Long-term Investment Strategies For Mexican Forex Traders
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A forex trading strategy defines the system a forex trader uses to determine when to buy or sell a currency pair. There are various forex strategies that traders can use, including technical analysis or fundamental analysis. A good Forex trading strategy allows the trader to analyze the market and execute trades with sound risk management techniques.
Forex strategies can be divided into separate organizational structures that help traders find the most suitable strategy. The diagram below shows how each strategy fits into the overall structure and the relationship between forex strategies.
Forex trading requires combining several factors to form a trading strategy that works for you. There are countless strategies that can be followed, but it is important to understand and be comfortable with the strategy. Each trader has his own goals and resources, which should be taken into account when choosing an appropriate strategy.
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In order to easily compare Forex strategies according to the three criteria, we have arranged them in a bubble chart. Strategies at the top of the “Risk-Reward Ratio” graph on the vertical axis have a higher reward for the risk taken on each trade. Position trading is usually the strategy with the highest level of risk. On the horizontal axis is the time investment that shows how long it takes to actively track trades. The most demanding strategy in terms of your time resource is scalp trading due to the high frequency of regular trades.
Price action trading involves studying historical prices to formulate technical trading strategies. Price action can be used as an independent technique or in conjunction with an indicator. Basics are rarely used; however, it is not out of the question to include economic events as the underlying factor. As mentioned above, there are several other strategies that fall into price action brackets.
Price trading can be used in different time frames (long, medium and short). The ability to use multiple time frames for analysis is appreciated by many price traders.
Price action includes range, trend, day, scalping, swing and position trading. These strategies correspond to different forms of trading requirements, which are detailed below. The examples show different ways to trade these strategies as well as the different orders traders can choose to show how varied trading can be.
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Start date: Live now: 28 November ( 03:11 GMT ) Stay up to date with current trading analysis using price action.
Trading ranges involve identifying support and resistance points where traders will trade around these key levels. This strategy works well in the market without significant volatility and without a significant trend. Technical analysis is the main tool used in this strategy.
There is no set length for each trade, as range bound strategies can work on any time frame. Risk management is an integral part of this approach, as disruptions can occur. Thus, a range trader will want to close positions tied to any current range.
Oscillators are most commonly used as timing devices. The Relative Strength Index (RSI), Commodity Channel Index (CCI), and Stochastics are some of the most popular oscillators. Price action is sometimes used in conjunction with oscillators to confirm range-bound signals or breakouts.
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USD/JPY has been showing a long-term price range for the past few years. The chart above shows the exact support and resistance lines that traders use as entry/exit points. The RSI oscillator shows the timing of entry/exit points highlighted by shaded blue and red boxes – blue: overbought and red: oversold.
Trading ranges can result in effective risk-reward ratios, but this comes with a long-term investment for each trade. Use the pros and cons below to align your goals as a trader and how many resources you have.
Trend trading is a simple forex strategy used by many traders of all experience levels. Trend trading tries to make a positive profit by taking advantage of the directional momentum of the market.
Trend trading is usually done on medium to long-term time frames because the trends themselves vary in length. As with price action, trend trading can analyze multiple timeframes.
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Entry points are usually determined by an oscillator (RSI, CCI, etc.) and exit points are calculated based on a positive risk-reward ratio. By using stop-level distances, traders can match or exceed this distance to maintain a positive risk-reward ratio, e.g. If the stop level is 50 pips away, the take profit level is set 50 pips or more away from the entry point.
In the simple example above, EUR/USD shows an uptrend confirmed by high highs and high lows. The opposite is true for a downtrend.
When you see a strong trend in the market, trade it in the direction of the trend. For example, EUR/USD has a strong uptrend above.
Using (CCI) as a time entry tool, notice how prices responded with a rally every time the CCI dropped below -100 (highlighted in blue). Not all trades go this way, but since the trend is being followed, each decline has brought more buyers into the market and pushed prices higher. In conclusion, identifying a strong trend is essential to an effective trend trading strategy.
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Trend trading can take a lot of work considering many variables. A list of pros and cons will help you decide if trend trading is right for you.
Position trading is a long-term strategy that focuses mainly on fundamentals, but technical methods such as Elliott Wave Theory can also be used. This strategy ignores smaller changes in the market as they do not affect the larger market picture. This strategy can be used in all markets from stocks to forex.
As mentioned above, position trading has a long-term perspective (weeks, months or even years!). When forecasting trading ideas, it is important to understand how economic factors affect markets or detailed technical trends.
Key levels (weekly/monthly) of longer time charts are valuable information for position traders due to their comprehensive view of the market. Entry and exit points can be evaluated using technical analysis in accordance with other strategies.
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The Germany 40 chart above depicts a roughly two-year head and shoulders pattern, which may drop below the neckline (horizontal red line) after the right-hand shoulder. In this selected example, Germany’s 30 down play played out technically and basically as planned. Towards the end of 2018, Germany experienced a technical recession with the US/China trade war hurting the automotive industry. Brexit negotiations have not helped, as the prospect of the UK leaving the EU could also have a negative impact on the German economy. In this case, understanding technical patterns as well as having strong fundamentals allowed me to combine technical and fundamental analysis to formulate a strong trading idea.
A list of pros and cons based on your goals as a trader and how many resources you have.
Day trading is a strategy designed to trade financial instruments on the same trading day. That is, all positions are closed before the market closes. It can be one trade or multiple trades during the day.
Trading times range from very short-term (a matter of minutes) or short-term (hours) if the trade is opened and closed within a trading day.
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Traders in the example below would look to enter positions when price crosses the 8-period EMA in the direction of the trend (blue circle) and exit using a 1:1 risk-reward ratio.
The chart above shows a representative daily trading setup using moving averages
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