When Forex Claims Are Denied: Strategies For Success In Belgium – What are the best Forex trading strategies? This is, of course, a question I get asked many times a day and it is a very important one. When you start trading, you must commit to a particular trading strategy and then focus all your attention and energy on making it work. Most traders never do that and then fall victim to system hopping. In this guide, I will explain the differences between the different types of strategies, what their premise is, when they work best, and what you should know when choosing a particular forex trading strategy. We will cover the following trading strategies: #1 Trend Following #2 Pullbacks #3 Reversals #4 Fakes (#5 Macro) As you will see, each strategy and trading style attempts to capture different market behavior. This will also be one of the main points because I firmly believe in specialization. Instead of trying to trade all the time, you should choose a specific market behavior and then try to become the best at it. #1 Trend Following Trading Strategies Trend following is the approach that 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 trading style where the trader has to wait for a trend to establish before he can jump into the market. Therefore, trend following traders will have to wait patiently until a real trend is obvious. The screenshot below shows the part of a market move that is typically captured by trend-following traders. Red areas highlight market turning points and blue areas are trend following phases. Many fans make the mistake of wanting to predict a new trend before it exists and jumping in too early. Those traders, although they think they are trend traders, are actually reversal traders. So there is also a difference between early and late trend following. Since trend following traders must wait until a trend is confirmed, the question that arises is: when is a trend confirmed? Traders who follow early trends try to enter a new trend as soon as possible, which can result in arriving too early and encountering a false signal. The advantage is that the potential reward/risk ratio is much higher. Late trend traders await further confirmation. Of course, it may happen that they are too late, but their signals are usually stronger. The downside 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, STOCHASTIC is plotted and one way to enter the trend after trades is to wait until STOCHASTIC has reached the lower or upper area. Many traders make the mistake and believe that this may indicate a reversal, which is absolutely incorrect. A very high or very low STOCHASTIC indicates a strong trend. Of course, moving averages are another popular tool for following trends. Two moving averages work perfectly as a crossover signal in the screenshot below. Every time the moving averages cross, a new trend starts. The best thing about this crossover system is that traders automatically avoid selecting highs and lows 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 occurs when price breaks out of the “cloud” while the two Ichimoku lines move in the same direction. #2Retracement Trading Strategies Pullbacks are a different type of trend after trading. Retracement traders look for an established trend and trade in 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 where the price moved sideways or against the direction of the trend. The price usually moves in those waves up and down and a retracement trader uses this feature to time his trades. A retracement trader waits for the price to continue in the direction of a trend or even places trades when the market goes down. The danger of the second approach is that the pullback will not be reversed. But the advantage is that the reward/risk ratio could be higher. A market does not always provide a pullback. The example on the left shows a market where the price simply fell but never retreated. The second and third phases had multiple pullbacks and offered good entry opportunities for pullback traders. As you can already see, retracement and trend following trading overlap a lot and the trend following trader often also trades retracements as a natural progression. Of course, there are many different ways retracements can form on your charts. In the screenshot below, there are 3 examples. Double Retracement The price returned to the level 2 times before continuing the trend. Dirty Retracement The price surpassed the previous high point and made a deeper correction. Immediate Retracement The price stalled at the breakout level and moved sideways for a while before continuing the trend direction. Moving averages are also a popular tool for retracements. When the price is in a trending market and then returns to the moving average, a pullback can be traded. Either the trader trades the price when it reaches the moving average or 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 as pullbacks. In the screenshot below, the price was in a clear downtrend when a head and shoulders formation formed. In such a context, the head and shoulders formation becomes a trend pattern and can be considered as a retracement. 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 trading can also be considered a very early trend after trading. However, it is often 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 opt for the early or mature trend. A reversal trader begins to pay attention to a market once it enters the mature trend stage. This usually occurs once at least 2 or 3 trend waves have formed. The dangers of being a reversal trader are arriving too early and constantly operating with a contrarian mindset. Many failed reversal traders are trying to predict a market turn long before it happens. Greed is driving traders here because they believe that the sooner they get there, the closer they can get to the absolute top/bottom and therefore get a much higher reward/risk ratio. When it comes to reversal tools, divergences are classic confirmation. The RSI divergence shows exhausted trends where the power of the trend is fading. When a mature trend generates 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 reversal tools. I also see myself as a classic reversal or very early trend following trader. I was never comfortable following trends as a trend follower and once I understood that reversals don’t mean predicting reversals before they happen, reversal trading became a “fun” way to trade. #4 Breakout Trading Strategies Breakouts can occur during trend following and also during reversal trades. Breakout periods are usually the link between two trend phases. A breakout describes the departure from a consolidation pattern. Consolidation patterns, as the screenshot below shows, can occur at market inflection points (highs and lows for reversals) or during established trends. The following screenshot illustrates how consolidations and breakouts are the links between two market phases. Consolidation can occur at market turning points and breakouts are then signals of trend change. If consolidation occurs during an established trend, a breakout produces a trend following signal. This screenshot below highlights this feature once again and it is obvious how breakouts connect the different phases of the market. As a trader, it is usually best to choose a specific type of breakout. Trying to trade all the breakouts can lead to poor results and confusion because each phase of the market 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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