Put simply, forex is the market in which global currencies are traded. It’s also the largest, most liquid market in the world. Forex is an over-the-current (OTC) market for currency trading, with values estimated at trillions of dollars per day. With the allure of big money combined with some simple trading strategies, it’s no wonder forex is so popular.
Seek Out Suitable Strategies
Keep in mind that the best forex strategies are suited to the individual. What works for someone else, may not work well for you. So it’s important to experiment with different strategies to find out which one is best for you.
The key to successful forex trading is in technical analysis. There are two main types: trend following and counter-trend trading. Both aim to achieve profits by recognizing and exploiting price patterns in the forex market.
To follow a trend, look for markets that break out of a range, either moving below their support levels or above resistance. Such strategies mean that you buy markets once they have broken through resistance and sell markets once they have declined below support levels.
For counter-trend trading, remember that most breakouts do not develop into long-term trends, so prices tend to bounce off established highs and lows. These strategies are popular because they tend to have a high success ratio.
Focus on Repetitive Patterns
Successful traders identify recurring patterns and price movements. You can do this by charting on paper or by using computer charting programs, which can often identify recurring patterns better than the human eye.
“As a technical trader, I spend a good amount of time looking for repetitive patterns that re-occur over and over and over again,” says Matt Choi, a rule-based trader who runs trading education company, Certus Trading. “With the help of data-crunching software, anyone can easily write a few scripts and perform their own analysis to find highly repetitive setups.”
Matt Choi uses his own unique “relative strength technique” to identify key reversal points so you can get a more favourable entry point.
Analyze Case Studies and Past Market Examples
Using a wide selection of real case studies and timely examples, you can learn forex trading in a simple and practical way, allowing users to start applying what they learn right away in their own trading.
For instance, short-term traders look to open and close a trade within minutes, taking advantage of small price movements in the market. Using this rapid-fire technique, you can earn profits quickly.
Long-term traders, on the other hand, can hold positions for months or years, basing trading decisions on market fundamentals, which can often be more reliable. Keep in mind that for both short- and long-term traders, large capital requirements are necessary to leverage profits (short-term) and cover volatile movements (long-term).
Remember the Importance of Market Seasonality
One technique for trading which is often overlooked is seasonality, a period of time when an asset tends to move in the same direction every year. For example, if a currency pair moved up from November 2 to November 22 in 18 of the past 20 years, you can usually assume there is a strong probability that it will move in the same direction this year as well.
“It’s not sexy, which is why I consider it the ‘forgotten pattern,’ but it works!” adds Choi.