Can Forex Trading Strategies be the Key to Forex Trading Success?
By Richard M. Davies
Trading strategies are crucial to being a successful FOREX
trader. However, there are many different strategies for
trading and thus FOREX traders must find their own unique
style. Technical or fundamental analysis approaches are
preferred by many traders, but the amalgam of both
strategies will ensure a broad overview of the financial
Good trading strategy is not based on luck, but is based on
technical analysis of market movements, both higher and
lower. It FOREX, they often say, " The trend is your friend"
which is the identification of patterns.
There are several analytical tools around to help you
understand market movements. The novice FOREX trader would
be smart to study every one individually to gain a working
understanding of the ideas and uses. Once any tool is
understood, it should be used while studying the rest. The
tools tend to reinforce each other.
Many FOREX trading strategies rely on the concepts of price
support and resistance. The lowest price observed over time
in a currency's price swings is called the 'support' level.
When the price falls to that level it is usually expected to
rise again. The 'resistance' level is the highest price
observed to repeat over time and when a currency reaches
that high it would be expected to fall. The upper
'resistance' level and the lower 'support' level are the
limits of price movement for any given time period.
Price are expected to continue in the direction they are
moving when they break through support or resistance levels
e.g. if the price falls below the resistance level, the
price should continue to fall.
Price charts need to be analyzed to find support and
resistance levels. This can be done in any time frame, but
longer time frames may yield more valuable results. Traders
can use these levels to decide when to buy or sell.
FOREX trader use another common tool as part of their
trading strategies: simple moving average (SMA). SMA shows
the average price in a given period of time (ie the average
for the month) over a length of time (ie in a year). This
tends to give a clearer picture of price movements because
it can eliminate the noise of short-term fluctuations. FOREX
traders plot SMA to predict when prices will rise or fall.
If prices are above SMA, they tend to keep rising; in
contrast, if prices are below SMA, they tend to continue
These two trading strategies can be used in combination or
individually. To be successful, a FOREX trader should have a
large portfolio of trading tools that allow him to examine
the conditions of the market and to verify or disprove the
findings of a given study. If several of these tools show
that the market is moving in a certain direction, the trader
can act more confidently than when using only a single
In a similar way, fundamental analysis can be used to either
reinforce or cast doubt upon technical findings. The FOREX
trader, ideally, will use several indicators when plotting a
A good trading strategy provides obvious guidelines for when
to enter and exit a trade, what to anticipate in market
movement, and how much loss can occur if the deal goes
badly. Following these guidelines and understanding
technical analysis can help you become successful at FOREX
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