3 Forex Systems Everyone Should Know
So you've delved into the wonderful world of Forex and you're as confused and paralyzed as a deer at a headlight. No worries, let this article enlighten you on some of the most fundamental types of trading systems.
The Trend Is Your Friend (until it ends)
Trend following is the most common type of Forex trading, because when a trend is present, it means that most of the traders - the market participants - are agreeing on whether to buy or sell.
By following the trend, you're following the crowd. And because of this, your probability of making winning trades is higher. You won't be arguing with the market, but rather you'll be agreeing with it. Moreover, you'd be making fewer trades.
Of course, you'll still have to know the exact rules of when and how to enter and exit. But here some tips:
Trend Following Tips:
1. When the trend is up, enter on support. Look for buying at specific levels.
2. Place a trailing stop loss beneath the most recent lows to really milk out the profits.
That about briefly summarizes trend following, so let's look at the next trading method.
Fading
The second type of trading is called fading. Fading means going the opposite direction of the market. Sometimes you can sell into strength, or buy into weakness. This is basically bottom and top picking. So what's the good thing about fading?
A definite pro of bottom and top picking is that when you're right, your reward is huge. Let's say your reward was 9 times the amount you risked so your reward to risk ratio was 9:1. This means that you could've been wrong 8 times but still generate capital. Of course, your system has to be positive, you can't just guess, hope, and pray, unless you want to lose money.
Maybe the market has been going up for the past few months but now you see a huge doji. You might want to short it now, or you might want to wait for a close below the recent low. The point is, fading is a very different trading style from trend following. Now, let's explore the final trading style.
Breakouts
All you have to remember regarding the breakout method is the keyword "breach": you enter whenever the market breaches the highest high or the lowest low. This can be the 52 week high/low or even the 20 day high/low, it's up to you. Next, you'll need to determine how you will exit your trades.
Note that although trend following and breakout trading seem similar, they have a key difference. Trend following just means you follow the trend. Breakout is a specific entry method.
So Now What?
Keep in mind that you can mix and match the above three elements to suite your needs; you could follow the trend but enter on a breakout, or whatever.
The Trend Is Your Friend (until it ends)
Trend following is the most common type of Forex trading, because when a trend is present, it means that most of the traders - the market participants - are agreeing on whether to buy or sell.
By following the trend, you're following the crowd. And because of this, your probability of making winning trades is higher. You won't be arguing with the market, but rather you'll be agreeing with it. Moreover, you'd be making fewer trades.
Of course, you'll still have to know the exact rules of when and how to enter and exit. But here some tips:
Trend Following Tips:
1. When the trend is up, enter on support. Look for buying at specific levels.
2. Place a trailing stop loss beneath the most recent lows to really milk out the profits.
That about briefly summarizes trend following, so let's look at the next trading method.
Fading
The second type of trading is called fading. Fading means going the opposite direction of the market. Sometimes you can sell into strength, or buy into weakness. This is basically bottom and top picking. So what's the good thing about fading?
A definite pro of bottom and top picking is that when you're right, your reward is huge. Let's say your reward was 9 times the amount you risked so your reward to risk ratio was 9:1. This means that you could've been wrong 8 times but still generate capital. Of course, your system has to be positive, you can't just guess, hope, and pray, unless you want to lose money.
Maybe the market has been going up for the past few months but now you see a huge doji. You might want to short it now, or you might want to wait for a close below the recent low. The point is, fading is a very different trading style from trend following. Now, let's explore the final trading style.
Breakouts
All you have to remember regarding the breakout method is the keyword "breach": you enter whenever the market breaches the highest high or the lowest low. This can be the 52 week high/low or even the 20 day high/low, it's up to you. Next, you'll need to determine how you will exit your trades.
Note that although trend following and breakout trading seem similar, they have a key difference. Trend following just means you follow the trend. Breakout is a specific entry method.
So Now What?
Keep in mind that you can mix and match the above three elements to suite your needs; you could follow the trend but enter on a breakout, or whatever.
About the Author:
But if you're somewhat stuck on what system you should use, explore my Forex and Online Income website. It's compiled most of today's different forex trading systems and strategies. A safe start would be this complete discretionary trading system
posted by Debt Consolidation Loan at
8:43 AM
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