Forex Trading Strategy
The forex market is worth a massive $1.3 trillion a day - in trade value – so understand forex trading strategies is important for consistent profits.
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. Basically there are two types of forex trading strategies - technical analysis and fundamental analysis.
Forex Trading Strategy - Technical Analysis
Technical analysis relies on one key concept: Prices move by trends. 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.
Technical analysis involves analyzing price trends, you can use one of the following four strategies:
Elliott Wave Theory
which is based on the theory that markets move in continuous ebbs and waves. The Elliott Wave theory argues that a market cycle is completed once there has been 5 complete wave cycles.
Fibonacci Numbers Theory
this theory is named after a 12 th Century Italian mathematician and argues that certain numbers possess an inter-relationships with each other. The theory works along the lines of having two numbers (starting with 1), and then adding them together to make a third number. For example: 1+1=2; 1+2=3; 2+3=5, etc. – so, the Fibonacci numbers are 1, 1, 2, 3, 5, 8, and so on.
Parabolic SAR Theory
essentially this is called a stop-and-reversal (SAR) theory of deciding when to buy and sell. Simply put, any currency trading below its SAR means you sell; any currency trading above its SAR means you buy.
Pivot Point Theory
this theory determines the numerical average of a currency's high, low and closing price. From these you can hopefully decide when to buy and when to sell.
Forex Trading Strategy - Fundamental Analsysis
The other major forex trading strategies is the fundamental analysis. Essentially this system analysis what is happening in a country to try and help you to decide when to sell and when to buy. Figures used in this theory include a country's Retail Sales, its GDP, unemployment levels, interest rates, and so on.
However, because the figures used in the fundamental analysis method normally take a long time to be published, most professional forex traders only like to invest long-term in a currency using this method - and it not seen as being particularly helpful for short-term or day-trade strategies.
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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