In this article we are going to talk about a simple trading strategy based on the RSI oscillator and three moving averages (SMA and EMA). This strategy will also help us understand how the RSI, one of the most powerful technical indicators, works.
This is a relatively simple scalping strategy designed to operate in 5-minute time frames in the most liquid currency pairs (EUR/USD, USD/JPY and GBP/USD).
As we said in our previous article, we can classify trading systems into two groups: those based on models and those based on exploitation or data mining.
In this article we will discuss in detail the systems of the first type, defined as those who propose a model to represent the behavior of the market and from it, try to get benefits.
The algorithms that are part of this group are usually very simple in terms of the rules they use, although its development is usually relatively complex depending on the algorithm. The starting point of the models used for this type of strategy is the detection of a market inefficiency we want to exploit. Inefficiency produces an anomaly or a pattern on the price that can be described using a mathematical model that allows us to predict to some extent where the price will be in the next period based on a function based on historical price information.Let’s look at some of the most common strategies based on models.
Although you probably have already noticed it, the trading systems are evolving and becoming increasingly technical. As you can imagine, some professional traders recommend to make a qualitative leap and try to convince once and for all that the use of trend lines, price chart patterns and obsolete oscillators in the same way that comes in thousands of books it is not exactly the best approach to winning in trading. I know this is a very broad and intense debate and that many people are not quite agree, but I plan to present new ways of seeing trading that might be interesting for some.
That said, we will introduce a new way of looking at trading systems. And for this let us first reformulate their classification. Typically, systems classify roughly in the classical groups of trend followers, countertrend and pattern-based. But today I propose a completely different alternative to any other classification that you may have seen.
Considering how a system is developed, we can establish two groups of trading systems: trading systems based on models and trading systems based on exploitation (mining) of data. We will describe these groups in detail.
The dangers of averaging down in Forex It’s funny, but when you look for the term averaging down to talk about speculation, all you read are negative comments. Most traders say that averaging down is a really bad idea and the path to lose all your money in the trading account. When we talk about investing in stocks, it is … Read more
Rob Booker is one of the most respected Forex traders in the world, with a lot of history behind him. The Forex strategy that I am going to present today is the system of Rob Booker, denominated Arizona System.
Rob, as all traders is evolving, and currently does not use this system, he is currently promoting his Trifecta system, but we must not forget that with this system he managed to convert $2500 in $100000, which means that this system is no so bad.
When a trader designs a Forex strategy, he does this to take advantage of a market anomaly, which usually gives us an advantage, and consequently benefits for our trading account.
This is not a usual strategy, I would consider it a trading system which joins several strategies under the same idea: define what is really happening in the market, and consequently, to act.
The market has two basic trends, bullish and bearish. There are also markets without a definite trend, where there is a lateral movement, which can be consolidation, accumulation, or distribution, but there are another times in the market, in which we really have no idea what is happening and there are not many opportunities for the trader. Rob intends to find and define through indicators, at what time we are in the market, and act using a Trading technique, or a different Trading strategy.
Continuing with simplicity in concepts and strategies, we will present some simple trading methods. These are certain methods for long-term trends following.
As a historical note about this type of methods, we can say that they have been there since “the origin of time” and, if they have not disappeared is for something and is that simple and effective trading methods endure in time unlike others, much more Sophisticated and complicated, that stop working and disappear.
Forex Drawdown of a trading system is defined as the distance between the maximum and the minimum in the equity of a period, ie it is the worst streak of losses from the last maximum until it is exceeded by the next maximum. It is very common to speak of the maximum or historical Drawdown that is the worst streak of losses occurred during the entire trading period.
It can also refer to a decrease in the balance of a trading account.
For example, if you have an account with 5000 USD and you lose 1000, your account will have 4000 having suffered a drawdown of 20%. Knowing the drawdown suffered in a trading account is an important part of controlling risk. Traders will normally have a maximum drawdown limit that they are willing to assume in their trading plan.
Let’s look at a small example in the currency pair EUR/USD:
Today we will present a strategy that requires mainly time. This is a 1 minute Forex scalping strategy. As its name implies, it is designed to perform quick transactions to achieve a series of small gains, which in the end add up and accumulate a big profit.
This technique is ideal for Forex beginners because of its simplicity. Read on to learn how to implement it.
Before explaining the strategy, it is worth remembering the concept of “scalping” in Forex trading. Scalping refers to a trading style in which many trades are made in a very short period of time. The goal of this style is to get a few pips of profit and get out of the market quickly.
Due to the short duration of its trades, scalping is a style that develops at a dizzying speed. However, for the same reason, it does not use many indicators or fundamental analysis, which makes it perfect for beginners. In scalping strategies traders usually perform hundreds of trades per day, making it a time-consuming style.
The trading techniques based on breakouts are very popular because they are quite profitable and can be used to trade in any market. Many traders know the fact that after the price get caught into an area of consolidation a breakout usually occurs by which the price make a violent and extensive movement outside the area where it was consolidated.
These movements could be so strong that a trader can obtain high profits if enters the market in the right direction. However, the problem is that in many cases the traders who jump when there is what appears is a breakout realize the fact that the price returns to the area of consolidation and ends losing money. This is known as a fakeout or false breakout.
In fact, the fakeouts are so common that many investors trade and make money with strategies based on false breakouts. Therefore, in this article we will show the basic way to trade false breakouts.
