The Science Behind Forex Trading

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The Foreign Exchange (Forex) designates the foreign exchange market, that is to say the place of stock market exchanges where convertible currencies are exchanged according to constantly varying exchange rates. It involves dynamic trading requiring seriousness and rigour. In addition to these capabilities, Forex also involves the use of sometimes complex strategies involving advanced scientific and economic analysis.

There are two kinds of Forex trading: day trading and the long trading. The general approach of day trading is different from scalping short-term and long-term position trading.

In particular, the day trading is a good option if you enjoy market analysis and are willing to spend time planning and monitoring trades during the day. Overall, this style is pretty balanced in terms of the patience and emotional resilience required to do the job well. To learn more about this trading method, it is possible to open an account on Libertex in order to have access to detailed information on the associated risks and benefits.

The different strategies of day trading

Trend Trading (trend trading)

It’s about capitalizing on the various bounces and resistance drops in line with the overall trend, thereby increasing the likelihood of success. Choosing multi-time analysis (choose timeframes from D1 to M30), basic trend indicators and oscillators as well as charting tools like Fibonacci is necessary. Do not forget to draw trend lines: this is the simplest step and yet it must absolutely be respected. These few elements will help to find the moment when the trend will resume and join a rapid upward trend.

Trend trading therefore involves watching for bounces, or trades where the price goes down, and investing immediately once the trend changes and begins to rise. The plan here is to buy at the low point and then sell a few hours later when the currency has risen in value again.

Countertrend trading (counter trend trading)

Price is not always in pro-trend mode when analyzing a daily chart. As a result, in addition to waiting for a trend setup, it is possible to trade on a correction. It is necessary here to master reverse candlestick patterns, oscillators and different techniques that will help to find support/resistance levels and to choose those that are really important.

Chart showing the different reversals that a trend can undergo during its evolution on the markets. © TradingView

Countertrend trading is therefore a strategy that assumes that a certain pattern will reverse; the trader aims to profit from this reversal. Typically, this is best used in medium trades, but it can also be used on an outright basis. day trading if the trader knows what he is doing. Countertrend traders rely on oscillators, indicators, and envelope channels to make decisions, and this is a great option for traders who see strong potential in reversing a pattern.

Breakout trading (breakout trading)

In pursuing this approach, one should focus on the most important price levels and initiate a trade when the price exceeds them. Knowledge of S&R levels and their significance is an essential parameter in this strategy. In addition, it is necessary to know how to distinguish a true break from a false one. Finally, as intraday breakouts are often linked to news, it is necessary to stay on top of the situation at a moment’s notice. you and monitor the economic calendar.

This strategy is therefore ideal for day traders because it involves taking a position with a trade in its early stages. Traders usually buy a stock or currency after looking at its resistance and support levels. They are therefore most often wise investments. Once the stock or currency finally takes off, that’s when there’s a profit to be made.

Case-specific risk management

Each approach requires disciplined risk management with some differences in each case. For example, breakout trading will require tighter stops and greater reward relative to risk. There are many indicators and technical tools that will come in handy during the day trading. THE TR (Average True Range) will display the size of a typical price move over a given time frame and alert to rising volatility.

The moving averages will provide much needed dynamic support and resistance levels (applying a 200, 100 and 50 period SMA for this purpose). Pivot and Fibonacci points will help place the price position in a trend or relative to the previous price move. Oscillators will let you know when the market is overbought/oversold/diverges from an indicator so you can make a decision to not continue the current move or trade against it.

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