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Forex trading is the buying and selling of currencies on the foreign exchange market. The foreign exchange market is a decentralised global market for the trading of currencies, meaning it is not subject to any central authority, such as a central bank. Traders use Forex trading strategies to help them decide when to buy or sell currencies.
What is Forex Trading?
Forex trading is a financial market where currencies are traded between two parties. Forex trading is a fast-paced and speculative market where prices can change quickly. There are several forex trading strategies you can use to make money in the forex market. Here are three of the most crucial forex trading strategies in the UK.
1) Trend Following
Trend following is a popular forex trading strategy that uses technical analysis to predict the direction of the currency exchange rate. You should buy currencies when they are heading up in price, and sell them when they are heading down. This strategy is effective if you know how to identify trends and manage your risk.
2) Fundamental Analysis
Fundamental analysis is a more conservative approach to forex trading. You should only trade currencies based on their fundamental value, such as their GDP growth rate or inflation rate. This strategy is less risky, but may not be as profitable as other forex trading strategies.
3) Arbitrage
Arbitrage is a strategy that uses differences in currency rates to make profits. For example, you might buy a foreign currency for less than its value in British pounds, and then sell it for more than its value in pounds. This strategy is riskier than trend following or fundamental analysis, but can be very profitable if you know how to time your trades correctly.
The Bladerunner
The Bladerunner is a forex trading strategy that uses candlestick charting to identify potential reversals in the market. This strategy can be used in any time frame but is most commonly used during the 4-hour and daily time frames.
To trade the Bladerunner, you must first identify an area of support and resistance. Traders can do this by looking for areas where the price has bounced previously or using technical indicators such as Fibonacci levels. Once you have identified an area of support and resistance, you need to look for a candle pattern that signals a potential reversal. The most common candle patterns used for this purpose are the Doji and the Engulfing patterns.
Once you have identified a potential reversal signal, you need to enter a trade in the opposite direction of the signal. For example, if you see a bearish engulfing pattern on a 4-hour chart, you will enter a sell order.
Traders should place stop-loss orders just below the most recent support level. Traders can place take-profit orders at previous resistance levels or a 1:1 risk-to-reward ratio.
The Alligator
The Alligator forex trading strategy is a trend-following strategy that uses three moving averages to identify potential reversals in the market. This strategy can be used in any time frame but is most commonly used during the 4-hour and daily time frames.
The Alligator forex trading strategy is composed of 3 moving averages:
- The Alligator’s Jaw (13-period MA),
- The Alligator’s Teeth (8-period MA), and
- The Alligator’s Lips (5-period MA)
These moving averages are plotted on the price chart and form what is known as the Alligator’s teeth. When the price is above the Alligator’s teeth, it is considered an uptrend. In contrast, when the price is below the Alligator’s teeth, it is considered a downtrend.
Traders can use the Alligator forex trading strategy to trade both trending and range-bound markets. To trade a trending market, you need to wait for the price to break out of the range and then enter a buy or sell order in the direction of the trend. To trade a range-bound market, you need to wait for the price to bounce off of support or resistance and then enter a buy or sell order in the opposite direction.
Fibonacci Retracements
Fibonacci retracements are a technical analysis tool used to identify potential support and resistance levels in the market. This tool is based on the Fibonacci sequence, a series of numbers believed to have predictive qualities. To trade with Fibonacci retracements, you must first identify a recent high and swing low swing. Once you have identified these levels, you need to draw a Fibonacci retracement level at the swing high and low.
The most common Fibonacci retracement levels are 23.6%, 38.2%, 50.0%, 61.8%, and 100.0%. These levels can be used to identify potential support and resistance levels in the market.
Once you have drawn the Fibonacci retracement levels, you need to wait for the price to retrace to one of these levels and enter a buy or sell order.
Ichimoku cloud
The Ichimoku cloud is a technical analysis indicator used to identify potential support and resistance levels in the market. This indicator is composed of 5 moving averages:
- The Tenkan-sen (9-period MA),
- The Kijun-sen (26-period MA),
- Senkou Span A (52-period MA),
- Senkou Span B (26-period MA), and
- Chikou Span (22-period MA)
These moving averages are plotted on the price chart and form what is known as the Ichimoku cloud. To trade with the Ichimoku cloud, you must first identify a recent high and swing low swing. Once you have identified these levels, you need to draw the Ichimoku cloud on the price chart.
The most common way to trade with the Ichimoku cloud is to wait for the price to break out of the cloud and then enter a buy or sell order in the breakout direction. Check this explanation on how to open an account and to see the type of currency pairs you can trade.
Forex Tips for Beginners
If you’re new to forex trading, there’s a lot you need to understand before you begin. Here are some essential tips to get you started:
1) Start with a small amount of money. Don’t put all your eggs in one basket, and don’t trade too much money at once. You can always add more money later if things go well.
2) Always use a reliable forex trading platform. There are a lot of scam sites out there, so make sure you go with a reputable provider.
3) Do your research. As with anything else in life, success comes from learning as much as you can before taking the plunge into forex trading. Read articles, watch videos and talk to other traders to get the most up-to-date advice.
4) Be patient. Forex trading is not an overnight affair – it can take several hours or even days for trends to develop and for prices to change. Don’t get frustrated if things don’t move overnight – this is how markets work!
5) Never lose sight of your goals. Forex trading is about making money, but it’s also about learning about the markets and how they work. If you find yourself getting bogged down in the details, it’s time to take a step back and reassess your goals.