Forex Trader Strategies
The foreign currency exchange market, or Forex, allows you to profit from changing exchange rates between currencies. Nearly anyone can open a Forex account. The Forex market is popular with novice traders because it operates 24 hours a day, so you can develop trading skills without quitting a day job. But trading any market is exceptionally challenging, and you must devise a good strategy for yourself. Most successful strategies incorporate elements from many basic concepts.
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Candlestick Strategies
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Some traders pay attention to the shapes and patterns that appear on a candlestick chart. A candlestick is a format for displaying the relationships between the opening, closing, high and low prices of a time period. They show the same data as a bar chart, but they emphasize these four prices more clearly. When two or more adjacent candlesticks create one of many well-known patterns, they may predict future prices. You can eventually learn all the patterns, but a simple and powerful signal for the novice is the "engulfing" pattern. This occurs when a candle is the opposite color of its preceding candle, and the opening and closing prices extend above and below the opening and closing prices of the preceding candle. Such a move often leads to further prices in the direction of the candle.
Moving Average Strategies
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The moving average is a "technical indicator" that you apply directly to a price chart. It appears on the chart, superimposed on the price bars or candles. It draws a line that shows how average prices change over time. It lets you see past the volatility of a market and view the overall trend. Forex traders use moving averages in many ways. One strategy is to simply look at the moving average line and study its slope. If the slope is positive, then prices are rising on average. Consider buying into the currency as prices fall back to the line, or rise up through the line.
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Trend Lines
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Few forces are as powerful in the market as a solid trend. You can determine trends in many ways, but an easy strategy uses "trend lines" to view them on a chart. If are clearly rising over many bars on the chart, use the charting program's drawing tools to connect several low points with a single straight line. If you can do this, then you have a meaningful trend. Buying into the currency as prices return to the trend line can be profitable if the trend continues. Price often bounce off a trend line and push higher.
Warning
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While these strategies do seem straightforward, trading is exceptionally difficult work. No strategy is foolproof and many provide false signals on occasion. You should trade any new strategy with a small investment, and never commit funds you cannot afford to lose. Forex is one of the riskiest of all financial markets.
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