Forex Trading Methods A Few Key Forex Trading Methods
There are several main methods of Forex trading - indicator, graphic, trading on a clean chart (this category includes the Price Action methodology). What are the advantages and disadvantages of each of them? What are the principles of work and opening deals?
Forex Indicator Trading Methods
One of the most common trading methods in the forex market. It is on its basis that most trading strategies are built. The indicator trading method involves the use of special programs whose work is based on the use of statistical data of past periods in order to predict prices in the future.
The number of currently existing indicators is in the hundreds. The most common and popular are included in the standard sets of trading platforms. These include moving averages (calculating the average price for a certain time period), Stochastic, Bollinger Bands and others.
The advantage of the indicator method of Forex trading is its simplicity. Any newcomer can create the simplest trading strategy using indicators. It is enough to simply combine several indicators and open deals when their readings match. As a disadvantage, delayed signals can be noted. Often, a trading system requires additional filters.
Trading with the help of graphical analysis figures is considered one of the best Forex trading methods. Its essence lies in the search for certain graphic formations, the appearance of which implies a certain price behavior in the future. As an example, consider several graphical figures using the Alpari broker trading platform as an example.
The “Triangle” figure implies the expectation of a breakthrough of one of the borders restricting the price movement. It is characterized by rising bottoms from one side. As a drawback of the graphical method, one can note the ambiguity in the interpretation of emerging signals. Many traders find figures of graphical analysis where they simply do not exist.
Indicatorless trading systems
A striking representative of the non-indicator methods of Forex trading is the Price Action strategy. It involves the study of price behavior on a clean chart. It is based on candlestick formations and horizontal levels of support and resistance. The appearance of a candlestick figure at the level is a signal to enter the market. The only drawback of the method is the impossibility of the only correct interpretation of strong signals. However, if a trader learns to correctly determine the moments of entry into the market, he will ensure a stable profit for many years to come.
Popular figures of the Price Action method are Pin-bar and External bar. They are most often found on the market and most often practiced, bringing profit to the trader. Pin bar - a candle with a small body and a long shadow. Entrance to the market is carried out after breaking through a short shadow, if the figure is formed at a strong level. There are also rising peaks on the other. In case of its occurrence, pending orders should be placed on the chart at the borders of the range. When one side breaks through, a pending order on the other should be deleted and put a stop loss at this level.
The Double Top / Bottom figure is a reversal. Its hallmark is the presence of two local maximums or minimums at the same level, which form resistance or support, respectively. The appearance of the figure suggests that the upward or downward movement has already exhausted itself and the pair will soon turn in the opposite direction.