Below are the 4 most important advanced forex strategies you should know if you want to trade like an Institution
Price Action Trading Strategies
This Advanced Forex strategy is based on technical analysis. When trading based on technical analysis, there are 2 main styles: trend and countertrend. These strategies focus only on price patterns. If you are new to forex, read about the Basic guide to forex trading for beginners here
The concepts of price patterns include support and resistance.
Support is the market’s tendency to rise from a previously established low i.e. previous low price
XAUUSD Chart – The price of gold found support at 1616
Resistance is the market’s tendency to fall from a previously established high i.e. previously high price
XAUUSD Chart – The price of gold found resistance at 1982
You may wonder why this, market often tends to judge subsequent prices against recent highs and lows. Simply put, buyers are attracted when prices are cheap and sellers are attracted when prices are high and will rather sell to take a profit.
Range Trading Strategy
This is one of the most important advance strategies which includes identifying support and resistance points whereby a trader will place a trade around the key levels identified. This strategy works well when the market is consolidating and without significant volatility. Managing risk is highly important when trading this strategy since the market is consolidating and eventually there will be a breakout from the range. This strategy is best used along indicators such as the Relative Strength Index (RSI) or Stochastics.
XAUUSD Chart – The price of gold ranges between 2012 and 1972
Trend Trading Strategy
This is a simple forex strategy used by position traders and experienced traders.
Sometimes the market will break out of a range, moving below the support or above the resistance to start a trend. For example, when the price breaks below, buyers will start to hold off on buying because they notice the price is dropping and they could buy at a cheaper price.
This can continue until the sell is done and buyers start entering the market again when they confirm the price will not go down further. This creates new support for the price. The period at which price drops will be the new trend.
The above also applies to a buy breakout.
These types of traders exploit a market direction by entering a buy or sell based on the overall market direction. When trend traders identify an uptrend movement, they open a long position, and when the trends reverse, they close it out either in profit or loss. You might have heard the saying “The trend is your friend”. This strategy can improve your winning rate, offer a better risk to reward, and can be applied to any trading instrument
XAUUSD Chart – Price of gold in an upward trend
A candlestick is simply the plot of price over a period of time. For example, a 1-minute candle is a plot of the price fluctuation during a single minute of the trading day.
Similarly, a daily or weekly candle is the culmination of all the trading executions achieved during that day or that week.
A candle stick price action involves pinpointing where the price opened for a period, where the price closed for a period, as well as the price highs and lows for a specific period.
There are 3 specific points (open, close, wicks) used in the creation of a price candle. The first points to consider are the candles’ open and close prices. These points identify where the price of an asset begins and concludes for a selected period and will construct the body of a candle. Each candle depicts the price movement for a certain period that you choose when you look at the chart. If you are looking at a daily chart each individual candle will display the open, close, upper, and lower wick of that day.
A bullish candle is formed when the price at the closing of the candle is higher than the opening. This can be on any time frame: from a 1-minute candle to a 1-month candle. It will all be the same.
Bullish Candlestick Patterns:
|Morning Star||Bullish (Reversal)|
|Bullish Harami||Bullish (Reversal)|
|Piercing Pattern||Bullish (Reversal)|
|Inside Bars||Bullish (Continuation)|
|Long Wicks||Bullish/Bearish (Reversal)|
Bearish Candlestick Patterns:
|Evening Star||Bearish (Reversal)|
|Bearish Engulfing||Bearish (Reversal)|
|Bearish Harami||Bearish (Reversal)|
|Dark Cloud Cover||Bearish (Reversal)|
|Inside Bars||Bearish/Bullish (Continuation)|
|Long Wicks||Bearish/Bullish (Reversal)|
|Shooting Star||Bearish (Reversal)|