Forex Trading Strategies
Trading Strategies are plans traders use to increase consistency and reduce the emotion that can lead inexperienced traders to make undisciplined decisions. Trading Strategies set out the conditions in which trades are entered and exited but also can be used for back test to assist in determining possible future trades.
Given forex trading is often short term trades, as quick as 60 seconds, we find a lot of Forex traders focus on technical analysis, the study of on asset on a chart, not the fundamentals which looks at the intrinsic value of an asset.
With hundreds of different ways to view charts thanks to the use of charting software indicators, charts are essential if you want to get ahead when trading Forex. However, with the huge range of forex charting indicators and Trading Strategies available, we do not advise that you try and understand them all. KEEP IT SIMPLE! Focus on 2 or 3 Trading Strategies, no more, get to know them well and start putting them to work for you. Too many times we have seen traders waste years on testing and tweaking a Trading Strategy only to then move onto another without actually placing a trade!
Here are 3 charting Trading Strategies used by Binary Options traders, both new and experienced:
1. Trend Trading – The basic Trend Trading strategy refers to determining the trend of an asset and believing that the asset’s momentum in that particular direction will continue for the time being. Traders will visually scan charts of assets to identify any potential trends. Once the trend has been established e.g. an upward trend or a downward trend, a simple Trading Strategy would trigger a Buy/Call in an uptrend and Sell/Put in a downtrend. The time period of the trend determines its strength, the longer the trend has been in place then the stronger the trend.
Upward Trend –
One of the favourite sayings among Trend Traders is “the trend is your friend”! If you are looking to start trading Forex, then Trend Trading is a great Trading Strategy to begin with.
2. Relative Strength Index (RSI) – Is a technical analysis indicator that compares recent gains with recent losses of an assets value. It is one of the most accurate indicators available for evaluating an assets trend strength and is commonly used by Indian Binary Options and forex traders.
RSI values will be between 0 and 100 at all times, with it easy to see bullish and bearish values.
- Any RSI value above 70 is seen as over-brought – selling opportunity
- Any RSI value below 30 is seen as over-sold – buying opportunity
Binary Options traders look to buy an asset when the RSI dips below 30, when the RSI is signalling it is potentially over-sold and showing a buying opportunity. Binary Options traders are in the belief that the market trend is likely to reverse given it has been over-sold.
Forex Traders look to sell an asset when the RSI exceeds 70, when the RSI is signalling it is potentially over-brought and showing a selling opportunity. Traders are in the belief that the market trend is likely to reverse given it has been over-brought.
Heikin-Ashi Candlesticks (translated as average pace in Japanese) – Are different from traditional Japanese Candlestick charts that are widely used and are used to predict trends even in a volatile market. Heikin-Ashi Candlesticks are great at identify short to medium term trends, likely reversal points and displaying other common technical analysis patterns that traders look for to predict likely buy and sell signals.
The colour of the Heikin-Ashi Candlesticks indicates the bullishness (upward movement)and bearishness (downward movement) of the asset. Green coloured or hollow candlestick refers to bullishness, and red colour or solid candlesticks refers to bearishness.
When the asset is bullish, Heikin-Ashi Candlesticks possess large green bodies with long upper shadows and with little or no lower shadow. When bearish, Heikin-Ashi Candlesticks possess large red bodies with long lower shadows and with little or no upper shadow or legs.
Heikin-Ashi Candlesticks take a neutral position when the body of the candlestick is short and it has both the upper and lower shadow. An increase in the frequency of neutral candlesticks can indicate a reversal of a trend.
Heikin-Ashi Candlesticks are a great way to read a chart, giving Forex traders the trend and the strength of that trend quickly.
The common quote, “if you fail to plan then you plan to fail”, could not be more true when it comes to trading so make sure you have a Trading Strategy in place before executing real trades. All the top forex brokers for clients from India reviewed on this site offer personal account managers who can assist traders with developing Trading Strategies.