All financial markets commonly trends. Traders commonly move with uptrends and downtrends and tend to follow them as long as the market continues to trend. As a result of this feature of the financial market, trend-following trading strategies are very popular and widespread in the forex market. These trading strategies have consistently recoded success and are among the top functional and effective forex trading strategies. Really, a mere peak and trough analysis of the price chart is one of the best complimentary Forex trading strategies that’s accessible online and among the best forex trading strategies.
By utilizing simple price action procedures, traders can find out if the market is trending upwards or downwards and trade the market with respect to that. Uptrend commonly forms by higher highs and higher lows, whereas downtrends are made up of lower lows and lower highs. Immediately you discover the current state of the market, you can enter long when the market is in uptrend and set your Stop Loss immediately underneath the recent higher low. Alternatively, you can go short when the market is trending down, and position your Stop Loss immediately on top of the recent lower high.
Besides, technical indicators like the average directional movement index (ADX) can be utilized to discover trends and estimate their strength.
The ADX value ranges from 0 to 100, and indicates that the market is trending when the value is above 25. ADX Values between 25 and 50 indicate strong trends, while values between 50 and 75 indicates very strong trends, and when the value goes beyond 75, it indicates extremely strong trends. The crosses of the –DI and +DI lines, in combination with the ADX value are utilized as indications to go short or long as illustrated in the chart below:
Forex strategies that depend on the markets trend are among the best and the most profitable for traders.
Countertrend trading strategies
Countertrend trading forex trading strategies jus as the name connotes are strategies that like the trader open trading positions in the opposite direction of the principal trend. The rationale of such trading strategies is to trade the price reversal after strong up- and down-moves. Although these can help a trader to profit, you need to know that trading the counter trend significantly boosts your risks.
Fibonacci retracements are frequently utilized as a countertrend trading strategies, given the fact that they estimate the main move. Theoretically, the correction ought to be roughly 50 percent of the primary move, making the 38.2 percent, 50 percent, 61.8 percent, and 78.6 percent Fibonacci retracements significant levels to monitor.
There are a lot of free Forex trading strategies that focus on countertrend trading, but you need to be careful when placing trades in the opposite direction of the primary trend. Your best bet is to wait for the modification to end and rebound back a significant Fib level before you trade.
Breakout forex trading strategies
Breakout forex trading strategies are most commonly used by day traders, given the fact that the market tends to have a strong thrust after a significant technical level breaks. Breakouts are commonly noticed just about key support and resistance levels, in chart patterns, on trend lines and trend channels. If they are utilized in the right manner, they normally result to very profitable trading potentials.
As with the trend-following trading strategies, breakouts works best when it is incorporated in the direction of the primary trend. Chart patterns are particularly common with breakout trading strategies. A good numbers of those chart patterns are capable of signaling the persistence or even a turnaround of the current trend. The head and shoulders chart pattern, for instance, creates above an uptrend and at the base of a downtrend, referred to as “inverse head and shoulders” and indicates that the primary trend is about to turn around. Nevertheless, you need to watch out for fake breakouts which cause you losses.
A Forex trading strategy that focus on identification of breakouts ought to account for many of the technical tools specified above.