Forex: The Secrets of a Profitable Trading Strategy
Earlier forex market used to be the market for the privileged only – well-funded bodies, such as commercial and central banks, hedge funds and other institutional investors. However, nowadays forex trading has become quite democratic and offers a lot of avenues of profit to practically anyone. A very important remark about forex trading is that it refers not only to trading currencies, but also currency futures or options.
A forex trader can choose any financial instruments to trade to his/her liking. Once this is done, it’s high time to create a sound trading strategy that will bring profit. It is essential to do this before starting actually to trade and putting your capital at stake. It is also important to define one’s risk-management tactics and exit strategies.
One of the most profit-making trading strategies in the forex market is called a directional strategy. Now we come to a point where the notion of what directional trading strategy is has to be defined. Directional forex trading strategies include net short or long positions in the forex market. Net short strategies bring profit when the markets are falling, while net long strategies turn out to be profitable when the markets are rising. Directional forex strategies roughly consist of trend-following strategies, moving average crossover systems and breakout systems. However, it must be mentioned that there are also other approaches to forex trading, but the above-mentioned ones are the most common.
Trend-following trading strategies are based on the assumption that if a trend in the forex market has established, it will rather continue then reverse. And as a result, trend-following systems generate trading signals that a position should be initiated once the price move has happened.
Then moving average crossover trading system is the most widely used directional strategy nowadays. It employs two moving averages: the crossover of short-term and long-term moving averages cerates buy signals. However, this type of systems is prone to false signals, the so-called “whipsaws”. If a forex trader uses this strategy, he/she
should test in different time periods before trading.
Breakout systems are based on the assumption that the price movement to the new high or low shows that the trend is strengthening. Breakout systems are grounded on the predefined trading rules.
There is no straightforward answer as to what type of directional forex strategy is the best, as all of them show profit-making results when applied reasonably. Thus a forex trader can choose the strategy to his/her taste, the only thing that should be kept in mind that the correct evaluation and interpretation of results and making appropriate trading decisions is no less important then choosing the conceivable trading strategy.
A forex trader can choose any financial instruments to trade to his/her liking. Once this is done, it’s high time to create a sound trading strategy that will bring profit. It is essential to do this before starting actually to trade and putting your capital at stake. It is also important to define one’s risk-management tactics and exit strategies.
One of the most profit-making trading strategies in the forex market is called a directional strategy. Now we come to a point where the notion of what directional trading strategy is has to be defined. Directional forex trading strategies include net short or long positions in the forex market. Net short strategies bring profit when the markets are falling, while net long strategies turn out to be profitable when the markets are rising. Directional forex strategies roughly consist of trend-following strategies, moving average crossover systems and breakout systems. However, it must be mentioned that there are also other approaches to forex trading, but the above-mentioned ones are the most common.
Trend-following trading strategies are based on the assumption that if a trend in the forex market has established, it will rather continue then reverse. And as a result, trend-following systems generate trading signals that a position should be initiated once the price move has happened.
Then moving average crossover trading system is the most widely used directional strategy nowadays. It employs two moving averages: the crossover of short-term and long-term moving averages cerates buy signals. However, this type of systems is prone to false signals, the so-called “whipsaws”. If a forex trader uses this strategy, he/she
should test in different time periods before trading.
Breakout systems are based on the assumption that the price movement to the new high or low shows that the trend is strengthening. Breakout systems are grounded on the predefined trading rules.
There is no straightforward answer as to what type of directional forex strategy is the best, as all of them show profit-making results when applied reasonably. Thus a forex trader can choose the strategy to his/her taste, the only thing that should be kept in mind that the correct evaluation and interpretation of results and making appropriate trading decisions is no less important then choosing the conceivable trading strategy.
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