What Are The Most Important Forex Trading Strategies
There are many different types of forex trading and there is almost certainly a style you can use to suit your needs. Forex Scalping Forex scalping is where the trader aims to profit from very small price movements. Scalping is often done using high leverage so more substantial returns can be achieved from smaller movements.
Of course, it is important to be aware that leverage will make losses as well as gains bigger. Scalp trades usually last up to a few minutes. It is not uncommon for a scalping trader to make many 10's or even 100's of trades per day. Due to the high volume of trades, finding a broker with very small spreads is absolutely critical to have any chance of success.
Also, some retail forex brokers dislike traders using scalping strategies, so it is a good idea to speak with the broker before you begin scalping with them. Carry Trades A carry trade is where the trader buys a currency with a high base rate, whilst selling a currency to a low base interest rate. Historically New Zealand has had a significantly higher base rate than Japan.
By going long on the pair NZD/JPY, you will earn the difference between the New Zealand bank rate and the Japanese bank rate for each day the position is open. Carry trades are renowned for having severe periods of "unwinding". A carry trade unwind involves a significant dip in carry pairs, often resulting in losses for traders who keep their positions open. It can often be an ideal opportunity to buy a carry pair after a major unwinding.
Day Trading A day trader opens and closes his or her positions during the same trading day. Positions are not held overnight. Day trading is perhaps one of the most difficult trading styles to be successful. It can be extremely stressful and does require a great deal of time spent at the computer waiting for trading setups to arise. Most day traders do lose money.
The odds are stacked against the trader for various reasons including; large quantities of trades are made, often making it difficult to make a profit after paying the broker spreads and the high time commitment of day trading can make it stressful and make you prone to making more mistakes. Another factor is it can be hard to eliminate the random noise when trading short time frames.
However, this said, there are day traders who are successful, but it is usually after a lot of hard work. Swing Trading Swing trading strategies generally involve keeping positions held overnight. Typical swing trades are open between two days to several weeks. Swing trading is less time demanding than day trading and a swing trader will typically make fewer trades than a day trader, thus reducing the broker fees.
Long-Term Forex Trading
An Easier Way To Trade The Markets?
One of the main reasons why people are drawn to forex trading is because the volatility of the major currency pairs makes it possible to trade the markets on an intraday basis. Indeed many people generate some decent returns from day trading the forex markets, but in my opinion you should always focus on finding a profitable long-term trading system as well.
In relation to the forex markets, long-term generally refers to trades that last anything from a few hours up to a few days, weeks or months, and in my view if you use the 4 hour charts and upwards, then you are a long-term trader.
I always believe that if you only focus on short-term intraday trading methods, then you are taking undue risks and are missing out on lots of profitable trading opportunities. Of course it's possible to make money trading the 1, 5 and 15 minute charts, for example, and indeed I trade these time frames myself on occasions, but it's much easier to trade the longer time frames.
The reason why it's easier is simply because you avoid much of the random price movements that occur on these shorter time frames. Therefore trends are much more clearly defined and therefore easier to trade.
Furthermore the longer the time frame you use, the greater profits you can make because the trends are obviously so much greater. If you wanted to you could easily make some decent profits trading EMA crossovers (such as the EMA (5) crossing the EMA (20)) on the weekly or monthly charts. The only drawback is that this requires a lot of patience and you need to use quite a large stop loss to allow the position to unwind, which may not be ideal for beginners.
However it is a very profitable way of trading the markets. I personally like to trade the 4 hour and daily charts to trade the major currency pairs. I use the daily chart to identify the current trend and then use the 4 hour chart to find opportunities to enter a position in the same direction as this trend.
This method works extremely well for me and I would recommend it to anyone. It's certainly a lot easier, and generally a lot more profitable, than trying to trade the 1 minute or 5 minute charts, for instance, which whipsaw all over the place.
So to sum up, even if you do like to trade the shorter time frames, I would still think about trying to find a longer term strategy that you can use as well because these longer time frames are so much easier to trade.
One of the main reasons why people are drawn to forex trading is because the volatility of the major currency pairs makes it possible to trade the markets on an intraday basis. Indeed many people generate some decent returns from day trading the forex markets, but in my opinion you should always focus on finding a profitable long-term trading system as well.
In relation to the forex markets, long-term generally refers to trades that last anything from a few hours up to a few days, weeks or months, and in my view if you use the 4 hour charts and upwards, then you are a long-term trader.
I always believe that if you only focus on short-term intraday trading methods, then you are taking undue risks and are missing out on lots of profitable trading opportunities. Of course it's possible to make money trading the 1, 5 and 15 minute charts, for example, and indeed I trade these time frames myself on occasions, but it's much easier to trade the longer time frames.
The reason why it's easier is simply because you avoid much of the random price movements that occur on these shorter time frames. Therefore trends are much more clearly defined and therefore easier to trade.
Furthermore the longer the time frame you use, the greater profits you can make because the trends are obviously so much greater. If you wanted to you could easily make some decent profits trading EMA crossovers (such as the EMA (5) crossing the EMA (20)) on the weekly or monthly charts. The only drawback is that this requires a lot of patience and you need to use quite a large stop loss to allow the position to unwind, which may not be ideal for beginners.
However it is a very profitable way of trading the markets. I personally like to trade the 4 hour and daily charts to trade the major currency pairs. I use the daily chart to identify the current trend and then use the 4 hour chart to find opportunities to enter a position in the same direction as this trend.
This method works extremely well for me and I would recommend it to anyone. It's certainly a lot easier, and generally a lot more profitable, than trying to trade the 1 minute or 5 minute charts, for instance, which whipsaw all over the place.
So to sum up, even if you do like to trade the shorter time frames, I would still think about trying to find a longer term strategy that you can use as well because these longer time frames are so much easier to trade.
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