Forex Strategies

Forex strategies are essential for a forex trader to profit from the market. Forex trading strategies make a trader more sophisticated and confident by helping him in making right calculations about the market. In a market with always changing exchange rates it is foolishness to trade hysterically by just following the emotions or advices from unreliable sources.

There are lots of forex trading strategies followed by forex traders. They can be broadly classified in to two type of strategies are profit maximizing strategies and risk minimizing strategies. The strategy differs with individuals as each trader has unique needs and has unique trading abilities. A trader must design a forex trading strategy according to many factors such as his or her initial investment, account size, trading ability, risk tolerance, currency pairs trading, geographical limitations/advantages, the broker to which he is affiliated, the trading system he/she uses, the profit goal (short-term profit or long-term profit), etc.

The most followed forex profit maximizing strategy is the leverage. Leverage allows forex traders to trade with more funds than in his or her account. The leverages are provided by the forex brokers to their clients. The usual leverage is 100:1 – i.e., for $1 in account the trader can borrow $100 from his broker. Day traders get much more leverage than other traders and the ratio leverage differ with brokers and also with the account minimum, type of contract trading etc.

The most popular forex risk minimizing strategy is the stop loss order. Stop loss orders help traders to limit their loss by stopping a trade at a preset price. Forex trading systems allows traders to set their stop loss order prices. One related strategy is the trailing stop losses, which are proportional stop loss prices that come into play only when the prices are falling. There are also many other types of stop loss orders available which mainly depends on the broker to which the trader is affiliated to.

One another related strategy is the automated order entry. Automated order entry enables a trader to enter into a trade at a preset price rate automatically. The trader can set the price at his trading platform. Automated order entry methods help traders to enter the market at most favorable time. Apart from these strategies forex traders can use forex futures and forex options to cover the loss and well as to cover the profit. These contracts help forex traders to buy or sell currencies at a predetermined rate at a point of time in future.

Apart from these trading strategies, forex trader follow many other strategies for choosing currency pairs, trading hours, entrance and exit prices etc. Irrespective of the type of the strategy, all forex strategies involve risks. The success of a forex strategy depends on many factors like the market condition and the discipline of the trader.

Forex Strategy to Analyze Market Successfully

What is Forex strategy? “Forex” is a currency exchange market and “Strategy” is a skill to make a plan to achieve goal. So Forex strategy is a plan of action to achieve goal in foreign exchange market. Plans are required because forex market is very risky and tricky market.

As foreign exchange market is the market of currencies, so the traders buy and sell currencies in order to make profit. This business of currencies requires a lot of patience and money as well. It might take many years to become a successful trader in this market so there should be a Forex strategy in order to become a successful trader. There are different types of traders, they may be short-term, medium term, and long-term. Short term traders are also known as scalper. Usually, most of the traders focus on medium term strategy which requires less investment.

The forex strategies could be basic, complex, simple or advance. A basic Forex strategy is helpful for beginners. In basic strategies, there are some rules defined for the beginners about How to trade? Simple forex strategies are not for experienced traders, it is for skilled beginners. Simple Forex strategies define the techniques of trading. Also, other strategies like complex, advance etc guide traders about trading. Before start trading, one should first practice with forex trading software. These softwares are helpful for the beginners and give them idea of market as well as idea of business. Also, it is good for the beginners to enhance their skills by “Mini forex trading”.

Traders use Forex strategy in order to make wiser investment decisions. These strategies educate traders. While developing strategies one should must kept one thing in mind and thing is “risk” about the business as forex is a risky business.

Types of forex trading strategies:
There is still no golden rule for a strategy to be 100% accurate all the time. Along with Forex strategy practice and hard work is also required. In order to survive, forex market needs long-term investors, people who have greater economy and banks. In trading, forex strategies consist of two constituents: Technical analysis and Fundamental analysis.

1. Technical analysis:
It is based on analysis of charts. It is also helpful if we are to analyze the boom and depression region of the market. Mathematical formulas are used to analyze the movement of market.

2. Fundamental analysis:
In fundamental analyses, the economics of the countries are analyzed, as each day new figures are disseminated around the world.

Both above types of trading strategies are essential in making successful and profitable trades. If one of them is missing, it will not be help in successful trading. When we associate Forex Strategy with technical analysis then we are able to deal with price. When we talk about fundamental analysis or when Forex strategy is associated with fundamental analyses then we are able to deal with economic factors. So in order to become a successful trader, it is important that besides following forex strategies trader must show positive attitude towards his work. Also, it requires patience because earning money is not quick it takes time as well as hard work.

Understanding Market Cycles

An important part of any traders’ forex strategies is understanding the market cycles.

So what are market cycles?

Not knowing what market cycle you are in will affect your forex trading. Knowing the correct major market cycles is important for you and which forex trading system you should be using. As each cycle requires a different approach from your forex trading system.

There are three major market cycles and the ability to adapt to each cycles is an important part of your forex strategy and will improve your profitability.

So you need to understand how to determine the market cycles if you want to become a successful trader.

The three major cycles are:

1) Trending

2) Consolidation

3) Breakout

The Three Market Cycles

It does not matter what financial market you are trading, the market can only move in these three cycles.

A common saying amongst forex trade is “The Trend is your friend.”

Trending Cycle

Trending is when the market price moves in the same direction consistently in one direction either up or down.

How a forex market trend is inherently defined? A trend can be defined as progressively higher lows and higher highs.

Of course if the price movement consisted of a straight line either up or down, then identifying a trend would obviously be very easy.

In real life, currency prices move do not move in one direction consistently, so denying forex traders and easy trend read.

Consolidation Cycle

A Consolidation cycle also known as Non Trending or Ranging market, which looks like a sideways / horizontal line of bars on a chart. Consolidating is when the market is struck between two horizontal support and resistance levels and cannot break these support / resistance levels for at least seven bars.

You can use moving averages or other technical indicators to determine whether the market is consolidation or trending. In case of a consolidating market, the moving average line will almost be horizontal.

Breakout Cycle

Now what is breaking out of a Consolidation? After the market has been consolidation for at least 7 bars and then the price sharply breaks out of this ranging market sharply to make a new high or low.

That is basically it for the cycles

How does this affect your forex strategies…?

The majority of forex traders only have a forex strategy for one or two market states. The most popular forex strategies being Trends and Breakouts.

But recent research has shown that on average the forex market is in a trending cycle about 30% of the time, breakout cycle about 10% of the time and Consolidation for 60% of the time.

So if your only forex strategy is for a trending cycle then you will only be trading for 30% of the time and if you are one of the few that have more than one forex strategy with the most common being the trending and breakout strategies, then you will still be trading only 40% of the time.

This means that you will be sitting on the sidelines for about 60% of the time. Whilst it is always important to have the patience to wait and pick high probability trades, waiting for the market to change cycles because you do not have a forex strategy for this cycle does not make sense.

Some forex traders will then get sucked into making trades with the wrong strategy into market cycles that the strategy just will not work in.

This year in the July and August the market spent the majority of its time in consolidation and breakouts with very few trends happening. A lot of traders I know only did not have a strategy for this type of cycle so they either lost money over these months or stopped trading altogether until the marker started trending again.

I was myself was in the same position. About mid way through July, I realised that my strategies where just not cutting it in this cycle and I set about on developing my forex strategies so they included one strategy for each cycle. Now I am comfortable trading and making pips in all market cycles.

So it is important to have a set of forex strategies that cover each of the market cycles.

You need to learn what the different market cycles are in addition to having correct trading systems. That means you should develop the skill of correctly identifying the different market cycles at the right time.

Once you have the skill to identify the market cycles then it is important to have set of forex strategies that will cover each market cycle. As effectively identifying the market cycles is a skill that all successful traders have mastered. You need to learn how to adopt your approach to those cycles to remain profitable.

Devising a Forex Strategy That Will Work Over Time

Last time we talked about the forex trading strategies that will work over time for each individual trader, today we will dig deeper to help you discover and devise the strategy that will open your door to financial success. Once you have decided whether you are a scalper, medium or long term forex trader, you can start building the framework of your forex strategy. Since we want to give you the best possible odds of making a profit, this article will focus on the odds, rather than forex trading strategies that rely on automated trading systems.

The medium term trader has the least amount of capital to start with, and the fewest opportunities to execute trades, which mean his forex strategy will rely on how well he interprets the technical information and the decision reached. This sounds like a lot of work for not a lot of pay off, but the trick is finding those times when the majority of the forex indicators point in the same direction. A patient trader will wait until the signs lead him to profits.

Choosing Forex Trading Software – Now that you understand where you fall in terms of choosing a forex trading strategy that will work for you, it’s time to choose trading software. There are many trading programs from which you can choose, but until you feel comfortable with the technical ins and outs for forex, choose forex trading software that allows a free demo account so you can practice the forex strategy that’s right for you. Before you choose, there are a few basic must-haves of any forex trading software:

1. Capability to display (at least) three distinct time frames at the same time. 2. Capability to plot common technical indicators.

Set up Forex Indicators – Once you have selected forex trading software, it is time to start setting up the indicators. The forex indicators you choose should help you implement the forex strategy you wish to employ, medium term if you have little capital, and short or long term if you have the capital to risk. Forex indicators show you, in graph form, the price at a particular point in time. In order for you to decide how to act, you will set up several different indicators and wait for them all to point in the same direction. This sounds like an easy strategy, and with patience and skill it can be.

Keep in mind that the more forex indicators you set up in your forex trading software, the more reliable your forex strategy will be. Conversely, the more indicators you have set up, the fewer opportunities to trade will arise. The key when setting up your forex indicators is to decide if you want a reliable forex trading strategy that works but provides fewer opportunities, or one that is less reliable but creates more opportunities to trade. Medium term traders will focus on reliable but infrequent trades to make a profit.

When you devise your forex strategy, make it for the capital you have now, not the capital you plan to have in the future. You can always change your forex trading strategy when you need to.

Best Forex Strategies

The forex market provides a stream of opportunities that individual traders can learn to profit from on a consistent basis if they implement a forex strategy that works. There really is a big difference between trading strategies that actually allow you to maintain a clear trading mindset while still providing you with a high probability edge in the market, and those that do not. Those forex strategies that provide you with the tools you need to profit consistently in the forex market will typically be centered on core market data instead of secondary indicators or trading software programs.

When trying to find a forex trading strategy that is based on core market data and not on secondary indicators you can run into great difficulty if you do not know what to look for, largely because there is a mass amount of misinformation and scams in the realm of forex trading information. As a result, many beginning traders make the mistake of committing themselves to a trading strategy that is both ineffective and overly complicated at the same time, setting themselves up for failure at the very beginning of their trading career. This is why it is critical that you learn about the best forex strategies as soon as you can by seeking out those strategies that possess the following the characteristics:

• Avoid those forex trading methods that are essentially nothing more than a forex system of rigid trading rules.

• Look for forex trading methods that consist of a more flexible forex trading strategy that will allow you to adapt your method to all time frames and all market conditions; most rigid trading “systems” simply do not meet this requirement.

• The best forex strategies are typically those that are based on time tested chart reading skills; things like trading support and resistance levels, trend trading strategies, simple breakout strategies, Fibonacci retracements, and simple candlestick pattern analysis are examples of such strategies.

• A forex strategy that is worth pursuing need not be extremely expensive or so complicated that you get a head ache while learning it. It should be simple to implement, effective, and make logical sense to you immediately.

When learning to trade the forex markets, getting started on the right track will positively influence all aspects of your trading career. It is critical that you try your hardest to avoid the pitfalls that many beginning forex traders fall into by pursuing forex strategies that have proven themselves over time and are not just another forex scam. It is a good rule of thumb to compare and contrast one forex strategy against another before you commit to one in particular. Also, remember to demo trade the particular forex trading strategy you decide to use before you attempt to trade with real money, successful demo trading is necessary to success on a live trading account.

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Forex Strategies and How to Trade Forex

Trading Forex is the business of buying and selling international currencies against one another, for example buying the Euro at 1.36 US Dollars, then selling it back at 1.37, buying low, selling high and making a profit. To trade fx and make a profit you should find a few of the many Forex strategies, that traders use to trade fx. The main issue with these Forex strategies is finding one that works, and one that you can learn and cope with.

Although there are a number of profitable strategies available, none of them can trade and win every single trade, no fx strategy is one hundred percent successful and you should not expect them to be. To trade successfully is to simply win more trades than you lose, or to profit from your winning trades to a larger extent than your losing trades do. This is known as your risk/reward ratio and varies between each strategy.

Some Forex strategies will use the principal of winning a high percentage of the trades, but each trade is only profitable by a small amount, or a few pips as it is referred to. These Forex strategies are known as scalping methods, and the principal is that, you will win most trades as you are looking to take small quick profits. The problem with these Forex strategies is that you must control your loses, otherwise you may cancel out ten winning trades with one losing one, that is not a good way to trade fx.

Other strategies, will take the opposite approach to the risk reward ratio. Trading Forex in this manner means looking to make large amount of pips on a winning trade, and using small stop loses, and only losing a few pips on the losing trades. Using these types of strategies, means you can trade profitably by winning less than half of the trades, depending on the ration, you may only need to win twenty percent of your trades to trade fx and turn a profit.

Whichever way you decide to trade Forex, whichever of these Forex strategies you use, it is still going to take time, patience, and dedication to master the art form that is trading. To trade Forex is not a science, it is not gambling either, but can feel like it, so keeping control of your emotions is a common problem that must be overcome to trade Forex successfully.

If you are just starting to learn how to trade Forex, then there is a lot of information on the internet describing people’s different Forex strategies. Some advice is free and freely available, some people will sell you there Forex strategies so you learn hot to trade Forex, the same way they do. It is difficult to say which is best, there are some golden rules on how to trade Forex, but no guarantees, it is an art form in many ways, and some people say that to trade Forex well, you must adapt your own style of Forex strategies, just is suitable to your personality.

So if you are going to trade Forex, take your time and do your due diligence. Research as many Forex strategies as possible, and take your time with demo accounts to practice with, before using real money.