3 Forex Systems Everyone Should Know
Too much information? Analysis paralysis? Worried and confused about Forex Trading? Here we will clarify the 3 fundamental types of Forex Systems.
The Trend Is Your Friend
Trend following is the most common type of trading system. Because the majority of the market follows a clear direction, it means that the majority of the market participants agree on the direction as well.
Following the trend is following the herd. What're the pros for trend following? Your trading accuracy increases because you'll be one with the market, instead of opposing it. You'll make fewer trades following the trend than other strategies.
Of course, you'll still have to know the exact rules of when and how to enter and exit. But here some tips:
Trend Following Entry/Exit Tips:
1. Enter on retracements and not in the middle or top of a swing. Entering on support is a little bit tougher, but it's well worth it.
2. Place a trailing stop loss beneath the most recent lows to really milk out the profits.
That about briefly summarizes trend following, so let's look at the next trading method.
Fading
Fading is disagreeing with the market and selling into strength or buying into weakness. You're basically bottom and top picking - a lot harder than following the trend. Let's discuss some advantages of fading.
A definite pro of bottom and top picking is that when you're right, your reward is huge. Let's say your reward was 9 times the amount you risked so your reward to risk ratio was 9:1. This means that you could've been wrong 8 times but still generate capital. Of course, your system has to be positive, you can't just guess, hope, and pray, unless you want to lose money.
A few price action triggers include a doji and a close below the recent low or above the recent high. Fading is very a different trading style from trend following. Now let's discuss the last forex trading strategy.
Breakout Method
All you have to remember regarding the breakout method is the keyword "breach": you enter whenever the market breaches the highest high or the lowest low. This can be the 52 week high/low or even the 20 day high/low, it's up to you. Next, you'll need to determine how you will exit your trades.
Note that although trend following and breakout trading seem similar, they have a key difference. Trend following just means you follow the trend. Breakout is a specific entry method.
So Now What?
Keep in mind that you can mix and match the above three elements to suite your needs; you could follow the trend but enter on a breakout, or whatever.
The Trend Is Your Friend
Trend following is the most common type of trading system. Because the majority of the market follows a clear direction, it means that the majority of the market participants agree on the direction as well.
Following the trend is following the herd. What're the pros for trend following? Your trading accuracy increases because you'll be one with the market, instead of opposing it. You'll make fewer trades following the trend than other strategies.
Of course, you'll still have to know the exact rules of when and how to enter and exit. But here some tips:
Trend Following Entry/Exit Tips:
1. Enter on retracements and not in the middle or top of a swing. Entering on support is a little bit tougher, but it's well worth it.
2. Place a trailing stop loss beneath the most recent lows to really milk out the profits.
That about briefly summarizes trend following, so let's look at the next trading method.
Fading
Fading is disagreeing with the market and selling into strength or buying into weakness. You're basically bottom and top picking - a lot harder than following the trend. Let's discuss some advantages of fading.
A definite pro of bottom and top picking is that when you're right, your reward is huge. Let's say your reward was 9 times the amount you risked so your reward to risk ratio was 9:1. This means that you could've been wrong 8 times but still generate capital. Of course, your system has to be positive, you can't just guess, hope, and pray, unless you want to lose money.
A few price action triggers include a doji and a close below the recent low or above the recent high. Fading is very a different trading style from trend following. Now let's discuss the last forex trading strategy.
Breakout Method
All you have to remember regarding the breakout method is the keyword "breach": you enter whenever the market breaches the highest high or the lowest low. This can be the 52 week high/low or even the 20 day high/low, it's up to you. Next, you'll need to determine how you will exit your trades.
Note that although trend following and breakout trading seem similar, they have a key difference. Trend following just means you follow the trend. Breakout is a specific entry method.
So Now What?
Keep in mind that you can mix and match the above three elements to suite your needs; you could follow the trend but enter on a breakout, or whatever.
About the Author:
But if you're somewhat stuck on what system you should use, explore my Forex and Online Income website. It's compiled most of today's different forex trading systems and strategies. A safe start would be this complete discretionary trading system
posted by Credit Counseling at
6:43 AM
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