Forex Trading Strategies
When trying to make a profit on the forex market, traders often deploy certain strategies they believe will be successful. Of course, because of the size of the market and the sheer number of people who operate in it on daily basis, strategies used are practically countless. Yet, some of them have survived over time and are still often used today. They range from the very basic ones to the most complex ones which are meant to be used by seasoned traders and forex veterans. In this article, we will take a look at some of the more popular strategies. If you are still new to this business, we recommend this article.
Forex Trading Strategies | Basics
First and foremost, there is something called “support and resistance levels” trading strategy, one of the most basic, most efficient and most widespread strategies in the trading business. The philosophy behind it is that there is a certain price at which the trend will change its direction. These prices are called support (bottom level) and resistance (top level), respectively, and if a trader can deduce them, they can establish a range of prices of an asset. A variation of this strategy is called the Fibonacci Indicator strategy which tries to follow repeating support and resistance levels based as the market moves in waves. Ratios based on the principles of this Italian mathematician help predict the aforementioned levels.
Forex Trading Strategies | Indicators
Traders often use the so called indicators to help them determine how the prices will behave. The trades then base their decisions on the information provided by these indicators. ADX (Average Directional Index), for example, indicates the strength of a trend, but not its direction. The stronger the trend, the more probable it is that the same trend will continue and this is what the traders are looking for. One other type of indicators is the so called “candlestick” which reveals how the price has behaved in the past. In general, indicators push a trader in the right direction, but too many of them can be very confusing and cloud one’s judgment so it’s best to keep your chart neat and tidy.
Forex Trading Strategies | Other Strategies
There are many more strategies we still haven’t mentioned – head and shoulders (or the “shampoo” strategy) says that you should sell when you see a high peak between double peaks as the price is most likely going to drop after that; hedging strategy which focuses on diminishing losses at uncertain times etc. In any case, however, research is vital. You have to familiarize yourself with the strategy, know what to look for and be knowledgeable about the assets in question in order to make a good decision which will yield profit.
Forex trading strategies | Conclusion
With such a vast market as is that of the foreign exchange, strategies often come and go. Yet, some of them manage to survive because they prove to be profitable. We have covered some of them here, but there are also many others. The more time you invest to study them, the more tools you will have at your disposal when you find yourself in an opportunity to make money.