Short Term Trading Strategies
Trading strategies can be split into two general categories: technical and fundamental. Technical trading strategies are used to watch over past trends and predict future movements based on the information gathered. Technical analysis uses a combination of charting techniques to identify patterns in the market that are similar to what happened in the past. Forex trading strategies, which combine fundamental analysis with technical analysis, attempt to make money from changes in the prices of particular currency pairs.
A technical strategy will most likely be based on fundamental analysis, depending on what it is designed to do. Technical traders rely on the idea that markets behave similarly, whether human or automated. This means that similar patterns can be identified by using similar indicators. Moving averages, oscillators, and moving average convergence divergence are examples of common technical indicators. Traders may also use other tools such as moving average convergence channel or MACD and moving average convergence gap.
Another type of strategy is known as counter-trend. Counter-trend trading strategies attempt to profit from price fluctuations. For this strategy, the main types of information to consider include previous price ranges, current price ranges, and possible breakouts in the near future. When looking for potential breakouts, traders may look for support, resistance, and pivot points, which indicate where the price may head in the next few minutes. The idea is that if a security or market will start to move in one direction, an obvious signal has to appear to indicate the end of the trend.
One of the more complicated trading strategies is called wave trading. With this strategy, traders look for what they perceive to be a wave pattern, which can then indicate where a reversal may occur. Usually, this type of strategy is employed by short-term Forex traders who want to capitalize on a trend that is about to burst. Currencies that are in this situation usually experience strong appreciation, then a consolidation phase, followed by a rapid decline. This type of strategy makes use of a number of technical indicators, but it is the divergence of the waves that provides valuable information.
Other trading strategies make use of simple moving averages, as well as more complex mathematical techniques. The most popular of these are the moving averages technique, or SMA, MACD, and RSI. The basic idea behind these strategies is that the distance between two moving averages, usually referred to as the current price and the overbought or oversold conditions, is considered to be the central point of a trend line. Then, over time, the size of the current range is plotted against the size of the overbought and oversold conditions. These signals act as alerts, telling Forex traders when to enter or exit a trade.
A less elaborate but still useful strategy is made use of by many short-term Forex traders. Instead of relying solely on charts, many of these traders use forex trading indicators to give them more insight into how the market is behaving. The most popular of these trading indicators is the Stochastic, MACD, and moving average convergence/Divergence. It is important, however, that traders who use these types of indicators choose carefully which indicators they should use.
Another way to take advantage of technical analysis in the context of short term Forex trading is to develop a trading plan using an assortment of moving average, sigma-divergence, RSI, MACD, and other indicators. When these indicators are combined in a reliable trading plan, it is possible to reduce the effect of human error to a great degree. The results of this combination can provide an excellent forecast for the behavior of a particular financial instrument, thus allowing traders to develop a trading plan that is based on their own analysis, rather than on what others may be saying about that particular financial instrument. It is also possible to eliminate the human element of the equation when using indicators to form a trading plan, which will lead to increased efficiency and market accuracy.
Some traders choose to apply techniques of Technical Analysis to generate other types of Forex strategies. This includes those strategies based on the assumption that market behavior is based solely on supply and demand forces, without regard to any outside forces such as the psychology of the market. The most popular of these strategies are the risk-reward trade system and the mini risk aversion trade system. These strategies combine technical analysis with other types of risk control methods such as stop loss and take profit protocols. Both risk control methods are designed to reduce the amount of losses that can occur in Forex trade, while maximizing the profits that can be gained.