If you’re new to currency trading, it’s likely you’ll be studying the various available Forex trading strategies. Each strategy has a different use, and you need to decide which one is right for you. However, before looking at the different Forex trading strategies, it’s first important to understand a bit more about the fundamental building blocks of currency trading. These include:
In Forex trading, there are basically four types of trading strategies – scalping, swing trading, trend trading and spot trading. These are also known as ‘growth oriented’ strategies. The difference between scalping and swing traders is that swing traders wait for a change in the market, while scalpers look for a quick return.
When it comes to scalping, it’s best described as a short-term method. It’s usually used by day traders. There are several different scalping techniques. Generally, scalping isn’t considered a particularly reliable strategy. As a result, scalpers rely on news or economic announcements to create an exit strategy. On the other hand, trend trading relies on a set of trading strategies, including technical and fundamental analysis, to develop a position.
Of the four basic trading strategies, the most widely used is technical analysis. This includes a range of indicators, such as simple moving averages and price action charts. Price action charts show the price of a security on a chart, while the moving averages show the direction of the price. This can either be a long-term or a short-term trend, with the trend line representing the continuation of the price action. Technical indicators rely on the use of indicators to detect price-action patterns.
Most day traders rely on technical analysis to determine their entry and exit points. Another popular strategy used today is what is known as “scalping.” In this strategy, traders use charts to identify high probability holding positions that they can quickly exit. Although this strategy has a lower success rate than more “traditional” trading styles, it’s become very popular among day traders in particular.
The third strategy that is widely used in day trading is what is known as price action trading. This strategy is designed to reduce the amount of time required for trading by analyzing the movement of individual currencies and identifying the best times to enter trades based on short-term price action. This is not the same as technical analysis, but there are similarities, including the use of indicators to identify potential trades.
Trading strategies are not fixed. In fact, they can change dramatically depending on the circumstances. Traders may choose to use one trading style, but only up to a certain point. Eventually, when traders recognize that it isn’t working for them, they may choose to implement a different style. The number of different trading styles available today is incredible.
Day traders can use indicators, pivot points, and technical analysis to determine the best way for them to trade. However, when no indicators or pivot points are present in a trading chart, traders must make their own analysis using the knowledge of price action and technical indicators. For example, if the currency you are trading is moving up and down, you need to determine which direction the price is going before entering trades. If the price action traders are using doesn’t seem reliable, they may decide to stay out of the trade until an indicator or pivot point appears.
Price action traders can often create false setups on charts by using lagging indicators. These false setups occur when a currency’s price moves in a pattern, but the market is moving in the opposite direction. A lagging indicator will cause the price to become overbought or oversold. To counter this, a price action trader will enter a trade and set their stop-loss marker at the point where the chart’s top of the price action becomes totally vertical.
False setup and false setups occur because of the difficulty for most traders to fully understand price action patterns. Price patterns are very complex. Even the chart patterns themselves can be very complex. As a result, most traders will not be able to tell exactly where a breakout is going to occur in a technical chart pattern. With the use of indicators, most price action traders are able to detect these breakouts much more easily.
So now we know that a successful trader has to deal with head fakes, false setups, and candlestick patterns. They must be able to recognize them and trade against them. Candlestick charts have been known to create false setups and they can sometimes create a false bullish trend. If you’re trading, it is very important to make sure that you understand the price action. You should try to implement your new strategies on as many charts as possible.