The Technical-Trading Strategy Tutorial

Talking Points:

  • Traders should look to match the strategy being traded to the prevailing market condition.

  • Traders can use multiple time frame analysis to get a ‘bigger picture’ look at a market’s condition

  • We include tips and sample trend, range, and breakout-related strategies

There are many different ways to embark upon the art of speculation.

Technical Analysis takes on key importance in the currency market; where leverage allows traders to greatly amplify the gains or losses of the underlying currency pair. Technical Analysis can help traders diagnose the prevailing trend (if there is any), identify support and resistance levels, and institute risk management strategies.

In this article, we’re going to delve into the topic of technical trading strategies.

Go With the Flow – Match the Strategy to the Condition

In The Life Cycle of Markets, we showed you how markets will generally display one of three primary market conditions.

The Life Cycle of Markets

The_Technical_Trading_Strategy_Tutorial_body_Picture_3.png, The Technical-Trading Strategy Tutorial
The_Technical_Trading_Strategy_Tutorial_body_Picture_3.png, The Technical-Trading Strategy Tutorial

Created with Marketscope/Trading Station II; prepared by James Stanley

Each of these three conditions varies greatly in how prices will move, and traders are often best-served by matching the appropriate strategy with the prevailing condition.

In the article How to Direct Your Strategy Based on Market Condition, we taught traders how they can use a combination of multiple time frame analysis, and an indicator like ADX to help determine the ‘bigger picture’ market condition.

Traders can use the longer-term chart to determine the type of strategy to utilize given the ‘bigger picture,’ of a particular market. And the shorter time frame can be used to implement and execute the strategy.

Trends

Trends will show up when there is a bias in the marketplace. And trends will rarely form in a straight-line up or down on the chart; more normally a trend will show as a series of ‘higher-highs’ and ‘higher-lows,’ on the chart (in the case of an up-trend); or ‘lower-lows,’ and ‘lower-highs,’ in the case of a down-trend.

Traders should look to buy up-trends cheaply, and sell down-trends expensively

The_Technical_Trading_Strategy_Tutorial_body_Picture_2.png, The Technical-Trading Strategy Tutorial
The_Technical_Trading_Strategy_Tutorial_body_Picture_2.png, The Technical-Trading Strategy Tutorial

Image taken from Using Price Action to Trade Trends

We covered the topic of trading trends in the article, How to Build and Trade a Trend-Following Strategy. The goal of the trader when trading with a trend is to buy up-trends cheaply, while selling down-trends expensively. What constitutes ‘cheap’ or ‘expensive’ is what varies from trend-strategy to trend-strategy.

Traders can trade trends using price and price alone, and we discussed this premise in the article, Using Price Action to Trade Trends. Or, if traders want to introduce an indicator to make the timing of the entry more objective, Price Action can be used to read the trend on the longer time frame chart, and an indicator like RSI can be used to trigger positions in the direction of that trend. We discussed this type of strategy in-depth in the article, Price Action with RSI.