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Can FOREX Trading Strategies Be The Key To Forex Trading Success?

May 22, 2008
Trading strategies are crucial to being a successful FOREX trader. However, there are many different strategies for trading and thus FOREX traders must find their own unique style. Technical or fundamental analysis approaches are preferred by many traders, but the amalgam of both strategies will ensure a broad overview of the financial market.

The most important concept that technical analysis relies on is that prices move by trends. A common saying in FOREX trading is "The trend is your friend." There are identifiable patterns in market movements that have been analyzed for many years. A good understanding of these trends and how to read them makes up the foundation of a good trading strategy.

Many analytical tools exist to help traders understand market movements. It is recommended that the beginning FOREX trader study each method separately to obtain a working knowledge of their concepts and use. Once the trader understands on tool, he or she should continue to use it while studying other tools. Every tool can be used to reinforce the others.

Many FOREX trading strategies rely on the concepts of price support and resistance. The lowest price observed over time in a currency's price swings is called the 'support' level. When the price falls to that level it is usually expected to rise again. The 'resistance' level is the highest price observed to repeat over time and when a currency reaches that high it would be expected to fall. The upper 'resistance' level and the lower 'support' level are the limits of price movement for any given time period.

The direction that the price is heading is expected to stay the same once they break through support or resistance levels. An example of this would be that the price begins to rise above the earlier resistance level, that price will more than likely continue to rise, which people consider bullish.

Price charts must be analyzed in order to identify unbroken support and resistance levels. While charts can be analyzed in any time frame, analysis of longer time frames, i.e., weeks and months, can establish more important support and resistance levels. It's important to have accurate support and resistance level data in order to know when to enter and exit transactions.

Another common tool used in Forex trading strategies are moving averages. The average price during a specific time period over a certain period of time is the SMA, or simple moving average. Moving averages give a better understanding of price movements because they can eliminating any short term price fluctuations. An SMA can be plotted by Forex traders who can use the information in order to determine the times the prices seem to either rise or fall. Once a price has risen above the SMA, they will typically keep rising. Similarly, once a price falls below the SMA, they will usually continue to drop.

Here are two different kinds of trading strategies, which you can use on their own or in conjunction with one another. Technically, the FOREX trader should possess a whole range of trading tools, which will help to analyze fluctuations in the market, and to back up the conclusions of scholarly studies. If many of these tools are combined to indicate that the market is progressing a certain way, then the trader can be more confident in undertaking a course of action.

It is easy to reinforce technical findings by using basic analysis. When deciding what direction is best, the FOREX trader should pay attention to multiple indicators.

To be a successful FOREX trader you should be able to understand when to enter, as well as exit a trade, be alert to the signs of market changes, how much you can afford to lose if a trade goes against you. Learning these technical analysis rules will go a long way in making your future both profitable and successful.
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