The two most common methods of trading are range and trend. Forex traders may use either style depending on the particular currency pair in question, the current market, and, to a certain extent, personality. Trend trading is the more common style.
Trend trading on forex depends on catching the wave of a trend early and riding it through until it reverses, at which point profit is taken. Key indicators are higher lows on an uptrend and lower highs in a downtrend. Technical analysis is most important in trend trading, but fundamental analysis is still important, because it can help you to confirm whether the trend is what you think it is.
Trend traders usually set tight stops. Even a small reversal suggests that the prediction of a trend was not accurate. It is typical for trend traders to experience a larger number of losing trades; therefore it is critical to cut losses early to maximize overall profits. This approach is mostly used for the major currency pairs, EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, and NZD/USD.
The goal is to make multiple small profits, not to gain a large profit on any one trade. Most trend traders risk only about 2 percent of their capital on a single trade, with stops of about 20 pips behind the price. Large profits can occur, especially when leverage is used.
Range traders are less focused on the ups and downs of a currency pair. Instead, they concentrate on the channel: the normal fluctuation between an average low price (support) and an average high price (resistance). The basic approach is to buy near support and sell near resistance. Most range traders choose cross currency pairs, those which do not include the U.S. dollar, because the ranges are more predictable
Large leverage isn't recommended for the range trader, because the price may fall several times before heading for the top, and if these losses are compounded by leverage it can be devastating. Most range traders buy mini lots or micro lots, which are 1000 to 10,000 units instead of the 100,000 units of a full lot.
The strategy that you choose to employ for your own forex trades will depend on what you are most comfortable with. Both approaches require you to perform solid analysis and understand how the market moves. You will also need to be disciplined about risk management in either case.
Trend trading on forex depends on catching the wave of a trend early and riding it through until it reverses, at which point profit is taken. Key indicators are higher lows on an uptrend and lower highs in a downtrend. Technical analysis is most important in trend trading, but fundamental analysis is still important, because it can help you to confirm whether the trend is what you think it is.
Trend traders usually set tight stops. Even a small reversal suggests that the prediction of a trend was not accurate. It is typical for trend traders to experience a larger number of losing trades; therefore it is critical to cut losses early to maximize overall profits. This approach is mostly used for the major currency pairs, EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, and NZD/USD.
The goal is to make multiple small profits, not to gain a large profit on any one trade. Most trend traders risk only about 2 percent of their capital on a single trade, with stops of about 20 pips behind the price. Large profits can occur, especially when leverage is used.
Range traders are less focused on the ups and downs of a currency pair. Instead, they concentrate on the channel: the normal fluctuation between an average low price (support) and an average high price (resistance). The basic approach is to buy near support and sell near resistance. Most range traders choose cross currency pairs, those which do not include the U.S. dollar, because the ranges are more predictable
Large leverage isn't recommended for the range trader, because the price may fall several times before heading for the top, and if these losses are compounded by leverage it can be devastating. Most range traders buy mini lots or micro lots, which are 1000 to 10,000 units instead of the 100,000 units of a full lot.
The strategy that you choose to employ for your own forex trades will depend on what you are most comfortable with. Both approaches require you to perform solid analysis and understand how the market moves. You will also need to be disciplined about risk management in either case.
I am here to share some knowledge, tips, strategies and insights of how to successfully buy, sell, trade and invest in online Forex trading. FOREX or Foreign Exchange is the largest as well as the most liquid trading market in the world and there are many people involved in FOREX trading all over the world. A lot of people claim that the FOREX is the best home business that could be pursued by any person.
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