Forex trading is a business that involves speculating price direction of the world’s currencies. Is the Euro going to lose value against the US Dollar? Is the Japanese Yen about to springboard into unprecedented levels against the Great British Pound? These are questions that are asked by Forex traders and which they attempt to answer as precisely as possible every day of the week.
The failure rate for Forex trading is staggering, with most sources indicating at least a 90 percent failure rate. Most trading accounts have a lifespan of 6 months or less, during which at least $10,000 is lost due to financial losses on negative positions and from broker commissions. As a sigh of relief, however, you should also know that trading the Forex market as a long-term career or business is viable with the use of the right strategy. Below, you’ll find four simple but proven and tested methods to trade the foreign exchange market.
Price Action Forex Trading
A bit more conservative than, say, algorithmic trading and other data-heavy type strategies, price action has become increasingly popular within the trading community. It uses a naked price chart, usually with candlesticks instead of traditional bars and lines for a broader and more complete view of what’s happening. Stick with longer time frame charts as this yield fewer but higher probability setups than what 5-minute or 15-minute charts can offer. If you see a range, which is the usual pattern intraday, identify support and resistance levels you can trade off of. If you see an uptrend on a ranging market, look to enter a short position on the daily highs of the range and vice versa for a bearish market.
Breakouts and Fakeouts
It will require more time and experience to distinguish whether or not price is about to break out or fake out. Basically, if price is approaching a level that it has found difficult to break out of in the past, wait for price to do so before entering a position. If price breaks out in one or two large candlesticks, anticipate a fakeout and trade against the direction. On the other hand, if price approaches the level at a consistently strong and assertive manner, it may be ready to actually move higher or lower. Either way, wait for at least 15 minutes after the price level has been broken before trading. This affords a clearer view of what market participants are actually doing.
Candlestick Patterns in Forex
Candlesticks can be incorporated into price action trading, but not all price action traders use candlesticks as tools for identifying market trends. Candlestick patterns are large enough to be given its own section as a strategy. Since its inception in the 1800s, candlesticks have evolved through time to give way to new market realities and policy reforms. One of the simplest strategies you can trade on your AlfaTrade account is a Bullish Engulfing pattern, wherein a small candlestick bar is followed by a large candlestick of the opposite color thereby “engulfing” the preceding candlestick wholly.
News Forex Trading
News trading is deceptively simple since all the information is spat out by finance and business websites. Even broker feeds, like that of AlfaTrade’s superior trading setup, offer real-time news reports. The tricky thing is knowing which news pieces you should follow and which ones to discard. For example, if you are trading the EUR/USD on 14:00 PM EST as the Feds release their interest rates or monetary policy, what clues should you look for in their statements? In most cases, the information they release is opposite from how market participants interpret it thus you’ll find a good interest rate hike does not always result in bullish currency moves.
Trading the forex exchange market should always be associated with risk. Regardless of what strategy you use, whether it’s something you developed yourself or one you bought from a Wall Street fund, there will be times when your strategy produces losses. Risk is inevitable in trading any financial market, from stocks to currencies. If you learn to genuinely accept this reality, you’ll be in a much better position to wield a trading strategy and profit from a systematic and consistent approach.