The 3 Fundamental Forex Trading Strategies
You're probably confused as hell about what to do, where to start, which program to use, which indicator to incorporate, etc. This article will clarify on Forex Trading 101.
Trend Following
Trend following is the most common type of Forex trading, because when a trend is present, it means that most of the traders - the market participants - are agreeing on whether to buy or sell.
Trend following, to a certain extent, means going with the crowd. If the market is rising most of the time, you'll have an easier time riding the market's waves. What's so good about this trading method? First, the accuracy, the probability of you making a winning trade, is higher. You won't have to make too many trades, but you'll make plenty of profit.
Of course, you'll still have to know the exact rules of when and how to enter and exit. But here some tips:
Trend Following Entry/Exit Tips:
1. When the trend is up, enter on support. Look for buying at specific levels.
2. Place a trailing stop loss beneath the most recent lows to really milk out the profits.
That's a basic summary of trend following. Let's look at the next trading strategy.
Fading
The second type of trading is called fading. Fading means going the opposite direction of the market. Sometimes you can sell into strength, or buy into weakness. This is basically bottom and top picking. So what's the good thing about fading?
The first obvious advantage is that when your trade is a winner, the rewards are significantly bigger. For example, if the reward to risk ratio was 8:1, you could've had 7 losing trades but still come out net positive. Keep in mind that your system still needs an edge; you can't just gamble and hope for the best. Do your homework!
A few price action triggers include a doji and a close below the recent low or above the recent high. Fading is very a different trading style from trend following. Now let's discuss the last forex trading strategy.
Breakout Method
All you have to remember regarding the breakout method is the keyword "breach": you enter whenever the market breaches the highest high or the lowest low. This can be the 52 week high/low or even the 20 day high/low, it's up to you. Next, you'll need to determine how you will exit your trades.
So what's the difference between trend following and breakout trading? Ok, they might seem pretty similar, and they kind of are. The key difference is the entry. With breakout trading, you enter with the breach of a prior high or low. With trend following, a breach doesn't have to occur, but rather you can enter on a dip.
So Now What?
That last paragraph brings up another important point. You can trade however you want. These trading styles are just to expose you to different ideas. Of course, if you want to, you can follow the trend and enter on a breach on only the trend's side. You can use whatever combination that suites you.
Trend Following
Trend following is the most common type of Forex trading, because when a trend is present, it means that most of the traders - the market participants - are agreeing on whether to buy or sell.
Trend following, to a certain extent, means going with the crowd. If the market is rising most of the time, you'll have an easier time riding the market's waves. What's so good about this trading method? First, the accuracy, the probability of you making a winning trade, is higher. You won't have to make too many trades, but you'll make plenty of profit.
Of course, you'll still have to know the exact rules of when and how to enter and exit. But here some tips:
Trend Following Entry/Exit Tips:
1. When the trend is up, enter on support. Look for buying at specific levels.
2. Place a trailing stop loss beneath the most recent lows to really milk out the profits.
That's a basic summary of trend following. Let's look at the next trading strategy.
Fading
The second type of trading is called fading. Fading means going the opposite direction of the market. Sometimes you can sell into strength, or buy into weakness. This is basically bottom and top picking. So what's the good thing about fading?
The first obvious advantage is that when your trade is a winner, the rewards are significantly bigger. For example, if the reward to risk ratio was 8:1, you could've had 7 losing trades but still come out net positive. Keep in mind that your system still needs an edge; you can't just gamble and hope for the best. Do your homework!
A few price action triggers include a doji and a close below the recent low or above the recent high. Fading is very a different trading style from trend following. Now let's discuss the last forex trading strategy.
Breakout Method
All you have to remember regarding the breakout method is the keyword "breach": you enter whenever the market breaches the highest high or the lowest low. This can be the 52 week high/low or even the 20 day high/low, it's up to you. Next, you'll need to determine how you will exit your trades.
So what's the difference between trend following and breakout trading? Ok, they might seem pretty similar, and they kind of are. The key difference is the entry. With breakout trading, you enter with the breach of a prior high or low. With trend following, a breach doesn't have to occur, but rather you can enter on a dip.
So Now What?
That last paragraph brings up another important point. You can trade however you want. These trading styles are just to expose you to different ideas. Of course, if you want to, you can follow the trend and enter on a breach on only the trend's side. You can use whatever combination that suites you.
About the Author:
But if you're somewhat stuck on what system you should use, explore my Forex and Online Income website. It's compiled most of today's different forex trading systems and strategies. A safe start would be this complete discretionary trading system
posted by Credit Counseling at
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