficit), statements by politicians and economists
- by time
- short-term (or intraday) - orders opened and closed during the trading day. Such strategies are based primarily on technical analysis or trading on the news. One of the advantages: require little capital, while having a high frequency of transactions. Among the few drawbacks: it requires a lot of time on trade, a great psychological stress
- medium - the position can be open on days to a few weeks
- long term the transaction is opened from several weeks to several months; advantages of such strategies is the small amount of time that spend on trade, but in this case requires a thorough knowledge of fundamental analysis and understanding of the trend, as well as a large deposit to trade
- by risk
- conservative - in this case the options trading involve minimal risks, for example, using a small deposit, the level of drawdown or point of entry into the market suggests a greater likelihood of success (defined by several fundamental and technical indicators); such strategy involves low stable profit
- aggressive - high-risk, you can get a large profit, but also, in case of failure, get a great loss
- moderate or balanced - assume medium risk
- by indicators using
- without undicators - technical indicators are not used
- using indicators- that uses technical indicators (various averages, MACD, RSI, Bollinger Bands and many other). Technical Indicator - it is function, built on trading statistics, analysis of which allows you to predict the future behavior of the price on the market
- by the trading volumes
- fixed trading volumes
- that using Martigale strategy- when the amount of the current deal inclides the previous loss (if the previous loss-making) and the planned profit
- by methods of trade
- non-automated - the trader itself determines the entry and exit point and trading volumes for the transaction
- semi-automated - the parameters of the transaction is automated by the software, but the course of trade is controlled by the trader
- full-automated - with advisors or trading robots - when the software manages all parameters of the trade with using clearly algorithmic trading system without the participation of the trader
- by the types of strategies - trading strategies are classified according to the approaches used (trends, indicators, price patterns, Elliot Wave, etc.)
The classification of strategies by the types:
Strategies based on trend
Trend is a relatively stable pattern of price movements in one of the direction. Trend strategies are based on the assumption about prices growth or decline. The prices growth and decline is changed one after other, but, in general, the price is moving in the direction of the trend. It is assumed that the movement of the price trend toward direction more probably than in the opposite direction. The main advantage of such strategies is the relative ease and the main lack - high risk, if the price is in a sideways trend (flat). In these strategies, trend can be different at other time periods.
Back-trend or reversal strategies
These stratrgies based on certain pivot points (trend reversal). These strategies is characterized by a fixed profit. The duration of the deal is short. In the strategies to define the pivot point it can be used technical indicators such as the "Bollinger Bands" or "alligator". The main problem of strategy - defining the pivot point. If the point is false, the transaction should be closed as quickly as possible. Back-trend strategies used mainly by experienced traders.
Channel (flat) strategies
Strategies based on the assumption that the movement of prices on the market takes place within a certain corridor (channel). The strategy involves opening the transaction in the next cases:
- when the price of "discourage" (rebound) from the border ("wall") of the channel (sell - when the price is about the level of resistance and buy - when the price is about the level of support) - it is trade within the channel
- when channel is broken (breakthrough of channel)
Channel strategies differ mainly in technique of determining the channel borders. It requires strict methodology to determine the criteria of touch the channel and price reversal. In order to determine such situations, various techniques combine with candlestick analysis, Fibonacci levels and technical indicators- oscillators.
Strategies based on patterns
Pattern - is a specific sequence of candles or model of behavior the price at which one can decide about the probably price movement. For example, "head and shoulders", "Double top", "Adam and Eve", "triangle", "Flag". Such sequences are identified on the basis of statistical data. It mainly used as an additional method for the basic strategy as supporting mechanism.
The basis of such strategies - Elliott Wave Theory based on a cyclical pattern in the psychology of human behavior. The theory assumes that the market price moves in a wave cycle, have a certain structure and pattern of following waves, based on Fibonacci numbers. Theory uses the principle of nested waves: the wave in the higher period consists from number of wave cycles at the shorter time periods and, in general, the movement of prices on the market it can be put in a big super cycle. By itself, the strategy too difficult to implement in practice , because there are may be many interpretations of the same situation in the market, the ambiguity of the identification of the waves. However, the general principles can be used. For example, the theory suggests three impulse waves, creating trend. If it is possible to uniquely identify the first impulse wave, the more likely that the second wave can bring a large enough profit with minimal risk.
Strategies based on volatility breakthrough
Strategies is based on the assumption that the event of carry out of prices from the well-established range of prices is significant. transaction open at the exit of this range. Range limits is defined at short distance from the current price range. The channel width is determined by the overall market volatility. Examples of such strategies: strategy using technical indicators Kellner channel, the Donchan channels.
The trade is based on price levels during certain sessions (European, American). We consider the levels of currency pairs that have more activity in this session. We analyze levels of opening and closing prices at the session, pricing models. An example of such a strategy is a strategy of "London bombings."
Short-term trading strategies in a short period of time, usually within a few minutes. The essence of the strategy is to obtain a small profit that guaranteed. To determine the point of entry into the market are used technical indicators or price patterns.
Strategies used indicators
Despite the fact that almost all of the above strategies may use indicators,there are kind of strategies that uses indicators as a principle of operation, not an support or help. For example, it is a strategy based on moving averages, that uses multiple moving averages, and their intersection to define the point of entry and exit from the market.
Trade on support and resistance lines
Support and resistance levels-is the key points of price values, which price movement turns or stops on. At these points, there are important economic events, and this points are psychological values on which the balance of supply and demand is changed. Support levels are the price value, after which the price changes direction with a decline to increase and resistance levels are on the reverse from support lines. On the graph levels are built as horizontal lines. Trade by levels divided into two types: the rebound from the level and breakthrough of level. The complexity of this trade is to clearly define levels.
Strategies includes multiple strategies listed above. The signal received by one strategy has to be confirmed by other signals. For example, the back trend strategy generates a signal on the breakdown of the trend and at that time, pricing model "head and shoulders" is formed, that speaking about the turn of the price movement. Respectively, there is a high probability of a trend change and it is possible to open a deal. Sharing use allows multiple types of strategies to diversify risks.