Technical Trades Based on Fundamentals – EURCHF Strategy

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Contents

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Reading time: 53 minutes

Forex trading for beginners can be especially tough. This is mostly due to unrealistic expectations that are common among newcomers. What you need to know is that currency trading is by no means a get-rich-quick scheme. On this page, you will receive an introduction to the Forex market, how it works, and key terminology, along with the benefits of trading different currencies.

We will cover how you can start trading (including choosing the best broker and trading software), the fundamentals of risk management, the different ways you can analyse the Forex market, and an overview of the most popular trading strategies. By the end of this guide, you will have the knowledge you need to start testing your trading skills with a free Demo account, before you move onto a live account.

What is Forex?

Forex, or the foreign exchange market (also called FX for short) is the marketplace where currencies are traded. At its simplest, a foreign exchange transaction might be, for example, when you transfer your local currency to a new one for an upcoming holiday. Across the market as a whole, an estimated 5.3 billion USD is traded every day between governments, banks, corporations, and speculators.

Knowing how the industry is mapped out is important, because the collective combination of all participants creates the market you trade in. The relative weight of the trading party to the market is measured by how much money that party manages – from billion dollar hedge funds and investment banks, to private traders with a few thousand dollars in action.

Currencies are traded as pairs, and the movement of currency pairs measure the value of one currency against another. For instance, the EURUSD currency pair measures the value of the Euro against the US dollar. When the value of the pair increases, this means the value of the Euro has increased against the value of the US dollar. When the value of the pair decreases, this means the value of the US dollar has increased (or the value of the Euro has fallen).

By trading Forex and CFDs, traders can make a profit off of these currency movements.

Which Forex Pairs Can You Trade?

Forex currency pairs are known as majors, minors, and exotics.

Major currency pairs are made up of the most frequently traded currencies, which are:

  • USD – The US Dollar
  • EUR – The Euro
  • JPY – The Japanese Yen
  • GBP – The British Pound
  • CHF – The Swiss Franc
  • CAD – The Canadian Dollar
  • AUD – The Australian Dollar
  • NZD – The New Zealand Dollar

A major currency pair is one that contains any one of these currencies paired against the US dollar, such as the EUR/USD, USDJPY or the GBPUSD. Forex minors pairs made up of these major currencies that don’t include the US dollar. These pairs include EURGBP, EURCHF, AUDNZD and so on.

Finally, exotic currencies are any currencies that we haven’t already mentioned, such as the Hong Kong Dollar (HKD), the Norwegian Krone (NOK), the South African Rand (ZAR) and the Thai Baht (THB). Exotic pairs include one exotic currency and one major currency.

When learning about Forex trading, many beginners tend to focus on major currency pairs because of their daily volatility and tight spreads. But there are numerous other opportunities – from exotic FX pairs, to CFD trading opportunities on stocks, commodities, energy futures, to indices. There are even indices that track groups of indices, and you can trade them as well.

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How many markets you scan for opportunities is up to you, but do not limit yourself to just one instrument or one market. Market limitation can lead to overtrading, so make sure to diversify your investment.

How Do Forex Quotes Work?

When trading Forex, you’ll see that both ‘Bid’ and ‘Ask’ prices are quoted. The bid price is the price at which you can buy the currency, while the ask price is the price at which you can sell it. If you are purchasing a currency in a trade, this is known as a long trade, and the hope is that the currency pair will increase in value, so that you can sell it at a higher price and make a profit on the difference.

If you are selling a currency in a trade, the opposite is true – the hope is that the currency pair will fall in value, so that you can buy it back at a lower price, which means you will profit on the difference.

The number quoted for these prices is based on the current exchange rate of the currencies in the pair, or how much of the second currency you would get in exchange for one unit of the first currency (for instance, if 1 EUR could be exchanged for 1.68 USD, the bid and ask price would be on either side of this number). Learn more about Forex quotes in this article: Understanding and Reading Forex Quotes.

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How Much Do Currency Values Change (Or, How Liquid Are Different Forex Pairs)?

If the way traders make a profit is by cashing in on the difference between the bid and ask prices of currency pairs, the next logical question is, how much can you expect any given currency to move?

This depends on how liquid the currency is, or how much of it is being bought and sold at any one time. The most liquid currency pairs are the ones with the most supply and demand in the Forex market, and this supply and demand is generated by banks, businesses, importers and exporters, and traders. Major currency pairs tend to be the most liquid, with the EUR/USD currency pair moving by 90-120 pips on an average day.

By contrast, the AUD/NZD moves by 50-60 pips a day, and the USDHKD currency pair only moves by an average of 32 pips a day (when looking at the value of currency pairs, most will be listed with five decimal points. A ‘Pip’ is 0.0001. So, if the EUR/USD moved from 1.16667 to 1.16677, that would represent a 1 pip change). The major Forex pairs tend to be the most liquid, and therefore provide the most opportunities for short-term trading.

However, there are many opportunities among minor and exotic currencies as well, particularly if you have some specialised knowledge about a certain currency.

What is the Forex Spread?

The spread, in Forex, is the difference between the bid and ask price of a currency pair. For example, if the Bid price of the EUR/USD is 1.16668, and the sell price is 1.16669, the spread will be 0.0001, or 1 pip. In any Forex trade, the value of a currency pair will need to cross the spread before it becomes profitable. To continue with the previous example, if a trader entered a long EUR/USD trade at 1.16668, the trade wouldn’t become profitable until the value of the pair was higher than 1.16669.

In a currency pair with a wider spread, such as the EURCZK, the currency will need to make a larger movement in order for the trade to become profitable. At the time of writing, the bid price for this pair is 25.4373, while the ask price is 25.4124, so the spread is 0.0200, or 20 pips. It’s also not uncommon for this currency pair to have movements of less than 20 pips a day, meaning traders will likely need to perform a multi-day trade to make a profit.

This means that low-spread trading is often a priority for Forex traders, as their trades can become profitable quicker, meaning that they can make a high volume of smaller trades, rather than relying on larger trades to make money.

What are Forex CFDs?

If you’ve been researching Forex trading, you might have seen the term ‘Forex CFDs’ at some point. There are two ways to trade Forex: using CFDs or spot Forex (also known as margin). Spot Forex involves buying and selling the actual currency. For example, you might purchase a certain amount of Pound Sterling for Euros, and then, once the value of the Pound increases, you may then exchange your Euros for Pounds again, receiving more money back compared with what you originally spent on the purchase.

The term CFD stands for ‘Contract For Difference’, and it is a contract used to represent the movement in the prices of financial instruments. In terms of Forex, this means that rather than purchasing and selling large amounts of currency, you can profit on price movements without owning the asset itself. Along with Forex, CFDs are also available on shares, indices, bonds, commodities and cryptocurrencies. In every case, they allow you to trade on the price movements of these instruments without having to purchase them.

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How Does Leverage Work in Forex Trading?

Along with being able to access a wide range of financial markets, another benefit of trading CFDs is that a trader can access a much larger portion of those markets, and increase their potential profits as a result. CFD contracts provide leveraged access to the market, meaning a trader can access a much larger portion of the market than what they would be able to purchase outright.

To use Gold CFD as an example, at the time of writing, to purchase an ounce of Gold you would need to spend 1,200 USD. However, with a leverage rate of up to 1:20 (which means a trader could trade up to 20 times the value of what they deposit), a trader could trade on the full value of an ounce of gold (equivalent to 1,200 USD), for a deposit of just 60 USD.

Similarly, if you wanted to purchase 3,000 USD with Euros, that would cost 2,570 EUR. With a leverage rate of 1:30, however, you could access 3,000 USD worth of the EUR/USD currency pair as a CFD with just 100 USD. The best part, however, is that the size of the potential profit a trader could make is the same as if they had invested in the asset outright. The risk here is that potential losses are magnified to the same extent as potential profits.

Forex CFD trade (1:20 leverage)

Traditional trade

US $500

EUR/USD trade opens at 1.16766, closes at 1.16926, a difference of 0.00200

You make US $200, or 40%

You make US $200, or 2%

EUR/USD trade opens at 1.16766, closes at 1.16532, a difference of 0.00234

You lose US $234, or 46.8%

You lose US $234, or 2.34%

To see how different levels of leverage can affect your trading, take a look at our Forex leverage infographic below:

(The leverage shown in Trades 2 and 3 is available for Professional clients only. A Professional client is a client who possesses the experience, knowledge and expertise to make their own investment decisions and properly assess the risks that these incur. In order to be considered to be Professional client, the client must comply with MiFID ll 2020/65/EU Annex ll requirements.)

Calculate Your Potential Profits with our Free Forex Calculator

Now that you know the basics of how Forex trading works, including currency pairs, CFDs and leverage, why not see how a trade might look in action? Admiral Markets has a free Forex calculator for traders, so you can calculate your potential earnings online, for free. Calculate your potential Forex earnings now.

A Summary of Essential Forex Terms

Before we move on, let’s recap some of the key concepts covered so far with this list of key Forex terms:

  • Pip: A pip is the base unit in the price of currency pairs, or 0.0001 of the quoted price. So when the bid price for the EUR/USD pair goes from 1.16667 to 1.16677, that represents a pip change of one.
  • Spread: The spread is the difference between a currency pair’s bid and ask price. For the most popular currency pairs, the spread is often low – sometimes even less than a pip! For pairs that aren’t traded as frequently, the spread tends to be much higher. Before a Forex trade becomes profitable, the value of the currency pair must cross the spread.
  • Margin: Margin is the money in a trader’s account. However, because the average ‘Retail Forex trader’ lacks the margin required to trade a high enough volume to make a good profit, many Forex and CFD brokers offer their clients access to leverage.
  • Leverage: Leverage is capital provided by a Forex broker to bolster their client’s trading volume. For example, if you use a 1:10 rate of leverage and have $1,000 in your trading account, you can trade $10,000 worth of a currency pair. If the trade is successful, leverage will maximise your profits by a factor of 10. However, please note that leverage also multiplies your losses to the same degree, so it should be used with caution. If your account balance falls below $0, you may trigger a broker’s negative balance protection settings (if trading with an ESMA regulated broker), which will result in the trade being closed. Fortunately, this means that your balance cannot move below $0, so you will not be in debt to the broker.

What Are the Benefits of Forex Trading?

Now that we’ve shared an overview of the Forex market, why might you want to trade Forex?

There are a number of reasons why people choose to start day trading. Some of these reasons might include the potential to earn extra money on the side from the comfort of their own home, the opportunity to learn a new skill in their own time, or even the dream of achieving financial freedom, and having more control over their financial future. When it comes to Forex specifically though, there are a number of benefits that make this financial instrument a very enticing one to trade.

If you would like to learn more about the differences between the Forex market and the Stocks market, why not check out our comparison article on the topic? And find out which market is right for you! Forex Vs. Stocks: Should You Trade Forex or Stocks?

Forex: The World’s Largest Financial Market

Forex is the world’s largest financial market, with over 5.09 trillion USD traded every single day (April 2020). To put it in other words, in a single day, more money will be traded in the Forex markets than Japan’s entire GDP! (Gross Domestic Product). Of these transactions, 254 billion USD is traded through CFDs and other derivative instruments.

Being the largest, most active financial market on the globe, it is also the world’s most liquid market, meaning it is easy for traders to enter into, as well as exit trades, and for the most liquid pairs, they can do so at a very low cost (even less than a single pip!). This also means that the Forex market is very volatile, creating many opportunities for traders to make a profit on both the positive and negative movements of currency pairs.

Trade Around the Clock

Forex is the one financial market that never sleeps, meaning you can trade at all hours of the day (or night). Unlike the world’s stock exchanges, which are located in physical trading rooms like the New York Stock Exchange or the London Stock Exchange, the Forex market is known as an ‘Over-the-counter market’ (or OTC). This means that the trades take place directly between the parties holding the currencies, rather than being managed via an exchange.

Consequently, the Forex market has never been restricted to the business hours of any one exchange.

However, since the Forex market is a global market, it means there is always a part of the world that is awake and conducting business, and during these hours their currencies tend to experience the most movement. For example, currency pairs involving the US dollar experience the most movement during US business hours (16:00 to 24:00 GMT), while the Euro, Pound, Swiss Franc and other European currencies experience the most movement during European business hours, (8:00 and 16:00 GMT).

By contrast, the Australian Dollar, the New Zealand Dollar and the Japanese Yen tend to be more active between 00:00 and 08:00 GMT. As a trader, this means you can trade whenever it suits you – if you work during the day, there will be currencies available to trade before or after work. If you have children but are at home during the day, you can simply choose a different currency. In the Forex market, you can trade 24 hours a day, 5 days a week.

Speculate on Rising or Falling Prices

One of the most common trading and investment philosophies is to ‘buy low and sell high’ – this is particularly the case with long-term investments, such as investing in stocks or bonds, which rely on the asset increasing in value. In the Forex market, you can also sell high and buy low. This way, you can potentially make profits on both downward and upward trends.

As mentioned earlier, in a long trade (also known as a buy trade), a trader will open a trade at the bid price, and will aim to close the trade at a higher price, making a profit on the difference between the opening and closing value of the currency pair. So if the EUR/USD bid price is 1.16667, and the trade closes at the price of 1.17568, the difference is 0.00901, or 90.1 pips. (When trading a single lot, that would make a 901 USD profit).

Traders can also make short trades (also known as sell trades), where they sell a Forex CFD at the ask price and, once the price drops, buy it at a lower bid price, and profit on the difference. In this case, if the GBP/USD ask price was 1.32265, and the trade closed at the price of 1.31203, the difference would be 0.01062, or 106.2 pips (which would amount to 1,062 USD in profit).

Low Costs of Forex Trading

Due to Forex CFDs being leveraged, traders can access large portions of the currency market at a very low margin – sometimes as low as 1/500th of the size of the market they want to access (based on a leverage rate of 1:500). There are few additional costs as well – most Forex trading accounts have little (or no) commissions, order fees, and account management fees. If there are any trading fees, these are usually a markup the broker has added to the spread.

Ease of Access

One of the greatest advantages of Forex trading is that it is one of the most developed financial markets in terms of technology. While many markets are accessible via old-fashioned trading platforms, there is constant competition in terms of the software available for trading the FX market.

The platforms offered by Admiral Markets include MetaTrader 4 (MT4) and MetaTrader 5 (MT5) and MetaTrader WebTrader. MT4 and MT5 are both available for Windows, Mac, Android and iOS devices (for iPhone and iPad). In addition, Admiral Markets also provides traders with an enhanced version of MetaTrader, known as MetaTrader Supreme Edition. With access to all this software, Forex can be traded from anywhere in the world – and all you need is an internet connection.

Trading With A Demo Account

Trader’s also have the ability to trade risk-free with a demo trading account. This means that traders can avoid putting their capital at risk, and they can choose when they wish to move to the live markets. For instance, Admiral Markets’ demo trading account enables traders to gain access to the latest real-time market data, the ability to trade with virtual currency, and access to the latest trading insights from expert traders.

To open your FREE demo trading account, click the banner below!

How Can You Start Trading Forex?

If you’re still reading, your next question is probably, “How can I become a successful Forex trader?”

This is the main focus of the rest of this article – we’ll outline not only how you can start trading, but also some of the most popular trading strategies for making a profit on the Forex market, which exercise risk management. The first step, of course, is getting set up to trade, which starts with finding the right Forex broker.

7 Questions to Ask to Find the Right Forex Broker

When it comes to choosing a Forex broker, it can often feel like an overwhelming choice, with countless options available. Here are the top criteria you should consider when making your choice:

1. Is the broker regulated?

It might surprise you to learn that the Forex market doesn’t have a central regulator. However, that doesn’t mean you should choose a broker without considering the question of regulation. Instead, we recommend choosing a broker that is regulated by the financial regulator in your area.

This would be the FCA (Financial Conduct Authority) in the UK, CySEC (Cyprus Securities and Exchange Commission) in Cyprus, ASIC (Australian Securities and Investments Commission) in Australia or SEC (Securities and Exchange Commission) in the US. A good broker will usually be proud of their licensing and will use this as a selling point.

The benefit of choosing a regulated broker is that this will ensure that you, as a trader, are protected to the full extent of the law in your country. For instance, in 2020 the European Securities and Markets Authority (ESMA) introduced a range of legislation protecting retail trading clients, which all European Forex brokers must abide by. This legislation includes limits on available leverage, volatility protection, negative balance protection and more.

If you would like to learn more about the ESMA legislation, we have several special webinars on the topic that you can access via the following links:

It’s also important to consider the security of your funds. With this in mind, we recommend choosing a broker that segregates their clients’ funds from their own, which ensures that the broker cannot use your deposits for any of their own financial activities.

It also ensures that your funds will be available for withdrawal upon your request. Finally, check whether the broker offers a financial services compensation scheme. This defines the amounts of funds that will be compensated to you in the extreme case that your broker or its bank is going bankrupt.

2. What is the quality of the broker’s trading service?

The service of the broker you choose, and the platform they offer, is essential in ensuring that you achieve the best trading results. If you were trading on a system that was slow and regularly crashed, for example, you might not be able to enter or exit a trade at the price you want. Instead, it’s important to look for a broker that offers high levels of liquidity, low spreads and the ability to execute orders at the price you want (or as close to this as possible).

Another element of the service provided is the margin requirements and level of leverage available. While there is no need to choose the highest level of available leverage when you start trading Forex, simply knowing that a broker offers the highest level of leverage approved by their regulator means that, as your experience grows, you can start to increase your leverage according to your preferences.

3. What is the cost of trading?

As Forex trading can be an income-generating activity, it’s important to treat your trading as a business activity – one where you consider both how to maximise your income, how to minimise your costs, and how to minimise the risks. With this in mind, make sure to consider the costs of trading with any Forex broker, before you ultimately select one.

Areas to think about include:

  • The size of their spreads: We’ve already discussed how the size of the spread influences your potential trading profits, as any currency pair needs to cross the spread before a trade will become profitable. With this in mind, look for a broker that offers low spreads.
  • Commissions: Ideally you should choose a Forex broker that doesn’t charge commissions, as commissions will cut into your potential profits.
  • The minimum deposit: Many Forex brokers will ask traders to make a minimum deposit when opening a live trading account, so it is best to find one with the lowest amount of requirements. Admiral Markets offers a minimum deposit of €200.

While searching for the cheapest Forex broker, it really comes down to a combination of spreads, execution quality, commission, and the minimum deposit. These should be the last points you consider when opening a long-term trading account. The best Forex broker for beginners depends on elements like the trading system, the quote feed, instrument portfolios, execution models, and the leverage offered.

4. What products and markets do they offer?

When choosing a Forex broker, obviously you will want to make sure they have access to a wide range of currency pairs, including majors, minors and exotics. But what about other financial instruments? If you are considering trading with a Forex and CFD broker, it’s a good idea to look into the other instruments they offer as well.

This will ensure that if you decide to trade stocks, indices, ETFs, commodities, cryptocurrencies and other instruments in the future, you won’t need to find a new broker to do so. Admiral Markets, for example, provides traders with access to over 7,500 financial instruments, allowing you to create a diversified trading and investment strategy from a single platform.

5. Which trading tools do they have available?

The quality of the trading tools a Forex broker offers can make a big difference to your trading experience. In most cases, the available tools will depend on the trading platform (or platforms) being used. For instance, Admiral Markets offers trading through the state of the art MetaTrader 4 & 5 Supreme Edition plugin, which include a range of custom tools and add-ons to improve your trading experience.

6. Does the broker’s offering suit your trading style?

It’s important to consider whether a Forex broker and their trading platform will suit your trading style. For example, you might be interested in following a Forex scalping strategy, which involves making a high volume of small profits on small currency movements. In this case, you would need to ensure that any potential broker has minimum distance between the market price and your stop-loss and take-profit.

Or, if you are new to Forex trading, you might not be comfortable using the maximum leverage the broker offers. With this in mind, check whether the broker allows nominal leverage – where you can choose the amount of leverage you use in your trading, anywhere up to the maximum limit.

7. Do they offer education and support?

Finally, consider whether the Forex broker offers education and support. Ongoing education is essential to a Forex trader’s development and achieving the best results. This is why Admiral Markets offers a range of free articles and tutorials, webinars and online courses, including Forex 101 and Zero to Hero. In addition to educational content and materials, it’s also important to consider the availability of support, so you can get your questions answered, and any potential issues dealt with.

In particular, you should look for a Forex broker that has a major presence in your country or, at a minimum, offers phone and email support in your language. A broker with an efficient customer enquiry and complaints procedure will ensure that if an enquiry is filed by a Forex trader and cannot be resolved within a few hours, it is immediately forwarded to the customer support desk or compliance department.

If you would like to explore this topic in more detail, why not check out our in-depth guide to choosing the right Forex and CFD broker?

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What to Look For in a Forex Trading Platform

Alongside choosing a broker, you will also be researching the Forex trading software and platforms they offer. The trading platform is the central element of your trading, and your main working tool. It is an essential piece of the puzzle, as the best Forex tools can have a significant impact on your trading results. So, what should you be looking for when considering your options?

When assessing a Forex trading platform, ensure it includes the following elements:

  • Reliability: Is the trading platform reliable enough for you to achieve the trading results you want? Being able to rely on the accuracy of prices quoted, the speed of data being transferred, and fast order execution is essential to being able to trade Forex successfully, particularly if you plan to use very short-term strategies like scalping. The information must be available in real time, and the platform must be available at all times when the Forex market is open. This ensures that you can take advantage of any opportunities that may present themselves.
  • Security: Will your funds and personal information be protected? A reputable Forex broker, and a good Forex trading platform will have measures in place to ensure the security of your information, along with the ability to backup all key account information. They will also segregate your funds from their own funds. If a broker cannot demonstrate the measures they will take to protect you and your account balance, it would be best to find another broker.
  • Independent account management: Any Forex trading platform should allow you to manage your trades and your account independently, without having to ask your broker to take action on your behalf. This ensures that you can take action as soon as the market moves, capitalise on opportunities as they arise, and monitor any open positions.
  • Analysis: Does the platform provide in-built analysis?, or offer the tools for you to conduct technical and fundamental analysis independently? Many Forex traders make trades based on technical indicators, and can trade far more effectively if they can access this information within the trading platform, rather than having to leave the platform to find it. This should include charts that are updated in real time, and access to up-to-date market data and news.
  • Automated trading functionality: One of the benefits of Forex trading is the ability to open a position and set automatic stop loss and take profit levels, at which the trade will close. More sophisticated platforms should have the functionality to carry out trading strategies on your behalf, once you have defined the parameters for these strategies. A good trading platform will allow this level of flexibility, rather than requiring a trader to constantly be monitoring any trades.

At Admiral Markets, our platforms of choice are MetaTrader 4 and MetaTrader 5, which are the world’s most user-friendly multi-asset trading platforms. Both platforms are accessible across a range of devices including – PCs, Macs, iOS and Android devices and web browsers via the MetaTrader Webtrader platform for MT4 and MT5. These are fast and responsive platforms, providing real time trading data. Additionally, these platforms offer automated trading options and advanced charting capabilities, and are highly secure.

MetaTrader 5, which is the most recent version of the trading suite and has a range of additional features, which include:

  • Access to thousands of financial markets
  • An expanded Mini Terminal, offering complete control of your account with a single click
  • 38 built-in trading indicators
  • The ability to download tick history for a range of instruments
  • Real volume trading data
  • Free market data, news and market education
  • Bonus trading widgets with MetaTrader Supreme Edition

To get started with MT4 and MT5, here are some helpful articles:

Should you buy Forex trading software?

While Forex trading for beginners or professionals will always require software, the level of competition between brokers means that most Forex trading software is available for free. Many Forex trading beginners are also tempted to purchase FX robots, also known as Expert Advisers (EAs). While some EAs can be helpful, it can be hard for them to remain profitable when the market changes.

Unless you understand the code it’s written in, you’re probably not going to be able to adapt your EA to work with those changes. If you are one of the many traders who believe that an EA would outperform the market, then perhaps you should give it a try with the MetaTrader Supreme Edition plugin. And perhaps best of all, we offer EAs free of charge for traders!

MetaTrader Supreme Edition – Admiral Markets

Did you know that Admiral Markets offers an enhanced version of Metatrader that boosts trading capabilities? Now you can trade with MetaTrader 4 and MetaTrader 5 with an advanced version of MetaTrader that offers excellent additional features such as the correlation matrix, which enables you to view and contrast various currency pairs in real-time, or the mini trader widget – which allows you to buy or sell via a small window while you continue with everything else you need to do.

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How Can You Start Trading Forex? Open a Free Demo Account!

If you are keen to start trading, a risk-free way to learn the fundamentals and test out new skills is by opening a Forex demo account. A demo trading account gives you the opportunity to trade on Admiral Markets’ 7,500+ trading instruments, including our 40 CFDs on Forex currency pairs, in real market conditions, without spending any of your money. Simply put, you will have access to virtual funds that you can use to make trades in a demo environment, making this the perfect way to put your knowledge to the test.

How to Manage Your Risk When Trading Forex

Before you make your first trade, it’s important to consider how to effectively manage your risk in the Forex market. As we’ve already discussed, trading Forex CFDs gives you the opportunity to trade using leverage, meaning you can use a relatively small deposit to access a larger portion of the market (up to 500 times the value of your account balance, if you’re a Professional client). This then multiplies your potential profits to the same extent. However, it also multiplies your potential losses.

To use an extreme example, imagine holding an account balance of 2,000 EUR and putting all of that on a single trade. If the trade goes badly, you will have lost your entire investment, and because the Forex market can move very quickly, losses can also happen very quickly. This is where risk management is essential – to help you minimise losses and protect any profits you do make. The key areas to consider when managing your Forex trading risk are trading psychology, and money management.

Master Your Trading Psychology

While it might sound strange to discuss the topics of mindset and psychology in a guide to Forex trading, the truth is that these are some of the most important factors separating successful traders from unsuccessful traders.

Developing trading discipline and the ability to manage your emotions will help you remain cool under pressure, entre trades at the right time, and to know when to exit those trades – whether you are cutting your losses, or taking your profits before the market turns.

Some key trading psychology tips to keep in mind include:

  • Stay calm: As exciting as trading can be, it is still stressful work. There will be a lot of setbacks on your way to the top. Emotions can force your hand to open a trade too early and/or close it too late. The main cause of stress for beginners in trading is the fact that some Forex trades will end in loss no matter what – it’s just the way the market is. Just remember that war is not won with a single battle. Rather, it is overall performance that counts.
  • Understand your risk tolerance: Every person has a different level of risk tolerance, and this will influence the size of the chances they take, the losses they are willing to experience, and the psychological effect of them. To manage your stress levels while trading, it’s important to consider your level of risk tolerance in advance, and choose trading strategies that support this.

    For instance, someone with a low risk tolerance would be more comfortable making lots of small trades over time and letting the small profits from each trade add up. By contrast, someone with a higher tolerance for risk would be more willing to make larger trades, with the opportunities for larger gains (but larger losses as well).

  • Set realistic trading goals: It’s important to be realistic with your trading expectations, as this will help you assess the best times to open and close trades. Many new Forex traders have very high expectations about their potential profits, and this causes them to trade very aggressively, with large sums of money and fast decisions. Again, start small to test your knowledge and skills, and as you start to reliably achieve the results you want, you can set bigger goals.
  • Set your limits in advance: Before embarking on any Forex trade, you should have defined the price at which you’ll open the trade, the price at which you will close it and take your profits, and the price at which you will close it, should the market turn unexpectedly, thereby cutting your losses. Then, once you have set those limits, it’s important to stick with them!

    Many new traders choose not to close a trade because the market is still moving in the direction they want it to, only to then lose all of their gains when the direction suddenly changes. If your trade hits your predetermined target, close it and enjoy your winnings. If the market moves in the opposite direction, close the trade or set a stop loss so it will close automatically.

  • Prepare for the worst: While this might sound pessimistic, in Forex trading it is better to prepare for the worst than expect the best. There have been many times in history when financial markets and individual trading instruments have experienced sudden spikes or drops in value. By considering the worst possible outcome of a trade, you can take measures to protect yourself, should this happen, such as by setting a stop loss in advance.

Money Management in Forex

Managing your money in Forex trading comes down to the specific measures you use to increase your profits, whilst also minimising potential losses. Successful Forex trading has far more to do with effective money management than having a handful of good trades, and is one of the secrets that separates those who successfully trade FX over the long term, from those who give up after a couple of trades.

For the moment though, here are some money management fundamentals to guide your trading:

  • Decide how you will finance your trading in advance: Only one kind of money is good for investing, and that’s the kind that you are willing to lose, and preferably without damaging your physical and/or mental wellbeing in the process. Every profitable trader is profitable in their own way, while every loser experiences losses exactly the same way. Remember, use every available opportunity to learn. It’s a never-ending process!
  • Define your investment level: One of the most common questions about trading Forex is ‘how much do I need to start trading?’ For beginner traders, it’s a good idea to start small and work your way up. Fortunately, many Forex brokers have reasonable minimum deposit levels for opening an account. At Admiral Markets for example, the minimum deposit amount is $200. Be wary of any brokers offering bonuses for certain deposit levels, as these might be scams, where it is very difficult to withdraw your money in the future.
  • Calculate your risk: Make sure to calculate your risk before you trade. If the potential profits of a trade are smaller than the potential risks, the trade probably isn’t a good decision. You can assess your risk with our free Forex calculator.
  • Determine the profits required to cover any losses: Along with calculating your risks before any trade, it’s also worth calculating how much you would need to make to regain those funds in any future trade. It’s often harder to earn money back than it is to lose it, simply because your remaining investment pool is smaller, which means you have to make a larger profit (percentage wise) to break even.

    For example, if you invested 5,000 EUR and lost 1,000 EUR, you will have lost 20% of your balance, leaving you with a final balance of 4,000 EUR. To bring your balance back to 5,000 EUR, you will need to make a profit of 1,000 EUR. However, with a starting balance of 4,000 EUR (after the previous loss), there is now a 25% gain, rather than a 20% one.

Amount of account balance lost

Necessary return to restore original account balance

Percentage Difference
910%
    Start with small trades: To help you manage your risk and preserve your capital, start by trading small sums of money, rather than taking big risks with a large portion of your account balance. For instance, in the previous example, if you put your entire 2,000 EUR account balance on a single trade, it would be easy to lose it all.

By contrast, if you just traded 20 EUR, a loss would not significantly affect your account balance. It would provide you with the opportunity to learn from your experience and plan your next trade more effectively. With this in mind, limiting the capital you are prepared to risk to 5% of your account balance (or lower) will put you in a better position to continue trading Forex (and improving your technique) over the long term.

Risk Management Tools and Techniques

Once you have mastered your trading psychology and money management, there are a number of trading techniques you can apply to further reduce your risk:

    Diversify your portfolio: We all know the saying, ‘don’t put all your eggs in one basket’, yet many new FX traders do this when it comes to their trading. Just as it isn’t wise to put all of your funds into a single trade, relying on a single currency pair increases your level of risk, because if the pair moves in a different direction to what you expect, you could lose everything. Instead, consider opening a number of small trades across different Forex pairs.

You could even consider trading other CFD instruments as well, such as shares, indices, commodities, cryptocurrencies and more, as these will further diversify your trading portfolio.

    Use leverage wisely: As we’ve already mentioned, Forex CFDs allow you to trade on a margin, or by using leverage. However, just because 1:30 (or 1:500) leverage is available, it doesn’t mean that you need to use it. At Admiral Markets, while there is a maximum amount of leverage available to our clients, they are still able to choose the amount of leverage they use when they are trading, which may be anything up to that amount.

    For instance, after assessing your risk, you might decide that the potential costs of trading with a 1:30 level of leverage are too great, and you are more comfortable with 1:5. Choosing a lower nominal leverage will help you to manage your risk effectively, especially if you are new to Forex trading.

    Focus on the long term: The initial stages of your trading should be about preserving your capital – not trying to grow it. Minimising risk is the primary objective. One way to possibly achieve this is by utilising a long-term trading stance.

    What casual Forex trading beginners often fail to realise is that the most successful traders try to make a return on their investment based on long-term trends. They often hold their orders open for weeks, months and even years at a time. This way, Forex works as an investment rather than a lottery.

    Use a stop loss: A stop loss is tool that traders use to limit their potential losses. Simply put, it is the price level at which you will close a trade that isn’t moving in your favour, thereby preventing any further losses as the market continues to move in that direction. You can also use a stop loss to conserve any profits you might have already made – the tool to achieve this is known as a ‘trailing’ stop loss, which follows the direction of the market.

    For instance, if you opened a long trade on the GBP/USD currency pair, and the pair increased in value, the price limit at which the trade should close (the stop loss) would climb alongside the price of the currency pair. If the value of the GBP/USD then started to fall, the trade would be closed as soon as it hit your stop loss, preserving any profits you had made beforehand.

  • Continue your Forex education: The markets are constantly changing, with new trading ideas and strategies being published regularly. To ensure you continue to develop your trading skills, it’s important to stay on top of your trading education by regularly reviewing market analysis and by learning new trading strategies. For more trading education, take a look at our Forex and CFD webinars, which are designed to grow your knowledge as you start and continue to trade.

Free Trading Webinars With Admiral Markets

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How to Analyse the Forex Market

While some new Forex traders might experience beginner’s luck, and open a trade on the right currency pair in the right direction, this luck rarely lasts. For long-term trading success, a trader needs to be able to make informed trading decisions, and these decisions are a result of analysing the market.

Analysis is absolutely vital to trading. Charts are helpful for both short and long-term trading. You should be looking at daily, weekly, and monthly charts. Fortunately, there are a number of different approaches to Forex analysis, which means every trader can find the right approach for them. The three broad categories of Forex analysis are fundamental analysis, technical analysis and wave analysis.

Fundamental Analysis

This form of analysis involves look keeping track of real-world events that might influence the values of the financial instruments you want to trade. For instance, the value of the Australian Dollar might fluctuate following a Reserve Bank of Australia interest rate announcement, which will then affect the movements of all currency pairs including the AUD.

The seven economic indicators that have the greatest impact on the Forex market are:

  • Gross domestic product (GDP)
  • The number of jobs outside the agricultural sector (known as Non-Farm Payrolls, or NFP)
  • The rate of unemployment
  • The index of industrial production
  • Retail sales
  • Orders for durable goods
  • The interest rates of national banks (such as the European Central Bank or the US Federal Reserve)

There are then three possible scenarios following an economic publication or announcement:

  1. No reaction, implying that the market had anticipated the announcement
  2. A strong movement in accordance with the economic data that has been made public (so if the announcement shares positive news, the instrument affected by this news will increase in value)
  3. A strong movement against the economic data shared

The challenge is assessing which outcome is the most likely, and then opening a trade accordingly. A good starting point for this trading approach is first being aware of upcoming events that may affect the Forex market (refer to our live Forex calendar for the latest events) and second, looking at the effect similar announcements had on different currency pairs in the past. You can learn more about fundamental analysis in our Introduction to Fundamental Analysis article.

Technical Analysis

While fundamental analysis focuses on what is happening in the real world, including economic, political, and business news and events, technical analysis largely focuses on what is happening in trading charts.

Trading charts simply chronicle the price movements of different trading instruments over time, which allows traders to identify patterns in price movements and make trading decisions based on the assumption that these patterns will repeat in the future. For example, one trading chart format is the Japanese candlestick chart, which is formatted to emphasise high and low price points for certain time increments (these increments can be set by the trader in their trading platform).

The trader can then see:

  • The opening price for the period
  • The highest price point for the period
  • The lowest price point for the period
  • The closing price for the period

This information can then allow traders to make judgements regarding a currency pair’s price movement. For example, if a Japanese candlestick closes near the highest price for the period, that would imply that there is a strong interest on the part of buyers for this currency pair during that time period. A trader might then decide to open a long trade to take advantage of that interest.

Over time, common patterns emerge in the movement of the charts (and the formation of different candlesticks), which can then be used to predict potential future price movements and make the best trades based on these predictions. You can learn more about trading with Japanese candlesticks in these articles:

Once a pattern emerges, this is known as a Forex indicator because it indicates that there is the potential to make a profitable trade. While there are a range of resources available online for learning about the best Forex indicators, your trading software should ideally have a range of built-in indicators that you can use for your trading, as is the case with MetaTrader 5’s indicators. You can learn more about technical analysis in our Introduction to Technical Analysis article.

Wave Analysis

Wave analysis, also known as Elliott Wave analysis, is a well-known method that analyses the price chart for patterns and the direction (trend) of a financial instrument. The method is based on historical movements in market prices, with the belief that history repeats itself. The reason for this is due to market sentiment, meaning that the market as a whole moves as a herd, and reacts in a similar way to similar events and announcements.

In the Forex market, these reactions involve buying and selling currencies, which causes the prices of different currency pairs to fluctuate.

The theory follows sequences of five waves, or five up and down price movements which are then countered by a corrective 3 wave pattern in the opposite direction. The 5 impulsive waves are with the trend, whereas the 3 corrective waves are counter trend. In an ‘up’ move, there will be three up waves (movements 1, 3 and 5) and two down waves (movements 2 and 4).

In a corrective down move, there will be 2 waves down (A and C) and 1 wave up (B). In a down move, the instrument will make 3 waves down which are separated by 2 waves up. The corrective up wave will have 2 waves up and 1 wave down. Following this, the instrument will make a ‘down’ move, with three down waves being separated by two up waves.

While this pattern does not take place every time prices move, traders can use this method as a guideline for whether or not to enter into or exit a trade by taking the following steps:

  1. Determine how you will generate the Elliott Wave count, keeping in mind that the approach must be consistent for all ‘up’ and ‘down’ movements.
  2. Wait for a wave to begin. In many cases it is wise to wait until the end of the third or the beginning of the fourth movement in the wave, to ensure that the instrument is following the Elliott Wave price pattern.
  3. Use a secondary indicator (or indicators) to confirm the trend.

Once you have taken these steps, you can enter into a trade with more confidence. If you would like to learn more about wave analysis, please read our Introduction to Forex Elliott Wave Analysis article.

Now you know the what, the why, and the how of Forex trading. The next step to to create a trading strategy. For beginner traders, the ideal scenario is to follow a simple and effective strategy, which will allow you to confirm what works and what doesn’t work, without too many variables confusing things. Fortunately, banks, corporations, investors, and speculators have all been trading the markets for decades, which means there is already a wide range of Forex trading strategies to choose from. These include:

  • Forex scalping: Scalping is a trading strategy that involves buying and selling currency pairs in very short increments – usually anywhere between a few seconds and a few hours. This is a very hands-on strategy that involves making a large number of small profits until those profits add up.
  • Intraday trading: Forex intraday trading is a more conservative approach than scalping, with trades focusing on daily price trends. Trades may be open anywhere between one to four days, but usually focus on the major sessions for each Forex market.
  • Swing trading: Swing trading is a medium-term trading approach that focuses on larger price movements than scalping or intraday trading. This means that traders can set up a trade and check in on it within a few hours, or a few days, rather than having to constantly sit in front of their trading platform, making it a good option for people trading alongside a day job.
  • Forex hedging: Hedging is a risk management technique where a trader can offset potential losses by taking opposite positions in the market. In Forex, this can be done by taking two opposite positions on the same currency pair (e.g. by opening a long trade and a short trade on the GBP/USD currency pair), or by taking opposite positions on two correlated currencies.
  • The Forex martingale strategy: The martingale strategy is a trading strategy whereby, for every losing trade, you double the investment made in future trades in order to recover your losses, as soon as you make a successful trade. For instance, if you invest 1 EUR on your first trade and lose, on the next trade you would invest 2 EUR, then 4 EUR , then 8 EUR and so on. Please note that this strategy is extremely risky by nature and not suitable for beginners!
  • The Forex grid strategy: The grid strategy is one that uses buy stop orders and sell stop orders to profit on natural market movements. These orders are usually placed at 10 pip intervals and, by having these stop orders put in place, a trader can then automate this trading strategy.

To Conclude: Our Top Forex Trading Tips For Beginners

We have covered a lot of information in this article so, we’d like to conclude with an overview of our top Forex trading tips for beginners. If you take anything from this article, it should be these following tips:

Do Your Research

Generally speaking, the less you know, the more at risk you are, and there is no limit to how much you can know or risk. An endless amount of information is available on the internet free of charge, like:

  • Educational videos on Forex exchange trading for beginners
  • Educational articles and tutorials
  • Forex trading seminars for beginners and professionals
  • Forex trading webinars

If you want to know how to learn Forex trading as a beginner, simply read as much as you possibly can, and always analyse what you read – don’t just take information in good faith.

Test on a Demo Account or With Simulation Software

Every broker offers a demo account – whether you are a beginner or not, test every new strategy there first. Keep going until the results are conclusive and you are confident in what you are testing. Only then should you open a live account and use your strategy in the smallest volume trades available. Be sure to treat your demo account trades as if they were real trades. You may also use Forex simulation software to simulate market conditions, and create an impression of a live trading session.

Don’t Overcomplicate Things

Don’t overload your charts with indicators, or your strategy with handles or switches. The more complicated your trading strategy is, the harder it will be to follow, and the less likely it is to be effective. To find out how well a strategy performs on average in different markets, you need to carry out the necessary backtesting and research.

Keeping it simple can be a real challenge, especially considering the multitude of supporting tools you can apply to your charts. Just remember – it’s not about the amount of tools at your disposal, but it is about being able to use a few tools in an effective way.

Be Careful in Volatile Markets

Volatility is what keeps your trading activity moving. However, if you’re not careful it can also completely destroy it. When volatile, the market moves sideways, which makes spreads grow and your orders slip. As a beginner Forex trader, you need to accept that once you are in the market, anything can potentially happen, and it can completely negate your strategy.

For example, the crisis with the Swiss Franc in January 2020 ended business for many traders and brokers within hours of its occurrence. Admiral Markets have helped to minimise volatility risk for you by offering a package of advanced volatility trading settings to help you avoid the reefs of the financial markets.

The Trend Is Your Friend

Whether you are a beginner trader or a pro, it is best to trade with what you see and not what you think. For example, you might think that the US dollar is overvalued and has been overvalued for too long. Naturally, you will want to short and you might be right eventually. But if the price is moving up, it does not matter what you think. In fact, it doesn’t matter what anybody thinks – the price is moving up and you should be trading with the trend.

The Trade Is Open Until It’s Closed

A regular Forex trading beginner concentrates on opening a trade, but the exit point is equally important. If your trading strategy does not consider the mechanism of closing a deal, it’s not going to end well, and you’re much more likely to suffer heavy losses.

Write Everything Down

A novice Forex trader must develop the mindset of a business owner. Every business requires a business plan, constant monitoring, and regular auditing. Jumping ahead without plans and processes is a sure-fire way to fail. Starting a trading journal is an absolute must.

Everyday, be sure to write the following:

  • Points for further research
  • Reasons to open or close a trade
  • Your achievements and mistakes

Keep your journal handy as a point of reference when analysing your activity. A journal ensures none of your actions are in vain. Analysis of good trades will boost your trading confidence and motivate you to push harder and go further. On the other hand, analysis of bad trades will help you to extract value and improve.

Forex Trading With Admiral Markets

If you’re aiming to take your trading to the next level, the Admiral Markets live account is the perfect place for you to do that! Trade Forex & CFDs on 80+ currencies, choosing from a range of Forex majors, Forex minors, and exotic currency pairs, with access to the latest technical analysis and trading information. Trade the right way, open your live account now by clicking the banner below!

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Forex Trading Strategies

Countless forex trading strategies were invented over the years, some rely on the technical use of charts and numbers, while others rely on a fundamental understanding of the market with reference to current events, and politics. And yet, some strategies have become popular while others are only used by a minority of traders. These trading strategies range in different levels of complexity. In this section of the website, the FX Leaders team will discuss some of our favorite strategies – starting with a rather simple one and moving up the scale in complexity as we continue. More

  • All Strategies
  • Technical Strategies
  • Fundamental Strategies
  • Popular Strategies
  • Forex Strategy Articles
  • The fundamental forex strategies for trading based on fundamental events and how they affect the forex market.
  • The technical forex strategies for trading based on technical (mathematical and statistical) analysis of the forex rate charts.
  • The popular forex strategies section contain forex strategies based both on fundamental and technical trading. You’ll find here the most crucial strategies for your forex career and therefore they are in a different section.
  • In the forex strategies articles section you’ll find information on implementing the best forex strategies in your forex trading process: stuff like risk management, matching guides between a personality type and the relevant trading strategies, etc.

ADX (Average Directional Index)

How many times have you entered into a trend only to find out that it has already run its course and you were too late? Many of the Forex trading strategies that we use help us predict which way the market is trending and whether to expect a bearish or bullish trend, but give little or no indication as to the strength of the trend. Sometimes these . Full Article

Arbitrage Forex

Arbitrage has been in practice since ancient times. Arbitrage is a speculative strategy, where someone attempts to profit from price differences of the same instrument either in the same market or in different markets. It involves buying and selling an asset at two different prices in order to profit from the difference.Finding the right condit . Full Article

Candlestick – Forex Trading Strategies

Candlestick charts are the most common chart types used by retail traders and investors. There are many other types of charts such as line charts, bar charts etc., but they don’t tell the story of past price action like candlestick indicator patterns do. When active trading is based solely upon technical analysis, projecting future price action is . Full Article

Carry Trade Strategy

The carry trade forex strategy operates very differently from other forex methodologies. In contrast to the conventional concepts of buying low and selling high or selling high and buying low, carry Trade forex strategies appear abstract. They typically rely upon a fluctuating market and are therefore useless in a stable market lacking a prevai . Full Article

Creating a Trading Plan – Part 1

It is common knowledge that new Forex trader’s fail 80% of the time. This is because many beginners start trading without a clear plan. A premeditated plan is crucial when you trade. Trading without a plan is like going to war without an attack and a defense plan. Before you go into a battle you assess your capability, your strengths, and your weak . Full Article

Creating a Trading Plan – Part 2

In the past, we have published part 1 and part 2 of trader psychology. The first article was about identifying what type of trader you may be. We wrote that you might want to take a personality test to see where you stand in the continuum from impulsive to conservative. In the second article, we presented the readers with some forex trading strateg . Full Article

Divergence Trading Strategies

Apart from fundamentals, traders and analysts of financial instruments use a number of indicators to figure out what might happen to the price of a certain instrument. These indicators offer a simple method of recognizing patterns and predicting which way the price will trend.In essence, these indicators are what makes Forex signals possible. T . Full Article

Drifting from the EU: Brexit, Grexit, and How it All Affects FX

Grexit Last year, the Greek Prime Minister Alexis Tsipras brought his people to a referendum to decide if Greece would remain in the European Union (EU). The EU has given Greece billions of Euros in soft debt to pay off the administration after Greece was hit hard by the financial crisis. In 2020, Greece received a financial trim, where half of i . Full Article

Elliott Wave Theory: The Background

New strategies breathe life into the market, so we are presenting the ‘Elliott Wave Theory’, named after Ralph Elliott. Having nothing in particular to fill his days, Elliott turned his attention to stock market behavior and developed his theorem in his later stages of life. Born an accountant, he retired at age 58 after catching a virus from a tri . Full Article

Fair Value – An Efficient Way for Trading Currencies

Fair value trading is a strategy used in different financial markets. In the stock market, for instance, many traders buy or sell company shares based on the strategy of fair value. The fair value strategy is also very common in the futures market.But, how is it defined? According to the western accounting standards of IFRS (International Finan . Full Article

Fibonacci Indicator

The Fibonacci trading strategy is one of the most well known and commonly used long-term technical strategies on the forex. It attempts to place price action in the proper context by using the Fibonacci sequence, a close representation of the historical “Golden Ratio.” Fibonacci numbers are not only frequently used in the financial markets but are . Full Article

Forex Trading Strategy 2020 – Another Great Forex Year

At the beginning of 2020, the FED had just begun a tightening cycle after increasing the interest rates in 2020. The FOMC statement and Yellen’s speech implied several rate hikes for 2020, although the global economic conditions were not ideal, while the US economy was going through a harsh winter period.In Europe on the other hand, the ECB had . Full Article

Head and Shoulders Strategy

We have already discussed ‘Candlestick Trading Strategy’ which allows us to understand the candlestick charts and what each candlestick indicates. However, to really become a master of the charts, we must learn about a few common chart patterns and what information we can draw from them about the future.The ‘head and shoulders’ pattern is one o . Full Article

Hedging – Forex Trading Strategies

Traders of the financial markets, small or big, private or institutional, investing or speculative, all try to find ways to limit the risk and increase the probabilities of winning by employing risk management techniques. There are many approaches to trading Forex out there and a viable hedging strategy is among the most powerful.In fact, hedgi . Full Article

Horizontal Levels

Horizontal Levels is one of the simplest yet incredibly useful ideas in Forex trading. Horizontal levels are fundamental in most Forex trading strategies and aid us in analyzing charts. However, they can also be used on their own as a strategy rather than just a tool for other strategies. By watching the most obvious price changes and drawing their . Full Article

How to Protect Your Account (and Avoid Gambling Forex)

We all know that the first and most basic rule to make it in the long run in the forex world is to protect your account. Most forex traders have lost one or more accounts after first starting the job. Rendering your account inoperable with low funds is a big scare, particularly for fresh traders. But, that´s the risk we are willing to take in . Full Article

How to Read and Trade Forex Price Action

Forex trading can be as difficult or as easy as you want it to be. Indicators and strategies can make trading much easier. Being able to read and understand forex price action is one of the most useful ways to trade currencies. Price action analysis was first introduced by Charles Dow, who laid the foundations for modern technical analysis. Si . Full Article

How to Trade Forex in a New Environment

One of the first rules you learn when you start trading forex is that you should minimize your losses as much as possible to protect your capital. According to many forex textbooks, in order to do this, you must set tighter stop losses so when a trade goes bad your loss is minimal. This is a good strategy for many occasions, but the forex market is . Full Article

How To Turn Volatility In Your Favor

After about a decade of being an active participant in the financial markets, I can say that the volatility is pretty high. This one reason why only select individuals decide to enter the business of active trading, let alone attempt a career in it.Forex volatility, along with that of futures and equities, can make sustaining a living in the ma . Full Article

Keeping a Trading Journal

Why do you need a trading journal? A trading journal enables you to look back at your trading history and see what you did wrong and what you did right, highlighting the trading mistakes. By keeping a journal, you can see if you have a tendency to enter or exit trades too early or too late, if you overtrade, if your position sizes are too big etc. . Full Article

Long – Short Hedging Forex Strategy

There are two ways you can trade in forex and all other financial markets, you can either buy or sell. We usually refer to this as ‘long or short’. Long means to buy and short means to sell. If you follow our live market updates and market analysis then you must have encountered these two words very often. Often, instead of saying ‘we´re buying thi . Full Article

Multiple Time Frames Strategy

The multiple time frames trading strategy is a Forex trading strategy that works by following a single currency pair over different time frames. By following the price chart we can see the highs and lows and establish the overall and temporary trend. However, by looking at the different time frames we can see changes and patterns that we were not a . Full Article

Planning Your Trading Strategy For April

Last month, we published an article where we looked at the seasonal factors and patterns that impacted several currencies in March. We reviewed all previous petrol prices from March months in previous years, and the comparison to March 2020 was similar. We also took a look at USD/JPY and discussed the decline of the Japanese Yen in March 2020 again . Full Article

Reading the Interest Rates

What are interest rates? How often have you heard the term interest rates? Thousands of times I bet, depending on how long you have been in this business. Our team has mentioned it many times in our daily updates and weekly analysis and have several articles about the central banks, who affect these rates. We have a forex strategy as well about in . Full Article

Risk (Money) Management Part 1 – Common Sense Tactics

StrWhen you decide to trade in the financial markets, the one thing you should never forget is that there is always the risk of losing some or all of your funds. But fortunately for traders, one of the few aspects of trading which we can control is the risks. We can´t move the market, we don´t have insight on the intentions of the central bank, we . Full Article

Risk (Money) Management – Part 2 Developed Techniques

Previously, we published the first part of the risk management series. There we explained some of the common sense risk management techniques, such as trade exposure, risk/reward ratio, keeping up-to-date with the market news, managing leverage and the trading journal. In this part, we will explain the techniques that have been developed by tr . Full Article

Forex Scalping

A large number of traders new to the markets find the idea of implementing a scalping trading strategy to be appealing. Currency, equity, and futures markets are all ripe targets for aspiring scalpers. As the world’s largest market, the forex is a popular venue for short-term and long-term traders alike.Due to its compressed timeframes, a forex . Full Article

Support and Resistance Levels

A good way to understand support and resistance trading is to picture a man trying to get past a solid fence that is blocking his way. Although he will keep searching for a passage along the outside of the fence, there is not one readily available. In the world of active trading, the fence is akin to a technical indicator known as support and resi . Full Article

The Importance Of Liquidity In The Forex Market – Forex Trading Strategies

Liquidity has been an important factor since ancient times and it continues to this day. A person, company or a country can be very wealthy but if they don´t have enough liquidity or liquid assets they can bankrupt easily. Very often we hear about liquidity or the lack of it, during financial crises (like the financial crisis of 2008). Some reputab . Full Article

The Right Strategy in an Irrational Market

Trading forex is often a very complicated job. There are times that trading is straightforward – it’s magical when the fundamental analysis, technical analysis, indicators, and market sentiment just seem to fall in step. Altogether, they can point up and you buy fast, or they point down and you sell. We have seen many such occasions, such as: the E . Full Article

Trader Personality Part 1: Discovering your Trading Personality

When you enter the business of forex trading, you should identify the aspects that characterize you as a trader. Many new traders try to mimic the Wall Street stereotypes they have seen in the movies, but that´s the biggest mistake that can be made. New forex traders overtrade and are overleveraged because they want to reach their first million as . Full Article

Trader Personality – Part 2

In the first part of this series, we explained the two extremes of trader personality. In part two we will discuss the trading strategies that fit each type of trader personality. When people start trading forex, they learn how the market works and what makes it oscillate. After trading for some time, traders develop their trading skills and become . Full Article

Trader Psychology – Applying Your Strategy

In the past, we have published part 1 and part 2 of trader psychology. The first article was about identifying what type of trader you may be. We wrote that you might want to take a personality test to see where you stand in the continuum from impulsive to conservative. In the other article, we presented the readers with some forex trading strategi . Full Article

Trading Forex According to Available Funds and Time

If you are reading this article, it´s very likely that you are a forex trader – or at least want to be one. Traders share a common love of trading currencies and like the benefits that came with the job. Yet, sometimes we get carried away and incorrectly trade forex; we refuse to acknowledge some important aspects of forex trading that eventually t . Full Article

How to Trade Profitably in Volatile Markets

The volatility has increased dramatically over these last few weeks. Though this up-and-down nature has been common over the last 18 months, it has now increased. We have seen huge moves of many hundred pips; USD/JPY declined by 1,000 pips in just eight trading days while GBP/JPY lost 1,500 pips during the same time period.It is dangerous tradi . Full Article

Trading Moving Averages

As traders, we have many things to take into consideration. We have to implement many different factors and indicators in our analysis in order to succeed in this business, regardless of if you trade short or long term. These can include fundamental indicators, technical indicators, or both.On the other hand, we shouldn´t overcrowd the charts w . Full Article

Trading the Central Banks – The Actions

The Central Bank (CB) of any country is the most important market participant for that country´s currency. The Central Bank officials, with their president/chairman at the top, hold the monopoly for the monetary policy of each country or economic zone. A perfect example of this being the Eurozone. They are the decisive factor for all long-term curr . Full Article

Trading the Central Banks – The Rhetoric

A few weeks ago, we wrote an article with strategies on how to trade the Central Bank’s actions. As we said there, the Central Banks have all the tools to devalue or appreciate their respective currency and they use them whenever they think the economy needs a leg up. We explained how to trade the ‘knee-jerk reaction’ (an interest rate cut or hike . Full Article

Trading The Majors in 2020

At the beginning of 2020, we reviewed the events and risks which were expected to happen during the year, as it is usually the case with forex traders/analysis. We took a technical look at GBP/USD after the fallout following the Scottish independence referendum and concluded that this pair would stop falling (and probably move up on a rate hike) fr . Full Article

Trading the Market Sentiment

Lesson 1 – Forex Trading Strategy Guide – Introduction Searching for an efficient way to invest your money rather than letting it rest and lose value? Looking for a way to really leverage your money? Looking for higher returns on your investments? Starting a part or full-time career in finance? Looking for an extremely d . Full Article

Trading the News Strategy

We have discussed many Forex trading strategies that allow us to analyze the price action from many different angles. These trading strategies give us the technicals, however, there’s one factor that always has the potential to make all of the technicals irrelevant and sway the market in any way that it likes. Big news events from different countri . Full Article

Trading with Ichimoku Strategy

Looking at cloud-based indicators such as Ichimoku.What Is Ichimoku Trading? The Ichimoku trading strategy is an abbreviation of “Ichimoku Kinko Hyo,” developed by Japanese journalist Goichi Hosoda in the 1960s. This technique has been popular in Japan for quite some time, gaining popularity in other parts of the world as well.Ichimoku . Full Article

Trading with the Elliot Wave Theory: Part 2

Previously, we published an article where we explained the development and workings of the Elliot Wave Theory. This principle is useless unless implemented in everyday trading. In this article, we will explain how to successfully trade with the Elliot Wave Theory (EWT).To recap, when you use EWT you trade the probability which this system offer . Full Article

Forex Trend Trading Strategies

Trading with the trend is one of the safest ways of engaging the capital markets and a great strategy for maximizing profits. FX Leaders’ top analysts use trend trading strategies as one of their primary approaches to the markets. In addition, before making a trade or issuing a signal, they always confirm which side of the trend they are on. . Full Article

Triangles and Wedges Strategy

We have covered most of the important technical chart patterns in our strategy section. There are still some strategies left though. “Triangles” and “Wedges” are two of the 10 most important chart patterns and in this article we´ll explain how to trade them. It´s true that they are different patterns, but they are very similar so we´ll teach both o . Full Article

Understanding Forex and Letting the Market Guide You – Forex Trading Strategies

The forex market is never the same, what happens today does not mean that the same thing will happen tomorrow. The market might increase from positive economic data today but next week it could crash after those same numbers are published. How many times have we seen this over the years? The answer is way too often.We know trading forex is a to . Full Article

By far, one of the most challenging tasks a forex trader faces is organization. The markets are fast-moving dynamic environments. If you are not prepared to attack them in a structured and disciplined manner, your chances of success drop dramatically. A rules-based approach governed by proven forex strategies is the best way to achieve your trade-related goals.

But, which forex strategies or systems are best? This question can be a challenge to answer. When choosing a forex trading strategy, it is important to identify several elements unique to your personal situation. Available risk capital, time, and level of experience are keys to determining what types of strategies are most suitable for you.

If you have limited capital and time to trade, then attempting to be a high-leverage technical scalping strategy is probably not the best idea. An approach that limits risk, as well as active trading hours, may be best. Let’s say you are well-versed in computer programming and have extensive capital resources. Developing and implementing an advanced automated approach may be a great way to engage the forex market. The beauty of selecting a strategy is that the sky is truly the limit — there are nearly infinite options and each trader has an abundance of alternatives.

A good place to begin your journey into the market is with our articles breaking down the various forex trading strategies. Topics covered include creating a trading plan, money management, risk management, and basic trader psychology.

In order to move forward, one must first master the basics. These educational materials can help you do just that while building a rock-solid knowledge base.

After deciding which of the many forex trading strategies to implement, it is time to talk about execution. A plan cannot be effective unless it is adhered to consistently. Getting back on the horse after a crushing loss can be difficult — it takes dedication, confidence, and determination. Given a positive outlook, completing this task can become second nature.

Sticking to the tenets of your plan through thick and thin may be the most important aspect of successful trading. No matter how many forex trading strategies are incorporated into your plan, their consistent application is the key to succeeding in the marketplace.

In the event that maintaining focus and consistency in the market is becoming a problem, check out our articles on trader psychology and strategy application. In addition, there are resources breaking down forex strategies designed for the contemporary marketplace. Through a little work, gaining a winning mindset for applying your strategy is easily achieved.

For many, achieving longevity in the forex is an elusive pursuit. Give yourself the best chance at success through preparation. Be sure to check out our educational series on forex trading strategies. After reviewing the materials, you will be ready to enter the market competently and pursue your trade-related goals with conviction.

Forex Trading Strategies

One of the most powerful means of winning a trade is the portfolio of Forex trading strategies applied by traders in different situations. Following a single system all the time is not enough for a successful trade. Each trader should know how to face up to all market conditions, which, however, is not so easy, and requires a deep study and understanding of economics.

In order to help you meet your educational needs and create your own portfolio of trading strategies, IFC Markets provides you both with reliable resources on trading and complete information on all the popular and simple forex trading strategies applied by successful traders.

The trading strategies we represent are suitable for all traders who are novice in trade or want to improve their skills. All the strategies classified and explained below are for educational purposes and can be applied by each trader in a different way.

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Trading Strategies Based on Forex Analysis

Perhaps the major part of Forex trading strategies is based on the main types of Forex market analysis used to understand the market movement. These main analysis methods include technical analysis, fundamental analysis and market sentiment.

Each of the mentioned analysis methods is used in a certain way to identify the market trend and make reasonable predictions on future market behaviour. If in technical analysis traders mainly deal with different charts and technical tools to reveal the past, present and future state of currency prices, in fundamental analysis the importance is given to the macroeconomic and political factors which can directly influence the foreign exchange market. Quite a different approach to the market trend is provided by market sentiment, which is based on the attitude and opinions of traders. Below you can read about each analysis method in detail.

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Forex Technical Analysis Strategies

Forex technical analysis is the study of market action primarily through the use of charts for the purpose of forecasting future price trends. Forex traders can develop strategies based on various technical analysis tools including market trend, volume, range, support and resistance levels, chart patterns and indicators, as well as conduct a Multiple Time Frame Analysis using different time-frame charts.

Technical analysis strategy is a crucial method of evaluating assets based on the analysis and statistics of past market action, such as past prices and past volume. The main goal of technical analysts is not the measuring of asset’s underlying value, they attempt to use charts or other tools of technical analysis to determine patterns that will help to forecast future market activity. Their firm belief is that the future performance of markets can be indicated by the historical performance.

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Forex Trend Trading Strategy

Trend represents one of the most essential concepts in technical analysis. All the technical analysis tools that an analyst uses have a single purpose: help to identify the market trend.The meaning of Forex trend is not so much different from its general meaning – it is nothing more than the direction in which the market moves. But more precisely, foreign exchange market does not move in a straight line, its moves are characterized by a series of zigzags which resemble successive waves with clear peaks and troughs or highs and lows, as they are often called.

As we mentioned above, forex trend is comprised of a series of highs and lows, and depending on the movement of those peaks and troughs one can understand the trend’s type on the market.

Though most people think that foreign exchange market can be either upward or downward, actually there exist not two but three types of trends:

Traders and investors confront three types of decisions: go long, i.e. to buy, go short, i.e. to sell, or stay aside, i.e. to do nothing. During any type of trend they should develop a specific strategy.

The buying strategy is preferable when the market goes up and conversely the selling strategy would be right when the market goes down. But when the market moves sideways the third option – to stay aside – will be the wisest decision.

Support and Resistance Trading Strategy

In order to completely understand the essence of support and resistance trading strategy you should firstly know what a horizontal level is. Actually, it is a price level indicating either a support or resistance in the market. The support and resistance in technical analysis are the terms for price lows and highs respectively. The term support indicates the area on the chart where the buying interest is significantly strong and surpasses the selling pressure. It is usually marked by previous troughs. Resistance level, contrary to the support level, represents an area on the chart where selling interest overcomes buying pressure. It is usually marked by previous peaks.

In order to develop a support and resistance strategy you should be well aware of how the trend is identified through these horizontal levels. Thus, for an uptrend to go on, each successive support level should be higher than the previous one, and each successive resistance level should be higher than the one preceding it.

In case this is not so, for instance, if the support level comes down to the previous trough, it may signify that the uptrend is coming to the end or at least it is turning into a sideways trend. It is likely that trend reversal from up to down will occur. The opposite situation takes place in a downtrend; the failure of each support level to move lower than the previous trough may again signal changes in the existing trend.

The concept behind support and resistance trading is still the same – buying a security when we expect it to increase in price and sell when expecting its price to go down. Thus, when the price falls to the support level, traders decide to buy creating demand and driving the price up. In the same way, when the price rises to a resistance level, traders decide to sell, creating a downward pressure and driving the price down.

Forex Range Trading Strategy

Range trading strategy, which is also called channel trading, is generally associated with the lack of market direction and it is used during the absence of a trend. Range trading identifies currency price movement in channels and the first task of this strategy is to find the range. This process can be carried out by connecting a series of highs and lows with a horizontal trendline. In other words, the trader should find the major support and resistance levels with the area in between known as “trading range”.

In range trading it’s quite easy to find the areas to take profit. You can buy at support and sell at resistance as long as the security hasn’t broken out of the channel. Otherwise, if the breakout direction is not favorable for your position, you may undergo huge losses.

Range trading actually works in a market with just enough volatility due to which the price goes on wiggling in the channel without breaking out of the range. In the case the level of support or resistance breaks you should exit range-based positions. The most efficient way of managing risks in range trading is the use of stop loss orders as most traders do. They place sell limit orders below resistance when selling the range and set the take profit down near support. When buying support they place buy limit orders above support and place take profit orders near the previously identified resistance level. And risks can be managed by placing stop loss orders above the resistance level when selling the resistance zone of a range, and below the support level when buying support.

Technical Indicators in Forex Trading Strategies

Technical indicators are calculations which are based on the price and volume of a security. They are used both to confirm the trend and the quality of chart patterns, and to help traders determine the buy and sell signals.The indicators can be applied separately to form buy and sell signals, as well as can be used together, in conjunction with chart patterns and price movement.

Technical analysis indicators can form buy and sell signals through moving average crossovers and divergence. Crossovers are reflected when price moves through the moving average or when two different moving averages cross each other. Divergence happens when the price trend and the indicator trend move in opposite directions indicating that the direction of price trend is weakening.

They can be applied separately to form buy and sell signals, as well as can be used together, in conjunction with the market. However, not all of them are used widely by traders. The following indicators mentioned below are of utmost importance for analysts and at least one of them is used by each trader to develop his trading strategy:

  • Moving Average
  • Bollinger Bands
  • Relative Strength Index (RSI)
  • Stochastic Oscillator
  • Moving Average Convergence/Divergence (MACD)
  • ADX
  • Momentum

You can easily learn how to use each indicator and develop trading strategies by indicators.

Forex Charts Trading Strategies

In Forex technical analysis a chart is a graphical representation of price movements over a certain time frame. It can show security’s price movement over a month or a year period. Depending on what information traders search for and what skills they master, they can use certain types of charts: the bar chart, the line chart, the candlestick chart and the point and figure chart.

Also they can develop a specific strategy using the following popular technical chart patterns:

  • Triangles
  • Flags
  • Pennants
  • The Wedge
  • The Rectangle Pattern
  • The Head and Shoulders Pattern
  • Double Tops and Double Bottoms
  • Triple Tops and Triple Bottoms

You can easily learn how to use charts and develop trading strategies by chart patterns.

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Forex Volume Trading Strategy

Volume shows the number of securities that are traded over a particular time. Higher volume indicates higher degree of intensity or pressure.Being one of the most important factors in trade it is always analyzed and estimated by chartists. In order to determine the upward or downward movement of the volume, they look at the trading volume gistograms usually presented at the bottom of the chart. Any price movement is of more significance if accompanied by a relatively high volume than if accompanied by a weak volume.

By viewing the trend and volume together, technicians use two different tools to measure the pressure. If prices are trending higher, it becomes obvious that there is more buying than selling pressure. If the volume starts to decrease during an uptrend, it signals that the upward trend is about to end.

As mentioned by Forex analyst Huzefa Hamid “volume is the gas in the tank of the trading machine”. Though most traders give preference only to technical charts and indicators to make trading decisions, volume is required to move the market. However, not all volume types may influence the trade, it’s the volume of large amounts of money that is traded within the same day and greatly affects the market.

Multiple Time Frame Analysis Strategy

Using Multiple Time Frame Analysis suggests following a certain security price over different time frames.

Since a security price meanwhile moves through multiple time frames it’s very useful for traders to analyze various time frames while determining the “trading circle” of the security. Through the Multiple Time Frame Analysis (MTFA) you can determine the trend both on smaller and bigger scales and identify the overall market trend. The whole process of MTFA starts with the exact identification of the market direction on higher time frames (long, short or intermediary) and analyzing it through lower time frames starting from a 5-minute chart.

Experienced trader Corey Rosenbloom believes that in multiple time frame analysis, monthly, weekly and daily charts should be used to assess when the trends are moving in the same direction. However, this may cause problems because time frames don’t always align and different kind of trends take place on different time frames. According to him, the analysis of lower time frames gives more information.

Forex Trading Strategy Based on Fundamental Analysis

While technical analysis is focused on the study and past performance of market action, Forex fundamental analysis concentrates on the fundamental reasons that make an impact on the market direction.

The premise of Forex fundamental analysis is that macroeconomic indicators like economic growth rates, interest and unemployment rates, inflation, or important political issues can have an impact on financial markets and, therefore, can be used for making trading decisions.

Technicians do not find it necessary to know the reasons of market changes, but fundamentalists try to discover “why”. The latter analyze macroeconomic data of a specific country or different countries to forecast the given country’s currency behaviour in the nearest future.
Based on certain events or calculations, they may decide to buy the currency in the hope that the latter will rise in value and they will be able to sell it at a higher price, or they will sell the currency to buy it later at a lower price.

The reason why fundamental analysts use so long timeframe is the following: the data they study are generated much more slowly than the price and volume data used by technical analysts.

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Forex Trading Strategy Based on Market Sentiment

Market sentiment is defined by investors’ attitude towards the financial market or a particular security. What people feel and how this makes them behave in Forex market is the concept behind market sentiment.

The importance of understanding the opinions of a group of people on a specific topic cannot be underestimated. For each purpose sentiment analysis can offer insight that is valuable and helps to make right decisions.

All traders have their own opinions about the market movement, and their thoughts and opinions which are directly reflected in their transactions help to form the overall sentiment of the market.

The market by itself is a very complex network made up of a number of individuals whose positions actually represent the sentiment of the market. However, you alone cannot make the market move to your favor; as a trader you have your opinion and expectations from the market but if you think that Euro will go up, and others do not think so, you cannot do anything about it.

Herein, the market sentiment is considered bullish if investors anticipate an upward price movement, while if investors expect the price to go down, the market sentiment is said to be bearish. The strategy of following Forex market sentiment serves as a good means of predicting the market movement and is of high importance for contrarian investors, who aim to trade in the opposite direction of the market sentiment. Thus, if the prevailing market sentiment is bullish (all the traders buy), a contrarian investor would sell.

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Forex Strategies Based on Trading Style

Forex trading strategies can be developed by following popular trading styles which are day trading, carry trade, buy and hold strategy, hedging, portfolio trading, spread trading, swing trading, order trading and algorithmic trading.

Using and developing trading strategies mostly depends on understanding your strengths and weaknesses.In order to be successful in trade you should find the best way of trading that suits your personality.There is no fixed “right” way of trading; the right way for others may not work for you. Below you can read about each trading style and define your own.

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Forex Day Trading Strategies

Day trading strategy represents the act of buying and selling a security within the same day, which means that a day trader cannot hold any trading position overnight.

Day trading strategies include scalping, fading, daily pivots and momentum trading. In case of performing day trading you can carry out several trades within a day but should liquidate all the trading positions before the market closure.

An important factor to remember in day trading is that the longer you hold the positions, the higher your risk of losing will be. Depending on the trading style you choose, the price target may change. Below you can learn about the most widely used day trading strategies.

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Forex Scalping Strategy

Forex scalping is a day trading strategy which is based on quick and short transactions and is used to make many profits on minor price changes. This type of traders, called as scalpers, can implement up to 2 hundreds trades within a day believing that minor price moves are much easier to follow than large ones.

The main objective of following this strategy is to buy /sell a lot of securities at the bid /ask price and in a short time sell/buy them at a higher/lower price to make a profit.

There are particular factors essential for Forex scalping. These are liquidity, volatility, time frame and risk management. Market liquidity has an influence on how traders perform scalping. Some of them prefer trading on a more liquid market so that they can easily move in and out of large positions, while others may prefer trading in a less liquid market that has larger bid-ask spreads.

As far as it refers to volatility, scalpers like rather stable products, for them not to worry about sudden price changes. If a security price is stable, scalpers can profit even by setting orders on the same bid and ask, making thousands of trades. The time frame in scalping strategy is significantly short and traders try to profit from such small market moves that are even difficult to see on a one minute chart.

Together with making hundreds of small profits during a day, scalpers at the same time can sustain hundreds of small losses. Therefore, they should develop a strict risk management to avoid unexpected losses.

Fading Trading Strategy

Fading in the terms of forex trading means trading against the trend. If the trend goes up, fading traders will sell expecting the price to drop and in the same way they will buy if the price rises.
Herein, this strategy supposes selling the security when its price is rising and buying when the price is falling, or as called “fading”.

It is referred as a contrarian day trading strategy which is used to trade against the prevailing trend. Unlike other types of trading which main target is to follow the prevailing trend, fading trading requires to take a position that goes counter to the primary trend.

The main assumptions on which fading strategy is based are:

  • Securities are overbought
  • Early buyers are ready to take profits
  • Current buyers may appear at risk

Although “Fading the market” can be very risky and requires high risk tolerance, it can be extremely profitable. To carry out Fading strategy two limit orders can be placed at the specified prices- a buy limit order should be set below the current price and a sell limit order should be set above it.

Fading strategy is extremely risky since it means trading against the prevailing market trend. However, it can be advantageous as well – fade traders can make profit from any price reversal because after a sharp rise or decline the currency it is expected to show some reversals. Thus, if used properly, fading strategy can be a very profitable way of trading. Its followers are believed to be risk takers who follow risk management rules and try to get out of each trade with profit.

Daily Pivot Trading Strategy

Pivot Trading aims to gain a profit from the currency’s daily volatility. In its basic sense the pivot point is defined as a turning point. It is considered a technical indicator derived by calculating the numerical average of the high, low and closing prices of currency pairs.

The main concept of this strategy is to buy at the lowest price of the day and sell at the highest price of the day.

In mid-1990s a professional trader and analyst Thomas Aspray published weekly and daily pivot levels for the cash forex markets to his institutional clients. As he mentions, at that time the pivot weekly levels were not available in technical analysis programs and the formula was not widely used either.

But in 2004 the book by John Person, “Complete Guide to Technical Trading Tactics: How to Profit Using Pivot Points, Candlesticks & Other Indicators” revealed that pivot points had been in use for over 20 years till that time. In the last years it was even more surprising for Thomas to discover the secret of quarterly pivot point analysis, again due to John Person.

Currently the basic formulae of calculating pivot points are available and are widely used by traders. Moreover, pivot points calculator can be easily found on the Internet.

For the current trading session the pivot point is calculated as:

P = (H + L + C)/3

Pivot Point = (Previous High + Previous Low + Previous Close) / 3

The basis of daily pivots is to determine the support and resistance levels on the chart and identify the entry and exit points. This can be done by the following formulae:

R2 = P + (H – L) = P + (R1 – S1)

S2 = P – (H – L) = P – (R1 – S1)

L – Previous Low

H – Previous High

R1 – Resistance Level 1

S1 – Support Level 1

R2 – Resistance Level 2

S2 – Support Level 2

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Momentum Trading Strategy

Momentum trading is actually based on finding the strongest security which is also likely to trade higher.It is based on the concept that the existing trend is likely to continue rather than reverse.

A trader following this strategy is likely to buy a currency which has shown an upward trend and sell a currency which has shown a downtrend. Thus, unlike daily pivots traders, who buy low and sell high, momentum traders buy high and sell higher.

Momentum traders use different technical indicators, like MACD, RSI, momentum oscillator to determine the currency price movement and decide what position to take. They also consider news and heavy volume to make right trading decisions. Momentum trading requires subscribing to news services and monitoring price alerts to continue making profit.

According to a well known financial analyst Larry Light, momentum strategies can help investors beat the market and avoid crashes, when coupled with trend-following, which focuses only on stocks that are gaining.

Carry Trade Strategy

Carry trade is a strategy through which a trader borrows a currency in a low interest country, converts it into a currency in a high interest rate country and invests it in high grade debt securities of that country.
Investors who follow this strategy borrow money at a low interest rate to invest in a security that is expected to provide higher return.

Carry trade allows to make a profit from the non-volatile and stable market, since here it rather matters the difference between the interest rates of currencies; the higher the difference, the greater the profit. While deciding what currencies to trade by this strategy you should consider the expected changes in the interest rates of particular currencies.

The principle is simple- buy a currency whose interest rate is expected to go up and sell the currency whose interest rate is expected to go down.

However, this does not mean that the price changes between the currencies are absolutely unimportant. Thus, you can invest in a currency because of its high interest rate, but if the currency price drops and you close the trade, you may find that even though you have profited from the interest rate you have also lost from the trade because of the difference in the buy/sell price. Therefore, carry trade is mostly suitable for trendless or sideways market, when the price movement is expected to remain the same for some time.

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Forex Hedging Strategy

Hedging is generally understood as a strategy which protects investors from occurrence of events which can cause certain losses.

The idea behind currency hedging is to buy a currency and sell another in the hope that the losses on one trade will be offset by the profits made on another trade. This strategy works most efficiently when the currencies are negatively correlated.

Thus, you should buy a second security aside from the one you already own in order to hedge it once it moves in an unexpected direction. This strategy, unlike most trading strategies already discussed, is not used to make a profit; it rather aims to reduce the risk and uncertainty.

It is considered a certain type of strategy whose sole purpose is to mitigate the risk and enhance the winning possibilities.

As an example we can take some currency pairs and try to create a hedge. Let’s say that at a specific time frame the US dollar is strong, and some currency pairs including USD show different values. Like, GBP/USD is down by 0.60%, JPY/USD is down by 0.75% and EUR/USD is down by 0.30% . As a directional trade we had better take the EUR/USD pair which is down the least and therefore shows that if the market direction changes, it will go higher more than the other pairs.

After buying the EUR/USD pair we need to choose a currency pair that can serve as a hedge. Again we should look at the currency values and choose the one which shows the most comparative weakness. In our example it was JPY, and EUR/JPY would be a good choice. Thus, we can hedge our trade buying EUR/USD and selling EUR/JPY.

What is more important to note in currency hedging is that risk reduction always means profit reduction, herein, hedging strategy does not guarantee huge profits, rather it can hedge your investment and help you escape losses or at least reduce its extent. However, if developed properly, currency hedging strategy can result in profits for both trades.

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Portfolio / Basket Trading Strategy

Portfolio trading, which can also be called basket trading, is based on the combination of different assets belonging to different financial markets (Forex, stock, futures, etc.).

The concept behind portfolio trading is diversification, one of the most popular means of risk reduction. By a smart asset allocation traders protect themselves from market volatility, reduce the risk extent and keep the profit balance.

It’s very important to create a diversified portfolio to reach your trading goal. Otherwise, this kind of strategy will be aimless.

You should compile your portfolio with such securities (currencies, stocks, commodities, indices) which are not strictly correlated, meaning that their returns do not move up and down in a perfect unison. By mixing up different assets in your portfolio which are in negative correlation, with one security’s price going up and the other’s going down you can keep the portfolio’s balance, hence preserving your profit and reducing the risk.

Currently IFC Markets provides Personal Composite Instrument (PCI) creation and trading technology based on GeWorko Method, which makes it even much easier to perform portfolio trading. The technology allows to create portfolios starting with only two assets and include up to tens of different financial instruments, open both long and short positions within a portfolio, view the assets’ price history stretching up to 40 years, create your own PCIs, use a wide variety of market analysis tools, apply different trading strategies and constantly optimize and rebalance your investment portfolio. In other words, GeWorko Method is a solution that lets you develop and apply strategies which suit best your preferences.

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Buy and Hold Strategy

Buy and hold strategy is a type of investment and trading when a trader buys the security and holds it for a long time.

A trader who employs buy and hold investment strategy is not interested in short-term price movements and technical indicators. Actually, this strategy is mostly used by stock traders; however some Forex traders also use it, referring to it as a particular method of passive investment. They commonly rely on fundamental analysis rather than technical charts and indicators. This already depends on the type of investor to decide how to apply this strategy.

A passive investor would watch the fundamental factors, like inflation and unemployment rates of the country whose currency he has invested in, or would rely on the analysis of the company whose stock he owns, considering that company’s growth strategy, the quality of its products, etc.

For an active investor it would be more effective to apply technical analysis or other mathematical measures to decide whether to buy or sell.

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Spread / Pair Trading Strategy

Pair trading (spread trading) is the simultaneous buying and selling of two financial instruments related to each other. The difference of the price changes of these two instruments makes the trading profit or loss.
By this strategy traders meanwhile open two equal and directly opposite positions which can compensate each other keeping the trading balance.

Spread trading can be of two types: intra-market and inter-commodity spreads. In the first case traders can open long and short positions on the same underlying asset trading in different forms (e.g. in spot and futures markets) and on different exchanges, while in the second case they open long and short positions on different assets which are related to each other, like gold and silver.

In spread trading it’s important to see how related the securities are and not to predict the market movement. It is important to find related trading instruments with a noticeable price gap to keep the positive balance between risk and reward.

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Swing Trading Strategy

Swing trading is the strategy by which traders hold the asset within one to several days waiting to make a profit from price changes or so called “swings”.

A swing trading position is actually held longer than a day trading position and shorter than a buy-and-hold trading position, which can be hold even for years.

Swing traders use a set of mathematically based rules to eliminate the emotional aspect of trading and make an intensive analysis. They can create a trading system using both technical and fundamental analyses to determine the buy and sell points. If in some strategies market trend is not of primary importance, in swing trade it’s the first factor to consider.

The followers of this strategy trade with the primary trend of the chart and believe in the “Trend is your friend” concept. If the currency is in an uptrend swing traders go long, that is, buy it. But if the currency is in a downtrend, they go short- sell the currency. Often the trend is not clear-cut, it is sideways-neither bullish, nor bearish. In such cases the currency price moves in a predictable pattern between support and resistance levels. The swing trading opportunity here will be the opening of a long position near the support level and opening a short position near the resistance level.

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Forex Strategies Based on Trading Order Types

Order trading helps traders to enter or exit a position at the most suitable moment by using different orders including market orders, pending orders, limit orders, stop orders, stop loss orders and OCO orders.

Currently, advanced trading platforms provide various types of orders in trading which are not simply ”buy button” and ”sell button”. Each type of trading order can represent a specific strategy. It’s important to know when and how to trade and which order to use in a given situation in order to develop the right order strategy.

The most popular Forex orders that a trader can apply in his trade are:

  • Market orders – a market order is placed to instruct the trader to buy or to sell at the best price available. The entry interfaces of market order usually have only ”buy” and ”sell” options which make it quick and easy to use.
  • Pending Orders – pending orders which are usually available in six types allow traders to buy or sell securities at a previously specified price. The pending orders-buy limit, sell limit, buy stop, sell stop, buy stop limit and sell stop limit- are placed to execute a trade once the price reaches the specified level.
  • Limit Orders- a limit order instructs the trader to buy or sell the asset at a specified price. This means that first of all the trader should specify the desired buy and sell prices. The buy limit order instructs him to buy at the specified price or lower. And the sell limit order instructs to sell at the specified price or even higher. Once the price reaches the specified price, the limit order will be filled.
  • Stop orders-a sell stop order or buy stop order is executed after the stop level, the specified price level, has been reached. The buy stop order is placed above the market and the sell stop order is set below the market.
  • Stop loss orders – a stop loss order is set to limit the risk of trade. It is placed at the specified price level beyond which a trader doesn’t want or is not ready to risk his money. For a long position you should set the stop loss order below the entry point which will protect you against market drops. Whereas, for a short position place the order above the trade entry to be protected against market rises.
  • OCO – OCO (one-cancels-the-other) represents a combination of two pending orders which are placed to open a position at prices different from the current market price. If one of them is executed the other will automatically be canceled.

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Algorithmic Trading Strategies

Algorithmic trading, also known as automated Forex trading, is a particular way of trading based on a computer program which helps to determine whether to buy or sell the currency pair at a specific time frame.
This kind of computer program works by a set of signals derived from technical analysis. Traders program their trade by instructing the software what signals to search for and how to interpret them.

High-grade platforms include complementary platforms which give an opportunity of algorithmic trading. Such advanced platforms through which traders can perform algorithmic trading are NetTradeX and MetaTrader 4.

NetTradeX trading platform besides its main functions, provides automated trading by NetTradeX Advisors. The latter is a secondary platform which contributes to automated trading and enhances the main platform’s functionality by the NTL+ (NetTradeX Language). This secondary platform also allows to perform basic trading operations in a “manual” mode, like opening and closing positions, placing orders and using technical analysis tools.

MetaTrader 4 trading platform also gives a possibility to execute algorithmic trading through an integrated program language MQL4. On this platform traders can create automatic trading robots, calledAdvisors, and their own indicators. All the functions of creating advisors, including debugging, testing, optimization and program compilation are performed and activated in MT4 Meta-Editor.

The Forex trading strategy by robots and programs is developed mainly to avoid the emotional component of trade, as it is thought that the psychological aspect prevents to trade reasonably and mostly has a negative impact on trade.

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