There are two conditions that the forex market will go through and they are trend and range. Forex strategies are often divided into the trend forex strategies and the range forex strategies. It is important that you know which strategy you should be using. It is not only the market conditions that dictate the strategy you should use, but your trading style as well.
The Trend Forex Strategies
A lot of traders look at trend strategies as their means of trading on the forex market. Trends are said to make up 20% of the market times and can last for a while. A trend is a price movement in one direction that you can easily see and determine. There are some traders who feel that a trend needs to have a certain amount of movement to justify the name of trend. If the movement does not meet the requirements it is considered to be a fluctuation in a range.
When you complete trend trading it is important that you get into the trend as soon as possible. This allows you to ride the trend for a longer period of time and you can make more profits. It is possible to enter a trend partway, but the amount you make will be less.
Using Leverage and Risk Control
When you trend trade you need to have strict risk control mechanisms. This means that you have to stick to any stop losses you set and not try to hold onto trades for too long. The risk controls are also needed because more trend traders use high leverage to make the most out of the trend. When you use large amounts of leverage you need to limit the risks you are creating.
All of your stop loss points should be set at 2% of your trading account. You should never risk more than this on a single trade. You also need to set take profit points so you get your money before the trend turns.
The Range Strategies
Range strategies are different trend strategies because they are held for longer periods and work in a range channel. To make money with this kind of trading you need to find out what the range channel is. You should then buy and sell when the price movements hit the top and bottom of the range. Range traders are not as worried about when they enter the market as trend traders are. This means that you do not have to find an exact price to enter the trade on.
If you are looking at range trading you need to have more capital that when you look at trend trading. Range traders have to be able to handle the movements between the top and bottom of the range. This needs to be done without a margin call and can be rather costly. If your range is 50 pips on a standard account then each pip movement is worth $10 which makes the entire range worth $500.
Of course, if you properly size your trading then you can start range trading on a smaller amount. Range traders generally do not use leverage because of the large range values. However, you should still have stop loss orders in place should the range turn against you.
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