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Forex (FX) traders use a whole plethora of strategies and techniques, with the aim of capitalizing on the markets. The element that separates the FX markets from the likes of commodities, bonds and indices is that FX trades in pairs. The fact that currencies are traded against each other, rather than at an individual value, means that there is typically less of an innate long-term underlying trend. On one side, certain markets like indices, and more recently the likes of bitcoin, have shown that it pays to typically long the market, given the long-term uptrend. On the other side, the FX market is a true two-way market, pitching one currency against another. As such, it makes more sense to look for both long and short trades in the FX market compared with some long orientated markets. This article seeks to highlight three top trading methods utilized by FX traders.
Bollinger band reversion to trend
The Bollinger band is a tool that typically encompasses price action, with the bands widening as volatility increases. The outer bands of the Bollinger often provide the spark to send the price back towards the central 20-period moving average. Put simply, when the price moves outside of the Bollinger band, price is ‘extraordinary’. This means we will either be seeing a breakout, or a move that will be temporary, before the price returns back to the direction it came from. Looking at a market that is trending, it makes sense to look for retracements through the Bollinger band to place positions back in the direction of the trend. As with all indicators, it makes sense to note whether the market has been respecting the Bollinger previously on that timeframe.