Simple at Epektibong Diskarte sa Forex (Bahagi 3)

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Winning Trading Strategy - Trend

The capability to understand market trends is fundamental for any financial trader. Fortunately, the following trend strategy is one of the simpler Forex trading strategies. The markets move in the same direction for an extended period of time, but the challenge is the speed and certainty with which a trader can identify a trend, and therefore, be one of the first to jump on the bandwagon.

Step 1 - Setting up the beginner trading strategy

In this trading strategy, a 200 exponential moving average is applied to the hourly chart to help traders differentiate range periods from trending periods. If the candles close near the exponential moving average, the market consolidates; If the price closes relatively far, we will be in the trend where we can open positions.

Step 2 - Entering positions

To go into more details about entry points, we use Bollinger Bands, which are a dynamic standard deviation indicator. In this trading strategy, Bollinger Bands confirm if the market is expanding and help traders identify impulses - the perfect place to enter into a trend.

When the market is in the uptrend, you will see the Bollinger Bands above the 200 exponential moving average, then you can take a buy signal following the contact between the price and the lower Bollinger Band, marking a rejection.

On the contrary, a sell signal is produced when the market is in a downtrend and when the bands are below the exponential moving average. However, the price must also hit the upper band - also indicating a rejection.

Step 3 - Exiting positions

An exit signal for both long and short positions is produced when price hits the opposite Bollinger Band - the upper band for an uptrend and the low band for a downtrend. This allows a trader to exploit trend movements without wasting time on retracements.

This is a good example of a simple Forex trading strategy. However, as with all trading methodologies, it is not rid of weaknesses. Similar to the breakout strategy, this one performs well in a directional market, but conducts losses in a range and consolidate market. Unlike the previous trading strategy, this one is a bit more dynamic when it is for hourly charts.

(To be continued ...)

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