Article by Richard Sobin
The Foreign exchange is a gigantic market where currencies are bought and sold for earning profits. 70% of the dealings are done for the US Dollar, Australian Dollar, British Pound and the Japanese Yen. Gone are the days when the Forex was meant for large scale companies and central banks, thanks to Forex brokers who break large deals into smaller units to enable small investors to participate.
The Forex seems very lucrative and thus attracts many traders. However, newcomers need to ensure that they have detailed in-depth knowledge of the Forex world before they take the plunge. It is advised that they try their skills on demo accounts before entering the real market so that they can learn from their mistakes.
Entering the Forex market without proper knowledge and past experience can be disastrous. The big players have the power to influence the market behaviour. You need to understand market trends, accurately predict the market moves and be groomed with the risk management techniques in order to merely survive the ordeal.
Basic strategies: These strategies use the basic indicators to decide on the entry and exit opportunities. Some of these are:
* Fast moving average crossover: Traders are advised to observe the current EMA (Exponential Moving Average) trend. For example, if you have EMA 6 crossing EMA 23, you should buy if EMA 6 crosses up EMA 23 while sell your holdings if it crosses down EMA 23. This strategy fails to predict future market trend therefore is vulnerable to change of market signals. It cannot be applied when there are minute price fluctuations.
* Stochastic high-low: Traders can observe the stochastic indicator to buy when it gets to its lowest level and turns up. And sell when the stochastic reaches its peak and then turns down. Exit is to be made when the stochastic goes to the opposite side. This provides clear action indicators and requires periodic monitoring.
Simple strategies: These are to be used by skilled starters who have got a good knowledge base of the market. Some examples are:
* Parabolic SAR and ADX: These two indicators compliment each other and thus are easy to follow. It is advised to sell when the +DI line falls below the -DI line while buy when it is the vice versa. SAR and ADX are however follow-up indicators and thus cannot be depended upon at all times.
Complex strategies: These strategies use more than 3 indicators and follow some strict rules. Here, strategies are based on a combination of multiple indicators like SAR, EMA, MACD, Bollinger band, weekly pivot and so on.
Advanced strategies: These are followed by strong Forex players who have years of market experience and an expert knowledge base. These are extremely complicated to understand for ordinary traders.
As we see that there are numerous trading strategies based on various market indicators, it is essential to gauge the ones suitable for your implementation. forex trading is bizarrely risky and thus you need to measure each inch before making a move.
About the Author
Richard Sobin has been the owner of Forexnewstrader.com for more than 6 years and continues to provide other traders with new and original forex trading information.