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Strategies and indicators: Types and objectives – ForexLive

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Understanding trading strategies and indicators


What is a trading strategy?

A strategy is a list of
personalized rules that a trader sets for their work. Any strategy is meant for
successful trading.

Main types of trading strategies

All trading strategies can be
divided into short-term and long-term ones.

Short-term (intraday) strategies
include pipsing and scalping. As a rule, they are used on M1 and M5. Both
strategies are based on carrying out a large number of trades in one trading
session. These two strategies are usually considered difficult because they
require considerable strain and cause additional stress to the trader. Trading
news can also be considered a short-term strategy. However, in this case, the
trader makes only one entry a day and, most often, the profit from such a
trading session is locked in by the end of the day. At the base of all these
strategies lies a most simple principle – breaking out the ranges and moving
from the breakout to the width of the range.

Strategies based on price
patterns
(Head and Shoulders, Triangle, Gartley Butterfly, etc.) are normally considered
long-term, though often traders call them mid-term. In such cases, traders
usually work on M15, M30, H1 and hold their positions from a day to a week. The
classical understanding of long-term strategies is long-term investing (from a
month to several years). With such strategies, we normally work on H4 and
higher.

In this post you can find examples of
top-rated trading
strategies
.

What is a Forex indicator?

An indicator is a technical
instrument that allows the trader to find their way in the current market
trend. Practically, it is the trader’s helper in forecasting further
development of the price. Trading platforms feature multiple indicators, and
each trader can pick up the one that suits their style best.

Types of indicators

Popular types of indicators are
trend indicators and oscillators. Trend indicators show the direction of the
developing trend. Oscillators normally reflect the strength of the trend at the
present moment. Such indicators are attached to the price chart of the
instrument, being reflected with it on the screen.

More information about forex
indicators you can find in this post
.

Strategies and indicators

Let us discuss an example of a
strategy that allows for using indicators. In pic. 1, you can see a popular
scalping strategy on M5.

The essence of the strategy is the
analysis of the night price range in the Asian trading session (00:00 till
09:00 terminal time). At the opening of the European session, the market tries
to break out the range, formed at night, from above. At 10:20, it manages to do
so. From the moment of the breakout of 1.1101, an order to sell opens. Take
Profit is set as the width of the range – near 1.1092. Stop Loss is at the
upper border of the range – 1.1111.

The indicator that helped make this
trading decision is a popular trend indicator Moving
Average (MA)
. One MA is used with period 20 (as quick) and the
second one – with period 50 (as slow). If the quick MA crosses the slow one
from above, the trend on the market is descending, and only selling is valid in
this situation.

RBFX2
As we can see in pic. 1, such an
approach will bring you a profit from this order in one hour.

To make the signal more
trustworthy, it is advisable to take into account the values of an oscillator
(such as the MACD). At the moment of the trade at 10:20, the oscillator was
moving below zero directly down, confirming the strength of the trend for a
breakout strictly from above.

RBFX3

Closing thoughts

In this article, we have seen just
one of a great number of strategies that use Forex indicators. All strategies
feature their signals that must be confirmed by a minimum of two pairs of
indicators. The strategy described reflects the author’s opinion and cannot be
taken as guidelines for trading on high-risk financial markets, including
Forex. If this strategy is applied to practice, each trader must realize that
they assume all risks of financial losses.

We wish successful trading to
everyone!

This
article was submitted by Dmitriy Gurkovskiy, Financial Expert and Author
at RoboForex Blog

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