Introduction
You receive a signal on your phone: BUY EUR/USD .
Do you ever wonder why ?
Signals are not magic. They are the result of specific trading strategies . A strategy is like a recipe. It tells the analyst exactly which ingredients (indicators) to look for before cooking up a trade.
Understanding these strategies helps you trust the signal. It transforms you from a gambler into an informed trader.
Technical Analysis Strategies (The Chart Watchers)
Most Forex signals come from technical analysis. This method studies past price action to predict the future.
Here are the three most common technical strategies:
A. Trend Following This is the "safest" strategy. The analyst identifies the direction of the market (Up or Down) and signals you to join the ride.
- The Logic: "The trend is your friend."
- Tools Used: Moving Averages (MA), Trendlines.
- The Signal: If the price is above the 50-day Moving Average, the signal is a BUY.
B. Breakout Strategy Prices often get stuck inside a "cage" (a range). When the price finally breaks the bars of the cage, it usually moves fast.
- The Logic: Catch the explosion of volatility.
- Tools Used: Support and Resistance levels.
- The Signal: If the price breaks above a resistance ceiling, the signal is a BUY.
C. Reversal Strategy This is risky but profitable. The analyst tries to catch the exact top or bottom of a movement.
- The Logic: "What goes up must come down."
- Tools Used: RSI (Relative Strength Index), Bollinger Bands.
- The Signal: If the RSI is above 70 (Overbought), the signal is a SELL.
Fundamental Analysis Strategies (The News Watchers)
Some signals are not based on charts at all. They are based on the economic health of a country.
The Economic Calendar Strategy Currencies move when countries release data on jobs, inflation, or interest rates.
- NFP (Non-Farm Payrolls): A strong US jobs report usually boosts the US Dollar.
- Interest Rates: If a Central Bank raises rates, that currency becomes more valuable.
- The Signal: "US Inflation is high -> Fed will raise rates -> SELL EUR/USD."
Sentiment Strategies (The Crowd Watchers)
This strategy looks at what other traders are doing... and often does the opposite.
The Contrarian Approach If 90% of retail traders are buying Gold, a sentiment analyst will sell it.
- The Logic: The majority is usually wrong at major turning points.
- The Signal: Extreme bullish sentiment often signals a market crash is coming.
Manual vs. Automated Strategies
How is the strategy executed?
- Discretionary (Manual): A human expert looks at the chart. They use experience and intuition. They might say, "The chart looks like a Buy, but the news is bad, so I will wait."
- Mechanical (Automated): A robot (Expert Advisor) follows a strict code. If A + B happens, it executes C. It has zero emotion but also zero flexibility.
Conclusion
A signal is only as good as the strategy behind it.
Don't just blindly follow alerts. Ask your provider: "Is this a Trend trade or a Reversal trade?" Knowing the strategy helps you manage your expectations. Trend trades take time; breakout trades happen fast.
Pick the strategy that fits your personality.
