The science behind Forex trading

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The Foreign Exchange (Forex) designates the foreign exchange market, i.e. the place on the stock exchanges where convertible currencies are exchanged at constantly changing exchange rates. It involves dynamic trading that requires seriousness and rigor. In addition to these capabilities, Forex also involves the use of sometimes complex strategies involving advanced scientific and economic analyzes.

There are two types of Forex trading: Trading day and the long trade. The general approach of Trading day it’s different from scalping short and long term position trading.

In particular, the Trading day it’s a good option if you enjoy market analysis and are willing to spend time planning and tracking trades throughout the day. Overall, this style is fairly balanced in terms of the patience and emotional resilience needed to get the job done well. To learn more about this trading method, you can open an account on Libertex to gain access to detailed information on the associated risks and rewards.

The different strategies of Trading day

Trend trading (trend trade)

It involves capitalizing on the various rebounds and drops in resistance in line with the general trend, thus increasing the chances of success. You need to choose multi-time analysis (choose time frames from D1 to M30), trend indicators and basic oscillators, as well as charting tools such as Fibonacci. Don’t forget to draw trend lines: this is the simplest step and yet it must be absolutely respected. These few things will help find the moment when the trend will resume and join a rapid uptrend.

Trend trading therefore involves looking at rebounds, or trades where the price falls, and investing immediately once the trend changes and begins to rise. The plan here is to buy at the lowest point and then sell a few hours later when the currency has again increased in value.

Trading against the trend (trading against the trend)

Price is not always in pro-trend mode when analyzing a daily chart. Consequently, in addition to waiting for the trend to set, 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 the support / resistance levels and to choose the ones that are really important.

Graphique montrant les différentes inversions que peut subir une tendance au cours de son évolution sur les marchés.

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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 is reversed; the trader aims to profit from this reversal. Typically, this is best used in medium exchanges, but it can also be used on a per capita basis. Trading day 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 (breaking trade)

In pursuing this approach, one should focus on the most important price levels and initiate a trade when the price exceeds them. Knowledge of the levels of R&R and their significance is an essential parameter in this strategy. Furthermore, it is necessary to know how to distinguish a true break from a false one. Finally, as intraday breakouts are often news related, you need to be up to date in an instant. t and monitor the economic calendar.

This strategy is therefore ideal for daily traders because it involves taking a stand with an operation in its early stages. Traders usually buy a stock or currency after looking at its resistance and support levels. It is therefore more often than not wise investments. Once the stock or currency finally takes off, that’s when there is a profit to be made.

Risk management specific case

Each approach requires disciplined risk management with some differences in each case. For example, breakout trading will require tighter stops and greater risk reward. There are many indicators and technical tools that will come in handy during the Trading day. THE TR (Real average range) will display the extent of a typical price movement over a specified period of time and warn of increased volatility.

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

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