♕ TradingCenter -Trading Strategy Guide
A trade strategy is a method for opening and closing trading positions based on a fixed plan consisting of predefined rules and entry setups. Its goal is to achieve high long-term returns by managing risk through money management (MM) and by reducing the effects of market uncertainty and human emotions.
Introduction to Trade Strategy
Trade strategies are tailored methods for trading specific financial assets. These methods usually combine fundamental and technical analysis while using trading-specific setups to enter and exit the market, along with strict rules and techniques to reduce portfolio risk.
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Combining fundamental and technical analysis
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Balancing potential reward with risk (R/R)
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Using detailed setups to enter and exit the market
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Managing position sizes, stop-loss, and take-profit orders
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Navigating market volatility and uncertainty using a probabilistic framework
TradingCenter's strategy guide begins with Forex, equity, and commodity trading strategies and then moves on to arbitrage and automated trading strategies.
Currency (Forex) Trade Strategies
To trade the Forex market, currency traders primarily employ fundamental analysis, technical analysis, and seasonal statistics. Here is a table featuring leading Forex trading strategies with concepts, timeframes, and tools.
Table: Key Forex Trading Strategies
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FOREX STRATEGIES |
Objectives | Timeframes | Tools / Indicators |
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15 minutes → 4 hours |
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Daily → Weekly |
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Weekly → Monthly |
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1 minute → 1 hour |
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Seconds → 5 minutes |
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Weekly → Monthly |
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Forex Price Action
Price Action is a trading method that reflects the flow of executed orders within a specific time frame. It can be analyzed using empirical methods, but the most reliable approach is technical analysis. What sets Price Action trading apart from other intraday strategies is the use of naked charts with candlesticks, without any indicators or oscillators. Understanding Price Action is essential for intraday Forex trading. There are many methods and tools available for traders who want to interpret daily price movements, including Elliott Waves, candlesticks, Chart Patterns, historical support/resistance, etc.
🔗 More: » The Foreign Exchange Market (Forex) Guide | » Forex Price Action | » Day-Trading | » ECN/STP Forex Brokers
Equity Trade Strategies
Stock investing is a challenging task that involves gathering key information (macro, industry, etc.) and then selecting stocks through careful analysis. Here is a table showing key stock investing and trading strategies with their concepts, timeframes, and tools. The first two are common investing strategies with a long-term horizon, while the last three are common trading strategies with a short-term focus.
Table: Key Equity Trading Strategies
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EQUITY STRATEGIES |
Objectives | Timeframes | Tools / Indicators |
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Weekly → Monthly |
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Weekly |
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Daily → Weekly |
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15 minutes → 1 hour |
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1 minute → 1 hour |
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Other day-trade strategies for trading stocks and indices include:
(1) Momentum Day-Trade Strategy (Trading strong-trending markets)
(2) Trend-Exhaustion Strategy (Trading stocks or indices that tend to move quickly up or down and then reverse direction)
(3) Scalping Day-Trade Strategy (Trading in very short time intervals to earn small profits.)
(4) Short-Selling (Selling the market using short selling, CFDs, or standard options.)
🔗 More: » Introduction to Equity Trading | » Equity Day-Trade Strategies
Commodity Trading Strategies
Commodity markets often move in cycles and usually have a strong correlation with the U.S. dollar but a weak correlation with traditional assets like stocks and bonds. This makes them useful for portfolio diversification and inflation protection. Commodity traders typically combine fundamental analysis with seasonal patterns and technical analysis to decide what and when to trade. Fundamentals guide market direction, while seasonal patterns and technical analysis help with timing entries and exits. Strict risk management is used to protect the principal capital.
Table: Key Strategies for Trading Commodities
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COMMODITY STRATEGIES |
Strategy's Concept | TA Indicators / Other Tools | Commodity Markets & Thesis |
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🔗 More: » Introduction to Commodity Trading | » CFD Brokers
Arbitrage Trade Strategies
Arbitrage trading is an automated strategy that seeks to take advantage of pricing inefficiencies in a financial asset.
What are Arbitrageurs?
Arbitrageurs trade the same asset on two different markets by opening opposite positions—one short and one long. A good arbitrage strategy involves no market risk and provides small, risk-free returns. Arbitrageurs help the market and retail traders by making prices more efficient and adding significant liquidity to the system.
Statistical Arbitrage
Statistical arbitrage is a quantitative strategy used in any financial market. It uses statistical models to spot pricing differences between related securities. This strategy relies on complex math and historical data to detect temporary price deviations. Unlike pure arbitrage, it does not guarantee risk-free profits. Instead, traders accept some probabilistic risk, expecting prices to return to their historical norms.
Cross-Broker Arbitrage Strategies
Two common Cross-Broker Arbitrage Strategies are:
(i) Speed-Arbitrage Strategy
(ii) Hedging Arbitrage Strategy
🔗 More: » More about Arbitrage Trading Strategies
Automated-Trading Strategies
Automated trading is a type of systematic trading that uses computer software and hardware to carry out continuous trading without human intervention. While all automated trading systems are systematic, not all systematic systems are automated.
Basic Assumptions of Automated Trading
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Historical results have some predictive value {Sharpe 1994}
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Financial markets are not perfectly efficient
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Financial markets have finite depth
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Patterns in financial data exist, but only for short periods; opportunities open and close over time
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Financial data are influenced by human psychology and societal decisions, making them random and unstable
Creating Custom Automated Forex Trading Strategies
For those who want to create custom manual or automated strategies but lack programming skills, there is an online application with a user-friendly interface and a wide range of functions.
Functionality
The EA Builder is a fully web-based application that creates automated trading strategies for MetaTrader 4, MetaTrader 5, and TradeStation. It is suitable for all levels of trading experience, including beginners.
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Cost: Free for creating indicators; a USD 97 one-time fee for creating EAs
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Features: Hundreds of built-in functions for technical analysis and money management
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Asset Classes: Works for Forex, equities, commodities, and more
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Output: Produces a compiled file ready to use in MetaTrader 4, MetaTrader 5, and TradeStation
🔗 More: » Automated Forex Trading Strategies | » Compare Forex Robots (EAs) | » EA Builder Free App
■ Trade Strategies Guide
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