In forex trading there are many different strategies that will make us money, but to make money we must first understand the basics. The first strategy is how we trade a currency and this can either be by following the fundamentals or trading on a technical basis.
To understand the fundamentals we have to look at the economics of the currencies we are studying and to do this we need to take an overview of how currency pairs will move. To trade the fundamentals we use economic data such as interest rates from central banks.
These economic releases can affect how a currency pair will move against each other. An example of this is if a country has a higher central bank interest rate and another has a lower interest rate. Then a trend will develop in the currency pair as money is borrowed from the lower rate country and put to work in the higher rate country.
Technical traders look to trade in a different way, they read the currency charts to determine if there are any patterns. Chartists believe that human emotion drives all market moves and these emotions are represented on their charts. By looking for the patterns these emotions make the chartist is able to make an educated guess as to where the market may be heading.
One of these behavioural patterns is support and resistance. On any chart you will find areas where a trend will reverse. In an upwards trend this is called hitting resistance and in a downward trend it's called hitting an area of support. When we get areas on the charts where this happens repeatedly it makes the effect is more pronounced.
Let's imagine we have a downward trend in our currency pair. By examining our chart using the larger time frames such as the daily or weekly charts we can identify potential areas of support. When we have identified an area we can look to open a buying position at this support level and when we do this we are expecting the support to hold and the market to reverse as it has done previously.
Both fundamental and technical skill can be combined. We can do this by using our fundamental skills to select which currency pairs to trade and then we would then look at the charts to show us where to open and close our trades. Some traders however will favour one discipline over the other and this is fine as long as we get the desired results.
Once we have decided which approach to use we must make another choice. This is how we want to open and close our trades and we can open trades in 2 ways. The first is by manually opening the trades and the second is by using a computer to trade for us.
With manual trading we have to select our own trading set-ups. We do this by using a program given to us by our forex broker. This program gives us live currency data and allows us access to the market and to open a trade we have to manual click the button and when we decide to do this is our decision.
When we manually trade we can chose to trade semi manually. In this method we would open our trade manually but we would use our computer to close the trade. This is done by using a stop loss and a take profit order. By using these orders the trade will be closed when the market reaches one of our chosen orders. Our trade will be in profit if the take profit point is reached first and we will have a loss if the stop loss is hit first.
Another way we can trade forex is by using an automated system which will trade for us. This trading system will run autonomously without human interference. We can buy a trading program from a developer or we can choose to develop our own system.
When we use a trading robot the computer will open and close trades for us depending on the trading rules programmed into it and because a trading system is automatic it does not suffer from emotions like a human would when trading. However markets always change with time and some trading robots may not be able to cope with changes in the market.
By taking the time to understand our own preferences we can begin to find a way for us to become successful with our trading.
Whether we trade automatically or whether we select our trades ourselves does not matter. Only that we trade in a way that is right for us and by trading in a way that is compatible with our own self will we have found our own successful trading strategy.
To understand the fundamentals we have to look at the economics of the currencies we are studying and to do this we need to take an overview of how currency pairs will move. To trade the fundamentals we use economic data such as interest rates from central banks.
These economic releases can affect how a currency pair will move against each other. An example of this is if a country has a higher central bank interest rate and another has a lower interest rate. Then a trend will develop in the currency pair as money is borrowed from the lower rate country and put to work in the higher rate country.
Technical traders look to trade in a different way, they read the currency charts to determine if there are any patterns. Chartists believe that human emotion drives all market moves and these emotions are represented on their charts. By looking for the patterns these emotions make the chartist is able to make an educated guess as to where the market may be heading.
One of these behavioural patterns is support and resistance. On any chart you will find areas where a trend will reverse. In an upwards trend this is called hitting resistance and in a downward trend it's called hitting an area of support. When we get areas on the charts where this happens repeatedly it makes the effect is more pronounced.
Let's imagine we have a downward trend in our currency pair. By examining our chart using the larger time frames such as the daily or weekly charts we can identify potential areas of support. When we have identified an area we can look to open a buying position at this support level and when we do this we are expecting the support to hold and the market to reverse as it has done previously.
Both fundamental and technical skill can be combined. We can do this by using our fundamental skills to select which currency pairs to trade and then we would then look at the charts to show us where to open and close our trades. Some traders however will favour one discipline over the other and this is fine as long as we get the desired results.
Once we have decided which approach to use we must make another choice. This is how we want to open and close our trades and we can open trades in 2 ways. The first is by manually opening the trades and the second is by using a computer to trade for us.
With manual trading we have to select our own trading set-ups. We do this by using a program given to us by our forex broker. This program gives us live currency data and allows us access to the market and to open a trade we have to manual click the button and when we decide to do this is our decision.
When we manually trade we can chose to trade semi manually. In this method we would open our trade manually but we would use our computer to close the trade. This is done by using a stop loss and a take profit order. By using these orders the trade will be closed when the market reaches one of our chosen orders. Our trade will be in profit if the take profit point is reached first and we will have a loss if the stop loss is hit first.
Another way we can trade forex is by using an automated system which will trade for us. This trading system will run autonomously without human interference. We can buy a trading program from a developer or we can choose to develop our own system.
When we use a trading robot the computer will open and close trades for us depending on the trading rules programmed into it and because a trading system is automatic it does not suffer from emotions like a human would when trading. However markets always change with time and some trading robots may not be able to cope with changes in the market.
By taking the time to understand our own preferences we can begin to find a way for us to become successful with our trading.
Whether we trade automatically or whether we select our trades ourselves does not matter. Only that we trade in a way that is right for us and by trading in a way that is compatible with our own self will we have found our own successful trading strategy.
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Unknown - Wednesday, October 24, 2012
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