Thursday, October 1, 2009

Forex Trading Strategies

If you have never traded the forex markets before but would like to get started, as a novice trader you might be confused by all the different forex trading strategies people seem to use. Don't worry! Some strategies are simple and some are more complex, but whatever your outlook is regarding risk and trading frequency, there is a strategy to suit every type of trader.

So where do you start? First of all, think about how often you want to trade. Are you looking to take out a position, hold it for a relatively long period of time and close it when you have realised the necessary profit? Or are you someone who prefers to have your position squared off at the end of the day, so that you are not carrying any risk overnight? Or maybe you want to just jump in and out of the market and only hold positions for a matter of minutes, taking small profits wherever you can?

If you are a long-term trader, then you would typically follow some kind of trending strategy, maybe using indicators such as weighted moving averages. This type of strategy involves opening a trade when you believe the market is going to move in one direction for a certain time period, holding that position while the market trends and closing it out when you believe the trend has ended (or is about to end), when the market has reached a turning point. Obviously, even when a market is trending strongly, prices will oscillate up and down along that trend, so you will need strong nerves to hold your position when prices are temporarily moving against the trend.

Shorter-term or "intra-day" trading can be viewed in some ways as less risky, because you are not holding a position overnight. There are generally two types of intra-day trader: "breakout traders" who buy (or sell) a currency when it breaks out of a particular trading range; and "swing traders" who try to trade within a specific trading range, buying at the bottom of that range (the "support" level) and selling at the top (the "resistance" level).

Whichever type of trader you are (or want to be), always remember that prices can move in two directions - the direction you want and the direction you don't want! So never risk more money than you can afford to lose, whichever forex trading strategy you decide to use.

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An Introduction to Forex Managed Trading

Trading systems pertains to specific rules or parameters that determines points of entry and exit, called signals, for a given equity. In the construction of trading system parameters, the most common technical analysis tools consists of moving averages, Bollinger bands, stochastic, relative strength, and oscillators. Most of the time, a combination of these tools determines a rule. However, there are also instances wherein only one indicator is used in rule creation.
Benefits of an International Forex Trading System
Utilizing a managed trading system provides several benefits to a forex or stock market trader.
Can Increase Profit
Coping with losses is one of the most difficult aspects of being a forex or stock exchange market. In an effort to recover the money they loss from trading, investors usually make hasty decisions and consequently loss more money in the process.
Since most of these systems are automated, there is no need for the investor to make a decision, as it is the software that determines when to enter and exit trading. Not Time Consuming
Again since most systems are optimized and automated, the trader need not exert a lot of time analyzing and initiating trades. The system is designed to both generate the signals and perform actual trade.
There are a lot of systems that have been developed and currently being marketed. However, availing of the work of other people entails payment of a certain fee. Pitfalls of Trading Systems
While they may have their advantages, trading systems are not perfect and present their own disadvantages.
This is the biggest disadvantage of a trading system. Creating a trading system may require a solid knowledge of technical analysis, ability to decide empirically, or a comprehensive understanding of the functions of parameters.
Requires Realistic Assumptions
In order for a system to become effective, you need to have knowledge of how to differentiate simulated from actual results. Development Takes Time
The task of developing your own system is time consuming. Getting it to run and work effectively as well as testing it may take some time. Not to mention the fact that you have to do a paper trade in real time to make sure that your system is reliable. The factor of slippage may also come into play, which will require you to completely revise your system.
As mentioned above, you need to be careful when choosing a system. There are firms that are out to get your money and offer a system that does not work. A trading system can be a helpful tool to novice traders who wants to succeed and make a living out of this endeavor.

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