In this article we will discuss the two broad groups of trading tools that more or less classify all trading indicators available.
They say that all successful traders make profits differently, and that all losing traders lose the same way. This isn't hard to accept, considering the variety and versatility of trading tools available to Forex traders, and at the same time, the mere handful of common trading best paid signals for binary options that are possible to make.
In order to be successful, every trader must take the time to try out different trading strategies and trading systems to see which one works for them. Most traders fail not because of the flaws in their systems, but because of the flaws in their discipline to execute it.
Strategy Building Blocks At the beginning of their journey, a beginner trader will quickly discover that a rich pallet of tools are available in Forex trading. There is plenty of room for creativity.
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Sometimes, a trader will borrow a strategy in the form of predetermined techniques and styles, and then adjust it to the most profitable trading platforms liking. Most of the time, traders start from scratch, and gradually create their own mix of charting techniques, technical indicatorsfundamental indicatorsand trading styles. They will then continuously mould the strategy as they progress, perhaps adding new tricks or getting rid of what is considered to be obsolete.
A strategy changes with the trader, the trader changes with the market, and the markets change with time. Technical Tools Technical analysis is chart bound. It takes one of the Dow theory postulates as the premises — the market discounts everything.
Whatever factor has an impact on supply or demand will inevitably be reflected in the price, and by extension, technicalists claim that it will be reflected on the charts.
No matter which trading style you are using — long-term positional or short-term intra-day — everything starts with charting. This wasn't always the case, but now what is considered the most favourable method of price action charting in the world, not only for the Forex market, is the Japanese candlestick.
This method is around years old and there are trading strategies based on reading candlestick patterns alone. Candlestick Patterns These strategies are somewhat subjective, since there is always a degree of disparity between the example pattern, and what you see on your charts.
This leaves room for interpretation and decision making in the hands of the trader. As a side note, whether you want freedom in interpretation of charts, or you prefer algorithmic type trading that leaves no room for self debate, this is something you will have to find out for yourself as a trader.
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Nobody else can do this for you. It may be worth mentioning that algorithmic trading is more instructional and rule based, and therefore possibly safer for beginner traders.
Candlestick pattern based strategies may be used for various financial marketsand on various time frames. They are simple to understand as a concept, but often lack signal precision. If not being the alpha and omega of your trading strategy, candlesticks and their variation, like the Heikin-Ashimay prove to be a solid building ground. Now that your charts have the price action mapped out, let's talk about your supporting constructions.
A high-quality or profitable forex trading strategy is one that has been back tested and guarantees continuous profits over a specific period. Forex trading strategies are sets of techniques or special techniques that traders can use to determine the exact time to place a trade order or exit the market to make maximum profits at a given time.
In the foundations of price action trading lies an observation that the market often revisits price levels, where it previously reversed or consolidated — this introduces the concept of support and resistance levels into trading. Now you can trade with MetaTrader 4 and MetaTrader 5 with an advanced version of MetaTrader that offers excellent additional features such as the correlation matrix, which enables you to view and contrast various currency pairs in real-time, or the mini trader widget - which allows you to buy the most profitable trading platforms sell via a small window while you continue with everything else you need to do.
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Download it for FREE today by clicking the banner below! Support and Resistance Levels Support and resistance levels are less of a line defined strictly to a pipand more of an area that can range from a couple, to a couple of dozens of pips in width, depending on the time frame you are looking at.
Breakouts When a breakout occurs and it is confirmed by a candle closing reasonably beyond a level — this serves as a signal that the market has the momentum to move further in the direction of a breakout. Fibonacci Retracements Remember that as the same chart may appear to consist of different patterns to different traders, it may also produce opposing signals, pointing towards the imperfections of the method.
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As for Fibonacci, techniques that include data from outside the market, like Retracement traders use Elliott wave theory as a basis that suggests the market moves in waves.
After a significant move comes a smaller one, in the form of a pullback or retracement, as the price of an asset adjusts to its true trend.
Anybody who has ever seen a chart will have noticed something similar.
However, claiming that Fibonacci ratios accurately predict the swings is very brave at least. As a beginner trader who is interested in looking for chart patterns, remember that the human brain is highly suggestive, and is wired to see regularity even in the most random data. Just because the brain sees it, it doesn't mean it is really there. Trend Following The pinnacle of technical trading is a combination of two more Dow postulates — the market trends, and it trends until definitive signals prove otherwise.
A trend is a market condition of the price action moving in one evident direction for a prolonged period of time, and if there's one thing all traders agree upon, it is that the trend is your friend. Financial traders are great fans of trend measuring and trend following, and they have a variety of technical indicators to support their strategies.
Most of the indicators available on your trading platformfrom moving averagesto the classic MACD and Stochasticto the more exotic Ichimoku are all designed to point out whether there is a trend, and if there is, how strong it is. Such traders always buy when the market is going up, and sell when the market is going down.
They usually miss the beginning of a trend, and are never trading at the tops and bottoms, because their systems require confirmation that the new swing has in fact resulted in the development of a new the most profitable trading platforms, rather than being just a pullback within the the most profitable trading platforms trend.
Ranging Markets What neither trend following traders, nor their strategies like is ranging markets. A ranging market is like a horizontal trend, with the price action bouncing up and down within a confined corridor. There seems to be neither a bullish nor bearish trend at those times, and everybody sits tight until a breakout occurs, and a new trend develops and proves its legitimacy.
Trend Following Strategies Trend following strategies, when followed correctly of course, are the safest and arguably the most profitable trading strategies out there.
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They perform best when used over the long-term, as trends take weeks and months to develop, and may potentially last for years or even decades. If you're aiming to be a trend following trader you need to be patient, and make sure you have a lot of risk capital at your disposal.
Even if you are not aiming to be a technical trader, or a long term-trader, the concept of markets trending should be incorporated into your trading system, and if not as a primary action tool, then at least as an underlying market principle. Knowing which way the market is going in the long run never hurts, which is why even 15 minute intraday traders always check the bigger time frames before opening trades.
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Fundamental Tools Fundamental analysisas opposed to technical analysis, focuses on the fundamental forces influencing supply and demand, as the primary price moving vehicles. Fundamental analysts claim that markets may misprice a financial instrument in the short run, yet always come to the 'correct' price eventually.
Despite fundamental analysis having close to nothing to do with the price action, it overlaps in a few areas with technical analysis. For example, both recognise the concept of the trend, and the importance of the key levels, albeit for different reasons. All in all, it is worth mentioning that the Forex market is mostly a domain of technical analysis, with fundamentals used as supporting indicators, or as a base only for a few extravagant strategies.
Fundamentals in Forex Fundamental analysis was born in the stock market in the times when barely anybody on Wall Street even bothered laying price action on charts. Since there are no company balance sheets and income statements to analyse in Forex, currency traders focus on the overall conditions of an economy behind the currency they are interested in. The only problem is that even though countries are much like companies, currencies are not quite like stocks.
A company's financial health is directly reflected in its stock price.
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Both improving and declining performance can be identified by fundamental analysts, which would help to predict how stocks should behave. For countries, however, an improving economic performance does not necessarily equal growth in its currency's relative value.
Central Banks and Interest Rates A central bank responds to a directive by the government and decreases interest rates to weaken the currency, thus making domestically produced goods relatively cheaper and stimulating exports.
The economy improves, although the currency weakens. Next the most profitable trading platforms quantitative easing.
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When the interest rates are near or at the zero point, a central bank implements an aggressive monetary policy, aimed at injecting large quantities of money into a national economy, in the hope of improving the inflation, thus weakening the currency as a byproduct. In practice, however, it might lead to an increased outflow of the national currency offshore, through speculation on the markets, leading to deflation.
A currency's relative value turns out to be a function of a great multitude of factors from national monetary policies, to economic indicators, to the world's technological advancements, to international developments, and to so-called 'acts of god' that nobody could possibly see coming.
For most traders, fundamentals forever remain the go-figure type of indicator — never reliable enough on its own to ever claim to be the most profitable Forex system. That being said, the ingenuity of fundamentalists means they have developed a few interesting strategies worth researching for ideas.
For example, news scalping is technically a fundamental based strategy, since a trader tracks down news releases and acts upon them.