Saturday December 31, 2016 - 14:35:27 GMT
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Two trading strategies in the forex market
There are many different ways of trading the financial instruments. Some professional traders’ uses indicators and EAs and some use raw price action data and chart patterns in order to make a decent profit. In this article, we will discuss two important trading strategies which will help you to enhance your trading performance to a great extent. So let’s begin our journey.
Fibonacci retracement level and technical analysis
Fibonacci is one of the most favorite tools used by many technical traders. Generally, long-term technical traders prefer using this tool since the average holding period of the trade taken by “Fibonacci Retracement” strategy is more than one day. This strategy can be extremely profitable if executed properly.
Advantage of using Fibonacci retracement tools in the technical analysis
- 1. Help to identify the current trend.
- 2. Recent Swing high and swing low can easily be pointed out.
It is one of the most widely used tools used in the technical analysis of any pair. The most significant retracement area of this tools is 38.2%, 50%, and 61.8%.Fibonacci retracement level should be drawn from the most recent “swing Low to swing High” for uptrend and for down trend “swing High to swing Low.”
Figure: Fibonacci retracement level in an uptrend
Here the market formed reliable tweezers bottom candlestick pattern on the 50 % level of Fibonacci retracement. So it’s a “buying opportunity” for Fibonacci trader. Basically, trader looks for price action confirmation pattern on this important level to take the trade.
Most of the Fibonacci trader prefer higher time frame to trade with Fibonacci levels. In the above example, Fibonacci retracement level was drawn from the most recent swing low to swing high. Traders then wait for the market to retrace back to the important Fibonacci levels.
Stop loss and take profit
There are two ways to place a stop loss in Fibonacci trading. Those who are more concerned about their investment should put their stop loss just below the tweezers bottom or the decision-making candlestick pattern. Those who consider weekly time frame to identify the trading signal can put their stop loss just below the 61.8% retracement level.
The “potential profit” of Fibonacci trading is extremely high. Look for a risk reward ratio of at least 1:3 when you trade this important level. Make sure you book half of your profit when it shows enough momentum in trend.
Chart pattern trading strategy
There are many different kinds of chart patterns that the traders use in their technical analysis section. Chart pattern trading is very much profitable when it is done with price action confirmation. Let’s see an example of technical trading strategy with double bottom chart pattern
The double bottom chart pattern is bullish reversal chart pattern. This chart pattern indicates that the prevailing bearish trend is losing its momentum and a new uptrend is going to rule the market. This type of pattern is usually formed after a long decisive move in the market. Professional traders use this chart pattern to ride the new bullish trend from the very beginning of the reversal. Since trading, the double bottom pattern is a counter trend technique, price action confirmation is required when trading with this technical analysis.
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