To be a successful FOREX trader you need your own trading strategy.
You must understand, however, that there is no one set strategy that is
"right" for all traders. Each trader needs to develop his or her
individual approach to the FOREX. Some traders will be well advised to
rely solely on technical
analysis while others will
analysis, but, many successful
FOREX traders will actually choose a combination of both for a broad
overview of the market and for plotting entry and exit points.
analysis relies on one major concept: Prices move by trends. The saying
in FOREX is 'The
trend is your friend.' Market
movements have identifiable patterns that have been studied over
several years and a thorough understanding of these trends and how they
can be read forms the basis of a good trading strategy.
many analytical tools which are available to help the novice and the
professional understand market movements. The beginner FOREX trader is
well advised to study each one separately for getting a working
knowledge of their concepts and application. Once one has been
understood, keep on using it while studying others. Each tool tends to
reinforce the others.
Support and Resistance
resistance levels are used in many FOREX trading strategies. 'Support'
refers to the price level that is repeatedly seen as the bottom
– when the price reaches this level it tends to rise.
Resistance levels are upper prices that the currency rarely trades
Support and resistance levels generally contain price movements over a given period
prices break through support or resistance levels, the prices are
expected to continue in that direction. For example, if the price rises
above the previous resistance level, it is seen as bullish - the price should continue to rise.
To find support and resistance levels, price charts
need to be analyzed for unbroken support and resistance levels. Charts
can be analyzed in any time frame; however longer time frames establish
more important support/resistance levels. Traders can use
support/resistance levels to determine when to enter or exit a
averages are another common tool in FOREX trading strategies. The
simple moving average (SMA) shows the average price in a given period
of time over a specified period of time. Moving averages serve to
eliminate short term price fluctuations giving a clearer picture of
price movements. FOREX traders can plot a SMA to determine when prices
have a tendency to rise or fall. If prices cross above the SMA they
have a tendency to keep on rising. Conversely, prices below the SMA
have a tendency to continue their downward motion.
These are two
examples of trading strategies that can be used individually or in
combination. In practice, the FOREX trader should have a repertoire of
trading tools to examine market conditions and to support the findings
of one study or another. If several indicators show that the market is
moving in a particular direction the trader can act with more assurance
than when relying on a single indicator.
analysis can be used to
analysis findings, or vice
FOREX trader will take several indicators into account when plotting a
FOREX trading strategy.
At the least,
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.