Project Stocks

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)

The most common type of trading system. If you carefully think about it, it’s pretty clear why this is the most common type of trading: as the majority of market participants align themselves to one side, the market, a product of the participants’ decisions, will also go one-way. If the majority of the EUR is going up, it means that the majority of traders are going up.

Following the trend is following the herd. What’re the pros for trend following? Your trading accuracy increases because you’ll be one with the market, instead of opposing it. You’ll make fewer trades following the trend than other strategies.

You still need entry and exit rules, and the discipline to follow them. Here are a couple of tips:

Entry/Exit Tips:

1. Enter on retracements and not in the middle or top of a swing. Entering on support is a little bit tougher, but it’s well worth it.

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

Fading is disagreeing with the market and selling into strength or buying into weakness. You’re basically bottom and top picking - a lot harder than following the trend. Let’s discuss some advantages of 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.

Breakout Method

The keyword for breakout trading is “breach”: you enter the market whenever the price “breaches” the highest 52 week high or the lowest 52 week low. You can change the 52 week to whatever number you consider to be better based on your own research. Breakout trading is just the entry, so you’ll need to figure out how you’ll trail your exit.

Note that trend following and breakout trading are different. Trend following is riding the market’s wave; breakout trading is enter on a breach.

What Do I Do Now?

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.

Related posts:

1. Forex Trading- Secret Strategies Revealed Forex Trading is financially the most rewarding strategy for Traders....
2. Trade More Profitably With The Right Forex Trading Strategies Any successful FOREX trader needs a good trading strategy. Each...
3. Secret Forex Trading Strategies If you are a forex trader you should be prepared...
4. Trading Strategies First off, lets quickly touch on what forex trading is....
5. Forex Trading Plan- Create the Best Plan Today as the world's economies start to slow down, many...