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Article Series:
Learn Forex Trading / Currency Trading Tips
5
Solid Forex Trading Strategies
When considering forex trading as a profit
making venture, it is important to work out winning strategies
beforehand if at all possible. Making decisions regarding your
forex trading and developing a strategy can be seen as your
foundation. With your strategy you will optimize your risk
with respect to the expected reward, or put the odds in your
favor. Trading strategies should be disciplined and limit risk,
while placing you at the most favorable advantage in the market.
One strategy is the simple moving away average, which is based
on a technical study over twelve periods, with each period
fifteen minutes in length. This is a good example of a trading
decision that is arrived at through strategy.
A simple algorithm is used in this strategy. When currency
price crosses above the twelfth period, simply move away it
is a signal to stop and reverse. In this way a long position
will be liquidated and a short position will be established,
both using market orders. This system will keep trades always
in the market, with either a short position or a long position
after the first signal.
Another strategy is of support
and resistance levels. This
is another technical analysis strategy and derives support
and resistance. The idea is that the market tends to trade
above support levels and trade below resistance levels. If
either a support or a resistance level is broken, then the
market will follow through is the direction given. These levels
can be determined by analysis of the chart and assessment of
where the chart has encountered unbroken support or resistance
in times past.
Anther strategy that many see as exotic is called the balloon
strategy. A balloon option is an option that balloons, or increases
in size when triggers are reached. For example, if an investor
believes that the dollar will gain strength against the Euro
in the near future and is currently trading at 100, the investor
will see 110 as being strong resistance, but the investor also
believes it will be broken. So, rather than buying straight
dollars at 100 for the next six months the investor will purchase
at “at the money” balloon call with a 110 trigger and multiple
of two. The investor will then own a 100 call in USD110mm.
But if the dollar and Euro ever trade at or above 110, the
110 call will double to USD 20mm.
The double
bottom is another strategy worth looking at. The
double bottom is significant to the short term trader as double
bottoms indicate a possible major change in sentiment and trend.
The pattern is used on all times frames, and many powerful
intraday and long term bull markets are conceived from this
setup. Double bottoms reflect strong support levels. When prices
fail to break support in the down trending markets on more
than one occasion we see powerful changes of trend. These reversal
signals are meaningful. The most common entry point where a
trader will open on a double bottom trade is on a move through
the high of the two troughs. This high will represent secondary
resistance, and when penetrated confirms a price reversal.
The stops are placed around the lows of he patters because
a move below lows negates the pattern premise.
Another good potential strategy is the ichimoku
chart. These
charts are following indicators, which identify support and
resistance levels and create trading signals in a way that
is similar to moving averages. A big difference however between
the two is that the Ichimoku chart lines shift forward in time,
creating wider support and resistance zones and decreasing
the risk of trading false breakouts. They are calculated using
information on trend existence, direction, support and resistance.
The four main lines are:
Turning Line = (Highest High + Lowest Low) / 2, for the past
nine days
Standard Line = (Highest High + Lowest Low) / 2, for the past
twenty-six days
Leading Span 1 = (Standard Line + Turning Line) / 2, plotted
twenty-six days ahead of today
Leading Span 2 = (Highest High + Lowest Low) / 2, for the
past fifty days, plotted twenty-six days ahead of today’s date.
Whichever strategy you choose to use, devote as much study
as possible to increase your chances of gain and profit. # # # # # SolveYourProblem.com : 2007
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