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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