Successful forex traders will always have a number of forex trading techniques that they will use for different situations. However, knowing how to adapt and apply the trading strategy in association with the market condition is the primary factor when it comes to becoming a profitable trader.
Firstly, what is meant by “forex trading techniques”?
What Are Forex Trading Techniques
Forex trading technique is a set of analyses that a forex trader uses to determine whether to buy or sell a currency pair at any given time. These strategies can be based on many factors such as technical analysis, chart analysis or fundamental, news-based events.
The following are four of the more common and popular forex trading techniques deployed by traders in the market today.
Support And Resistance
Forex traders should have the knowledge on identifying the support-and-resistance levels on charts when it comes to any of the assets they trade with. The support-and-resistance performs as the barriers in the forex markets and can be spotted easily on the price charts.
In addition, they also stop the prices from moving lower or higher and are visible on any type of forex chart across any time frame. When trading Forex using the support-and-resistance strategy, is one of the more effective methods to predict the future price-movements.
Support-and-resistance can show traders about the sentiment of a market overall but can also be an indicator of when to avoid entering a trade. The support-and-resistance creates a visual map of a price chart, where it will indicate where a price has bounced or reversed in previous trades. When obtaining the abilities in predicting the price movements into the future, this is a handy tool which is easy to master by using a basic analysis of the Forex chart.
Fibonacci Trading Technique
Another Forex trading technique is known as the Fibonacci named after a world-renowned Italian mathematician. Regarded as one of the medium onto long-term trade strategies, this strategy involves following the repeating “support-and-resistance” levels.
The goal behind using this type of strategy is to “go long” (buy) on the retracement at the Fibonacci support-level at the time when a market is regarded as trending and to then “go short” (sell) on the retracement at the Fibonacci resistance-level when a market trends down. When the price moves in the Fibonacci patterns, the traders will often find that it is supported by the key 0.328, 0.5 or the 0.618 levels, which is typically where they should be taking their trades and wait for the reversal.
The foundation of this particular trading technique has to do with that prices historically usually move within a trend, with the idea of choosing either a bottom or a top.
An example of a trend-trading strategy will involve identifying the pairs that either trend down or up, so that the trader has a better idea of what direction to take for the next trade. The following step involves finding trade entries by using a trending-indicator.
One of the more popular ones is the RSI (Relative Strength Index) that moves down and up between a scale of 0 and 100, which tracks the strength of a “currency pair” movement. When the RSI moves above 70 or it falls under 30, it may indicate a price-reversal. Exit plans for this strategy is to set a limit and stop using support-and-resistance.
Learning this form of forex trading technique is essential for all type of traders and is regarded as a financially lucrative strategy.
Scalping is one of the more useful techniques, particularly for the novice traders because it makes use of a low-risk strategy.
However, even the stronger traders have the ability to make lucrative profits. Scalping is described as a strategy that specializes in making profits on the small-price changes as soon as the trade has initiated, and it becomes profitable.
The strategy of scalping is able to achieve results in the way of maximizing the amount of winners but sacrifices on the size associated with the wins.
In fact, it is not unusual for traders of the longer time-frames to gain positive results in the way of winning half or less in association to their trades, but wins are far more than the actual losses. The successful scalpers have a higher ratio of their wins with trade losses, while keeping their profits around equal or just larger in comparison to your losses.
The scalping strategy will mean that the trader has an exit strategy that is strict, as even a single large loss could eliminate all the small gains which were previously achieved.
So there you have it, these are the popular techniques that people find the most success with as part of their forex trading strategies.
To become a successful forex trader is always possible. However, it comes with the willingness of the potential trader to learn forex trading in a systematic process.
We hope that the information provided on the types of forex trading techniques will set your path towards financial freedom and job satisfaction that only forex trading can offer.