Top 5 Forex Trading Strategies For Profitable Trading In Brazil – What are the best Forex trading strategies? Of course, this is a question I am asked many times a day, and it is very important. When you start trading, commit to a specific trading strategy and then focus all your attention and energy on making it work. Most traders never do this and then fall victim to system-hopping. In this guide, I will explain the differences between the different strategy types, what their starting point is, when they work best, and what you need to know when choosing a particular forex trading strategy. We will cover the following trading strategies: #1 Trend Following #2 Pullbacks #3 Reversals #4 Fakeouts (#5 Macro) As you will see, each trading strategy and style tries to capture a different market behavior. This will also be one of the main takeaway points because I am a big believer in specialization. Instead of trying to trade all the time, you should choose a certain market behavior and then try to become the best at it. #1 Trend-Following Trading Strategies Trend-following is the approach most traders experience first, and sayings like “the trend is your friend” have been around for decades. Trend-following, as the name suggests, is a style of trading where the trader must wait for an established trend before he/she can jump into the market. Thus, trend-following traders will have to wait patiently until a real trend is evident. The screenshot below shows the part of a market movement that is typically captured by trend following traders. The red areas highlight the market’s turning points, and the blue areas are the trend-following phases. Many amateurs make the mistake of wanting to predict a new trend before it exists and enter way too early. These traders, although they think they are trend traders, are actually reversal traders. Then there is also a difference between early and late trend following. Since the trend following traders have to wait until a trend has been confirmed, the question that comes up is: when is a trend confirmed? Early trend following traders try to enter a new trend as early as possible, which can result in being too early and running into a false signal. The advantage is that the potential reward/risk ratio is much higher. Late trend traders are waiting for more confirmation. Of course, it can happen that they arrive late, but their signals are often stronger. The trade-off is that the reward/risk ratio is not as high, while the win rate is higher. When it comes to trading tools, a trend-following trader can choose from a wide variety. Momentum indicators such as MACD, RSI or STOCHASTIC are often popular. In the screenshot below the STOCHASTIC is plotted and one way to enter the trend after trades is to wait until the STOCHASTIC has reached the lower or upper area. Many traders make the mistake of thinking that this may signal a reversal, which is completely wrong. A very high or very low STOCHASTIC indicates a strong trend. Of course, moving averages are another popular trend-following tool. Two moving averages work perfectly as a cross-over signal in the screenshot below. Each time the moving averages cross, a new trend is initiated. The great thing about such a cross-over system is that traders automatically stay away from picking tops and bottoms because the moving averages need some time to cross. The Ichimoku indicator is another trend following tool. It is similar to a moving average crossover system, but the premises are different. The classic Ichimoku entry is given when the price breaks out of the “cloud” while the two Ichimoku lines are moving in the same direction. #2Pullback Trading Strategies Pullbacks are another type of post-trade trend. Pullback traders look for an established trend and trade the so-called correction phases. Corrections are price movements in the opposite direction of the underlying trend. In the screenshot below, the market was in an uptrend, and pullbacks (corrections) are the short periods when the price moved sideways or against the direction of the trend. Price usually moves in the ascending and descending waves and a pullback trader uses this characteristic to time his/her trades. A pullback trader either waits for the price to continue in the direction of a trend or even enters trades when the market moves lower. The danger with the second approach is that the withdrawal will not reverse. But the advantage is that the ratio between reward and risk can be greater. A market does not always produce a pullback. The example on the left shows a market where the price just dropped but never made a pullback. The second and third phases had more pullbacks and offered good entry opportunities for pullback traders. As you can already see, retracement and post-trade trend have a lot of overlap, and trend-following traders often also trade retracements as a natural progression. There are of course many different ways that pullbacks can form on your charts. In the screenshot below there are 3 examples. Double pullback The price came back to the level 2 times before continuing the trend. Dirty pullback The price exceeded the previous high and made a deeper correction. Instant pullback The price stalled at the breakout level and moved sideways for a while before resuming the trend direction. Moving averages are also a popular tool for pullbacks. When price is in a trending market and then comes back into the moving average, a pullback can be traded. Either the trader trades the price when it hits the moving average or he/she waits until the price resumes the trend direction. As we will see when we talk about breakout trading, we can also trade so-called price formations like pullbacks. In the screenshot below, the price was in a clear downtrend as a head and shoulders formation formed. In such a context, the head and shoulders formation becomes a trend-following pattern and can be considered a pullback. The lines between pullbacks and trend following are blurred here. #3 Reversal Trading Strategies Reversals are turning points, and a reversal marks the true origin of a new trend. Therefore, reversal trade can also be considered as very early trend after trade. However, it is usually more effective to choose between classic trend following and reversals because each trading approach has its own unique characteristics. The screenshot below shows a chart with different market phases and trend stages. Trend following traders will usually go after the early or mature trend. A reversal trader begins to pay attention to a market when a market enters the mature trend stage. This usually happens when at least 2 or 3 trend waves have formed. The dangers of being a reversal trader are being premature and constantly trading in a contrarian mindset. Many unsuccessful reversal traders try to predict a market reversal before it happens. Greed drives traders here because they believe that the earlier they are, the closer they can get in to the absolute top/bottom and therefore get a much higher reward/risk ratio. When it comes to reversal tools, divergences are the classic confirmation. The RSI divergence shows exhausted trends where trend strength is fading. When a mature trend gives you an RSI divergence, a reversal can often occur. The RSI is usually a trend indicator, but when the RSI shows that a trend is losing strength, it can also work very well as a reversal tool. MACD or STOCHASTIC can also be used as a reversal tool. I also see myself as a classic reversal or very early trend following trader. I was never comfortable chasing trends as a trend follower, and once I understood that reversals do not mean predicting reversals before they happen, reversal trading became a “fun” way to trade. #4 Breakout Trading Strategies Breakouts can happen during trend following and also during reversal trading. Breakout periods are often the connection between two trend phases. A breakout describes the movement away from a consolidation pattern. Consolidation patterns, as the screenshot below shows, can occur at market turning points (tops and bottoms for reversals) or during established trends. The screenshot below illustrates how consolidations and breakouts are the connections between two market phases. Consolidation can occur at market turning points, and breakouts are then trend-reversing signals. If a consolidation occurs below an established trend, a breakout is a trend-following signal. This screenshot below highlights this characteristic once again and it becomes clear how breakouts connect the different market phases. As a trader, it is usually best to choose one particular type of breakout. Trying to trade all breakouts can lead to poor results and confusion because each market phase behaves differently and therefore requires a different set of tools, signals and understanding. Breakout traders are pattern traders, and breakout traders typically look for
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