What are the major categories of Forex trading strategies? What are the differences between them and which ones are effective and which ones aren’t? This Forex trading lesson will cover these topics and hopefully give you some solid insight so that you can choose the best Forex strategy for you.
• Forex trading strategies based on indicators
Many traders use indicators to analyze price movement in the Forex market. Forex indicators seem to be favorite tools of beginning traders especially. While indicators can be useful, for the most part they are simply distractions that cover up the most important data of a market; it’s price movement.
Certainly, moving averages have their rightful place among useful Forex indicators; they are good trend analysis tools and they also help identify support and resistance levels. But, most of the other indicators out there are simply showing overbought or oversold conditions. The problem with this is that it means by their very nature most Forex trading indicators are simply top and bottom-picking tools. This creates a natural tendency for beginning traders to try picking tops and bottoms rather than learning to trade with trend. So, while there are some good indicators out there like moving averages, many of them are simply confusing tools that actually make trading more difficult.
• Forex trading strategies based on software systems
There are a lot of trading software systems and Forex robots out there on the market right now that make pretty big claims. While some of these may indeed be worth-while trading edges, the problem with them is that they don’t teach traders to actually read a price chart and trade for themselves. You really don’t want to start thinking that your trading system is the “holy grail”, and many of these forex trading robots imply this, whether indirectly or directly.
• Forex trading strategies based on reading “raw” price charts
Learning to read and trade off of a “raw” price chart, without indicators or trading software, is another trading strategy that many traders employ. Unlike the other two categories of trading strategies, trading off of a raw price chart seems to have very little downside or negative effects. Some traders like to combine price chart reading skills with indicators. This is fine to do as long as you don’t let the indicators take precedence over the price movement. The opinion of this website is that learning to read a price chart and the natural price action that occurs on it should be the corner stone of any traders’ trading toolbox. Even if you choose to trade based off indicators or trading systems, knowing how to read the natural price movement of a market is only going to help.
• Conclusion
Whatever Forex trading strategy you ultimately decide to use should be one that fits with your personality and daily schedule. Some traders are more geared towards using indicators or trading software while others are more geared towards learning classic technical analysis techniques. Whatever you decide to do just make sure you manage your risk properly and that you have a solid understanding of the underlying price dynamics of the Forex market.
