What is Forex Trading Strategy, Five Powerful Forex Trading Strategies Introduction

  Any investment transaction is about strategy. Blind trading can only greatly reduce the probability of profit, and the same is true of foreign exchange investment. So what does a specific foreign exchange trading strategy mean, and what are the methods for formulating a foreign exchange trading strategy? This article will tell you about Forex trading strategies in detail!

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  What is a Forex Trading Strategy?

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  A Forex trading strategy is a technique used by Forex traders to determine whether to buy or sell a currency pair at a particular time. Forex trading strategies can be based on technical analysis, fundamental analysis or news events. A trader's forex trading strategy usually consists of trading signals that trigger buy or sell decisions. Forex trading strategies can be obtained from the Internet or developed by traders themselves.

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  What are the foreign exchange trading strategies?

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  Foreign exchange trading strategy refers to the strategy of buying long or short by investors in the process of speculating in foreign exchange. Just like a general needs a strategy to lead a war, forex traders also need to have their own trading strategy. Having a complete Forex trading strategy is the cornerstone of Forex trading success.

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  A foreign exchange trading strategy should include three parts: predictive analysis, management decision-making and the implementation of a trading plan. Regarding forecast analysis, the foreign exchange market is contingent, but it is also reflected as cyclical to a certain level. Investors can improve their accuracy in distinguishing market conditions by grasping this regularity.

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  The foreign exchange market has different main performances in different time periods. Investors should make clear whether they are preparing for the short-term center line or the medium and long-term line of the stock in advance when the market opens, and formulate a trading plan accordingly.

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  During the whole process of making transaction management decisions, investors must formulate a plan and strictly implement the position, method, and total number of their own transactions, what to do when the actual operation is appropriate, and the countermeasures when risks appear. Easier said than done, implementation is the last and most difficult step of an investor's foreign exchange trading strategy.

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  An introduction to five powerful forex trading strategies

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  There are many trading strategies, including technical analysis and fundamental analysis, that you can use to improve your Forex trading potential.

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  As a currency trader, it's worth taking a look at what drives market volatility, as well as a better understanding of important support and resistance levels and strategies like Fibonacci retracements, Bollinger Bands, Stochastics, and more.

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  Whether it's a short-term trade of a few minutes or a longer-term trade of hours and days, one of the factors that many traders focus on is how the forex market reacts as it approaches important support and resistance levels. The following Forex trading strategies compiled by Fxeye.com can help you find attractive opportunities.

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  rebound strategy

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  Many traders believe that levels that were important in the past may also be important in the future. If you think about it, this view actually makes sense. If the market fell to a certain level yesterday and then rebounded, the market's perception is that the level represents somewhat of a lower level. If the forex pair moves back to this level again, it could mean a potential trading opportunity.

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  The chart below shows an almost textbook example of a GBP/USD rally strategy over a few hours (see highlighted area in the chart).

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  loss of momentum strategy

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  Just as traders may view a dip to a previous low as a buying opportunity, they will also be watching closely to see if the FX market is approaching the previous high: the level where the market turned and pulled back. If the market rises, but then stalls and turns, the overall view may be that prices are getting too expensive. The way of trading here is like a mirror image of a bounce strategy. We're looking for a forex pair that has lost momentum near the previous high, then go short and try to profit from the price slide.

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  These strategies are based on previous highs and lows on the chart and make risk management simple and straightforward for any trader. For example, if we are looking for a rebound level, our stop loss can be lower than the previous low. If we want to sell short when the market starts hovering near the previous high, many traders will place their stop loss above the previous high.

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  The example below shows how the previous day's high for the AUD/USD pair became the point where the market lost momentum twice the following morning.

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  breakthrough strategy

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  Previous highs and lows in the foreign exchange market or any market do not stay the same forever. In that case, the market would have nowhere to go but to trade sideways on a daily basis. Old highs will be broken at some point. Many traders see this as a potentially important change in market sentiment. Previously, when the forex pair was at that high, sellers came in and prices fell, indicating that the market was overvalued. If the old high is broken, also known as breaking resistance, then the situation has clearly changed. Traders are now more than willing to continue buying at levels they previously thought were too high.

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  This can be an effective trading strategy for capturing new trends. Every journey starts with one small step. A breakout trading strategy is often one of the early signals when the market direction changes. The example shown is a long-term breakout on the EUR/USD daily chart.

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  Backtesting strategy

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  Since there are trading strategies that are used when forex pairs break out of previous highs, there must also be strategies for when the forex market breaks out of previous lows. Once again, many traders see this as a change in market sentiment. All of a sudden, the level at which a buyer is happy to enter and believes that the price is cheap is bound to rise is broken. This breakout of a known support level can be seen as an opportunity to sell short and view further price weakness.

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  This example shows the USD/JPY hourly chart. This is an important example because it shows that in the real world, even the best forex trading strategies don't always work. A false signal (highlighted by a circle) occurred before a valid signal (highlighted by a black arrow) caused the market to actually start to fall.

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  Overbought/Oversold

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  The Forex trading strategies mentioned so far are all based on chart patterns. Our last strategy takes a more mathematical approach, using the Relative Strength Indicator (RSI). The RSI belongs to a family of trading tools called oscillators, so named because it oscillates with market volatility. When the RSI is above 70%, the market is considered overbought. That means it could become overextended, which some traders take as a signal that the market will pull back.

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  An RSI below 30% is oversold. Traders will be watching closely, expecting any weakness to lose steam and the market to turn to a rebound and use it as a buy signal. The example in this chart highlights some of the buy and sell signals that occur in overbought/oversold strategies on the EUR/USD daily chart.

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  Of course, when it comes to forex trading strategies, there is no one strategy that works forever. But these five strategies, combined with a sensible approach to managing risk, can highlight the many opportunities in the broader foreign exchange market.