For a trader to be able to fully take advantage of the potential of the trend line strategy, he first has to be able to correctly draw trend lines.
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To draw a trend line, you need at least two points. If a trader wants to draw a trend line for an upward trend, the market has to create at least two swing lows. For a downward trend, the market has to offer at least two swing highs. See the graphic explanation of how an upward trend line is drawn:.
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For some traders, it might be easier to draw a trend line on a line chart like on the picture above , where the swing points are marked and connected with a trend line. We can also switch to a candlestick or a different type of chart and draw a parallel line yellow in this case , starting at the first swing low. When the price hits the trend line, we can either sell or buy depending on whether the trend line is marking an upward or a downward trend. This strategy can be used with various time frames, even instruments. Visual representation of the illustrative potential trading opportunity: 1 Drawing a blue trend line explained above.
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Buying rules: Drawing an upward trend line — using at least two lows more lows show a stronger trend and theoretically also higher validity of the trend line. The main assumptions on which fading strategy is based are:. The main concept of the Daily Pivot Trading strategy is to buy at the lowest price of the day and sell at the highest price of the day. Momentum trading is based on finding the strongest security which is also likely to trade the highest. The Momentum trading strategy is based on the concept that an existing trend is likely to continue rather than reverse.
Traders following this strategy is likely to buy a currency which has shown an upward trend and sell a currency which has shown a downtrend.
Carry trade is a strategy in which traders borrow a currency in a low interest country, converts it into a currency in a high interest rate country and invests it in high grade debt securities of that country. The principle is simple- buy a currency whose interest rate is expected to go up and sell the currency whose interest rate is expected to go down. Hedging is commonly understood as a strategy which protects investors from incidence which can cause certain losses. The idea behind currency hedging is to buy a currency and sell another in the confidence that the losses on one trade will be offset by the profits made on another trade.
This strategy works most proficiently when the currencies are negatively correlated. Portfolio trading, also known as basket trading, is based on the mixture of different assets belonging to different financial markets Forex, stock, futures, etc. The concept is diversification, one of the most popular means of risk reduction.
The Buy and hold strategy is a type of investment and trading traders buy the security and holds it for an extended period of time. Pair trading spread trading is the simultaneous buying and selling of two financial instruments which relate to each other. The difference of the price changes of these two instruments makes the trading profit or loss.
Spread trading can be of two types:. Swing traders use a set of mathematically based rules to eliminate the emotional aspect of trading and make an intensive analysis. A false break occurs when price looks to breakout of a support or resistance level, but snaps back in the other direction, false breaking a large portion of the market out. When prices begin to breakout higher a large portion of the market starts to look for the resistance to break and will enter long trades, often setting their stop loss on the other side of the resistance.
This style of trading is normally carried out on the daily, weekly and monthly charts. As a position trader, traders will often be trying to use the overall larger trend to gain the best positions and capture long running trades.
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When the wick is longer than the body, Traders will know that the market is deceiving them and that they should trade in the opposite way. This is a short-term strategy based on price action and resistance. The trade is planned on a 5-minute chart. How to profit?
Choose an asset and watch the market until you see the first red bar. Then wait for a second red bar.
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Usually, what happens is that the third bar will go even lower than the second bar. This is the point where you should open a short position. A few more tips that are great to follow in your forex journey include:. Get Started!
Trading it’s not about buying low and selling high. It’s about buying high and selling higher
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The […]. All data is delayed by at least 15 minutes. Download Free ebook PDF. Skip to content Search. Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. Forex trading involves risk. Losses can exceed deposits. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading.
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