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a definitive guide on trading forex


Definition of Trading Forex?

Trading Forex is the process of speculating on currency values in order to make a profit. Because currencies are traded in pairs, when a trader trades one for another, he or she is betting on whether the value of one currency will rise or fall in order to determine the value of the other.

The worth of a currency pair is impacted in terms of professional career streams, economic, political, and international factors, all of which influence the forex organic market. You can buy and sell currencies from your phone, laptop, tablet, or PC using online trading platforms supplied by worldwide brokers like WESTERNFX.

Forex Trading Strategies

Forex trading strategies are typically distinguished by timeframe and market-specific parameters. Trading market changes in minutes or over several days is one strategy. As a beginner, you can use a forex demo account to try several forex methods and determine their relative success rate and fit. You can also want to experiment with and select your preferred technical indications for entry and exit locations, as well as combine elements from several techniques. The following are some of the most frequent forex strategies:

  • Forex scalping is a strategy in which traders hold a number of short-term deals and benefit from modest but frequent winning trades. This method may be best suited to traders who can devote a significant amount of time to trading and who are more interested in technical analysis.
  • Forex day trading is for traders who want to avoid overnight holding charges and enter and exit at least one trade per day by predicting daily market moves. This trading approach may be appropriate for traders who aren’t comfortable with scalping’s highly fast-paced trading methods but prefer shorter-term trading.
  • Swing trading forex is a good option for traders who want to combine fundamental and technical analysis. Positions are held over several days with the goal of buying at “swing lows” and selling at “swing highs,” or vice versa if shorting. This strategy spends less time analyzing market patterns than others, therefore there will be overnight holding expenses and a higher risk of the market “gapping.”
  • Position trading entails taking long-term holdings while ignoring short-term price changes. Traders who spend more time learning market fundamentals and less time on technical analysis or executing trades may benefit from position trading.

To learn more about the different methods you can use as a beginner when trading Forex.

Step By Step Guideline On Trading Forex

Here are some of the best technical strategies on trading forex to help you grow your investments!

Step #1 – Pay Attention to Daily Pivot Points

If you’re a day trader, paying attention to daily pivot points is critical, but it’s equally critical if you’re a position trader, swing trader, or exclusively trade long-term time frames. Why? Because pivot levels are monitored by tens of thousands of other traders.

At times, pivot trading might feel like a self-fulfilling prophecy. Markets will frequently find support or resistance, or the market turns, near pivot levels simply because many traders will place orders at such levels since they are confirmed pivot traders. As a result, when major trading moves occur off pivot levels, there is often no fundamental cause for the move other than the fact that a large number of traders have put trades in place in anticipation of such a shift.

We’re not recommending that you use pivot trading as your primary trading strategy. Instead, you should keep an eye on daily pivot points for indicators of trend continuation or potential market reversals, independent of your trading strategy. Pivot points and the trading activity that occurs around them can be used as a confirming technical signal in conjunction with whichever trading method you choose.

Step #2 – Trade with an Edge

The most skilled traders risk their money only when a market opportunity provides them with an advantage, something that raises the likelihood of the trade they make being successful.

Your edge can be anything, indeed something as fundamental as obtaining at a cost level that has already demonstrated to be a solid back level for the showcase (or offer at a cost level that has already appeared to be solid resistance). 

A number of specialized angles can assist you to pick up an advantage – and consequently boost your chances of victory. For illustration, in case the 10-period, 50-period, and 100-period moving midpoints all focus at the same cost level, it ought to give critical bolster or resistance for an advertisement, since dealers who utilize any one of those moving midpoints will be working in concert. 

Converging specialized signs give a comparative advantage when various markers on different time frames come together to supply bolster or resistance. The cost nearing the 50-period moving normally on the 15-minute time outline at the same cost level as the 10-period moving normal on the hourly or 4-hour chart is a case of this.

Step #3 – Preserve Your Capital

In forex trading, avoiding huge losses is more important than making large profits. If you’re new to the market, that may not appear to be totally accurate, but it is. Knowing how to maintain your capital is essential for successful Forex trading.

“The most fundamental rule of trading is to play superb defense,” according to none other than the great Paul Tudor Jones, founder of the enormously successful hedge fund Tudor Corporation. He is not only a successful trader with an almost unequaled track record, but he is also a generous philanthropist who was instrumental in the development of the ethics training program that is now needed for membership on all US futures exchanges.

Why is it so vital to playing good defense in forex trading, i.e., preserving your trading capital? Because the truth is that the majority of people who try their hand at forex trading fail because they run out of money and are unable to continue trading. They blow up their account before they even get an opportunity to enter a lucrative trade.

Step #4 – Simplify your Technical Analysis

Consider the following images of two extremely distinct forex traders:

Trader #1 has a swanky office, a top-of-the-line, custom-built trading computer, multiple monitors and market news feeds, and a huge number of charts, each of which is loaded with at least eight or nine technical indicators – five or six moving averages, two or three momentum indicators, Fibonacci lines, and so on.

Trader #2 works in a small and simple office space, using only a laptop or notebook computer, and his charts show only one or two – possibly three at most – technical indicators overlayed on the market’s price activity.

Trader #1 is a super-successful, professional forex trader, which you probably anticipated erroneously. In truth, Trader #2‘s portrait is more akin to what a consistently profitable forex trader’s operation looks like.

A trader can apply an almost infinite number of different lines of technical analysis to a chart. However, more isn’t necessarily – or even often – better. Considering an almost endless number of indicators can muddy the waters for a trader, increasing uncertainty, doubt, and indecision, and leading a trader to miss the forest for the trees.

Step #5 – Place Stop-loss Orders at Reasonable Price Levels

This axiom may appear to be a concern when it comes to protecting your trading funds in the event of a bad trade. It is true, but it is also a necessary component of successful forex trading.

Many novice traders believe that risk management just means setting stop-loss orders around their trade entrance point. True, smart money management involves not entering trades with stop-loss levels that are so far away from your entry point that the trade has a negative risk/reward ratio (i.e., risking more in the case the trade flops than you can fairly expect to profit if the trade succeeds).

However, as illustrated by a trade being stopped out for a loss, one aspect that frequently contributes to trading failure is putting stop orders too near to your entry point, only to have the market turn back in your favor and having to watch price advance to a level that would have returned you a sizeable profit…if only you hadn’t been stopped out for a loss.

Yes, it is crucial to only participate in trades that allow you to place a stop-loss order close enough to the entry point to avoid a big loss. However, it’s also crucial to place stop orders at appropriate price levels depending on your market analysis. Once you’ve mastered these approaches, you’ll be a pro technical trader! The information they share will help you succeed in the Forex market.