Forex Trading Strategies

As in any trading method, forex trading too involves a number of strategies and an investor in the forex market must adopt an excellent mix of strategies and analysis in order to make substantial financial gains.

Forex trading is nothing but buying foreign currencies at a certain rate and selling it at another rate making use of the difference in exchange rates of this currency in various markets. Profit is made when the selling rate exceeds the buying rate.

While there may be various Forex trading strategies adopted globally by a number of forex traders there are definitely certain basic ones that are a must for traders. The two main Forex trading strategies that try to bring a discipline in forex trading are as follows:

* Simple Moving Average * Support and Resistance Levels

In the first strategy, the important thing is to establish a 12-period simple moving average of the prices of foreign currencies. With this average, the price movements are plotted on a graph. Whenever the foreign currency prices cross the 12-period average above, it is a signal to buy the currency. On the other hand, when the price crosses the 12-period average below, it is time to stop and reverse that is to sell the currency. This strategy is a simple method that is easy to understand and follow. However, it has its limitations in terms of reliability and higher risk.

The second Forex Trading Strategy is to establish support and resistance levels in the price of the foreign currency. The support level is the base point or the lowest price point in a certain period while the resistance level is the upper price point in the same period. These levels can be determined by studying the price movements of the foreign currency using certain types of graphs. Whenever the support and resistance levels are breached, a new trend in prices occurs and the levels have to be established again.

Apart from the above strategies that provide a scientific way to understand and take positions in foreign currency trading, there are a certain set of basic rules to follow as strategies:

- Always keep track of the amount exposed in foreign currency trading and ensure that it is within the accepted levels - Keep in mind the return that is expected from the transactions and try not to be too greedy and breach the expectation too much - Understand the actual risk involved in every transaction and compare it with your accepted risk absorption capacity. - Keep track of your own experience in forex trading - Always keep in mind your investment objective which may be capital appreciation, constant returns or high profits. - Invest only up to the amount that you can afford to lose. - Always rely on expert opinion, analytical statements and past history of prices rather your own instincts that may be effective only at times.

Thus with the adoption of the above Forex trading strategies, traders can make wise profits

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by Thomas D. Houser www.bestforexcurrencyinfo.com
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