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 market.

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 falling.

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 indicator.

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 trading strategy.

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 trading.

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