To be a successful FOREX trader you need a trading strategy. There is no one set
strategy that is good for all traders; rather, each trader needs to develop his or her
individual approach to the FOREX. Some traders rely solely on technical analysis while
others prefer fundamental analysis, but many successful FOREX traders use a
combination of both to get a broad overview of the market and for plotting entry and exit
points.
Technical analysis relies on one key concept: Prices move by trends. The common
saying in FOREX is 'The trend is your friend.' Market movements have identifiable
patterns that have been studied over many years and a thorough understanding of these
trends and how they can be read forms the basis of a good trading strategy.
There are many analytical tools available to understand market movements. The
beginner FOREX trader is well advised to study each one separately for getting a working
knowledge of their concepts and application. Once one has been understood, keep on
using it while studying others. Each tool tends to reinforce the others.
Support and resistance levels are used in many FOREX trading strategies. 'Support'
refers to the price level that is repeatedly seen as the bottom – when the price reaches
this level it tends to rise. Resistance levels are upper prices that the currency rarely
trades beyond. Support and resistance levels contain price movements for a period of
time.
When currency prices break through support or resistance levels, the prices are expected
to continue in that direction. For example, if the price rises above the previous resistance
level, it is seen as bullish – the price should continue to rise.
To find support and resistance levels, price charts need to be analyzed for unbroken
support and resistance levels. Charts can be analyzed in any time frame; however longer
time frames establish more important support/resistance levels. Traders can use
support/resistance levels to determine when to enter or exit a transaction.
Moving averages are another common tool in FOREX trading strategies. The simple
moving average (SMA) shows the average price in a given period of time over a specified
period of time. Moving averages serve to eliminate short term price fluctuations giving a
clearer picture of price movements. FOREX traders can plot a SMA to determine when
prices have a tendency to rise or fall. If prices cross above the SMA they have a
tendency to keep on rising. Conversely, prices below the SMA have a tendency to
continue their downward motion.
These are two examples of trading strategies that can be used individually or in
combination. In practice, the FOREX trader should have a repertoire of trading tools to
examine market conditions and to support the findings of one study or another. If several
indicators show that the market is moving in a particular direction the trader can act with
more assurance than when relying on a single indicator.
Similarly, fundamental analysis can be used to reinforce technical findings, or vice versa.
Ideally, the FOREX trader will take several indicators into account when plotting a trading
strategy.
Every trading strategy should provide clear guidelines about when to enter a trade, what
to expect in terms of market movement, when to exit a trade, and how much loss can be
accepted in case the deal moves against the trader. Following these simple guidelines
and learning about technical analysis can help you become a successful FOREX trader.
strategy that is good for all traders; rather, each trader needs to develop his or her
individual approach to the FOREX. Some traders rely solely on technical analysis while
others prefer fundamental analysis, but many successful FOREX traders use a
combination of both to get a broad overview of the market and for plotting entry and exit
points.
Technical analysis relies on one key concept: Prices move by trends. The common
saying in FOREX is 'The trend is your friend.' Market movements have identifiable
patterns that have been studied over many years and a thorough understanding of these
trends and how they can be read forms the basis of a good trading strategy.
There are many analytical tools available to understand market movements. The
beginner FOREX trader is well advised to study each one separately for getting a working
knowledge of their concepts and application. Once one has been understood, keep on
using it while studying others. Each tool tends to reinforce the others.
Support and resistance levels are used in many FOREX trading strategies. 'Support'
refers to the price level that is repeatedly seen as the bottom – when the price reaches
this level it tends to rise. Resistance levels are upper prices that the currency rarely
trades beyond. Support and resistance levels contain price movements for a period of
time.
When currency prices break through support or resistance levels, the prices are expected
to continue in that direction. For example, if the price rises above the previous resistance
level, it is seen as bullish – the price should continue to rise.
To find support and resistance levels, price charts need to be analyzed for unbroken
support and resistance levels. Charts can be analyzed in any time frame; however longer
time frames establish more important support/resistance levels. Traders can use
support/resistance levels to determine when to enter or exit a transaction.
Moving averages are another common tool in FOREX trading strategies. The simple
moving average (SMA) shows the average price in a given period of time over a specified
period of time. Moving averages serve to eliminate short term price fluctuations giving a
clearer picture of price movements. FOREX traders can plot a SMA to determine when
prices have a tendency to rise or fall. If prices cross above the SMA they have a
tendency to keep on rising. Conversely, prices below the SMA have a tendency to
continue their downward motion.
These are two examples of trading strategies that can be used individually or in
combination. In practice, the FOREX trader should have a repertoire of trading tools to
examine market conditions and to support the findings of one study or another. If several
indicators show that the market is moving in a particular direction the trader can act with
more assurance than when relying on a single indicator.
Similarly, fundamental analysis can be used to reinforce technical findings, or vice versa.
Ideally, the FOREX trader will take several indicators into account when plotting a trading
strategy.
Every trading strategy should provide clear guidelines about when to enter a trade, what
to expect in terms of market movement, when to exit a trade, and how much loss can be
accepted in case the deal moves against the trader. Following these simple guidelines
and learning about technical analysis can help you become a successful FOREX trader.
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