Forex trading systems are nothing more than a set of rules that traders use to arrive at their entry & exit points. Developing and using trading systems can help traders to earn consistent returns and limiting risk at the same time. Let us look at different types of trading styles in this post.
Automated Trading: Automated trading systems are created by converting trading system’s rules into code that a computer can understand. The computer then runs those rules through trader’s preferred trading software, which looks for trades that adhere to the rules set into the system. Finally, the trades are automatically placed with the help of Forex broker.
Carry Trading: Carry trading is one of the simplest strategies for currency trading where a trader buys a high interest currency against a low interest currency. For each day that he holds that trade, the broker pays the trader the interest difference between the two currencies, for as long as he happens to trade in the interest positive direction.
Day Trading: Day trading is about buying and selling currencies over a very short period of time, typically one day.
Swing Trading: A style of trading that involves earning profit from short to medium term swings in trend. Swing Trades can last from few hours to several days, weeks or even months.
Discretionary Trading: Discretionary trading relies on a person’s intuition and judgment to enter and exit trades. Discretionary trading uses subjective experiences and is the opposite of the mechanical trader.
Fundamental Trading: Fundamental trading is an effective technique that helps a trader to decide when to enter or exit a trade based on market news because financial news are often the trend-setters in the short term.
Technical Trading: It is a style of trading which is about analyzing of the price chart for technical patterns and signals.
Scalping: Scalping trading relies on more frequent and short-term trades than any other Forex trading strategy. Scalping is the single most vivid piece of terminology in the Forex world. Most experienced traders do not recommend it, because usually you have to have a wide stop loss and tight target and one bad trade can eat the profit you have made through several good trades.
Range Trading: Range trading is simple with defined risk reward parameters. It focuses on price movements and congestion points on the chart, and allows traders to ignore news-flow and instead concentrate on well defined areas of support and resistance.
Trend trading: Trend traders are those who wait for the market to form a trend. Usually market trends in 30% of the cases and it ranges most of the time, but the good news is while market is ranging on a big time frame like daily, it trends on the smaller time frames like one hour or 15min. So trend traders can always find a trend to trade. Of course most of them prefer to wait for the bigger time frames to form a trend because either they can not trust the smaller time frames or they don’t have enough time to sit and trade using the smaller time frames. By the way, trend trading is one of the most recommended methods. It is highly recommended that traders follow the trends and do not go against it. Those who are used to ride the trends, usually make reasonable profit, whereas those who always wait for reversal signals to go against the trends, usually suffer from big losses.
Continuation and Reversal Trading: This method is also related to trend trading. If you are a continuation trader, you wait for the market to form a trend. Then it forms a reversal signal and then it starts following the trend direction again. It is the time that you should enter. Reversal traders however wait for the reversal signals, usually because they like to hit the bottom and top. This goes back to the uncontrolled greed. Just please think about the below sentence for few minutes and try to understand what it means. It teaches you more than a $4000 training course by a trading guru. It is a very famous saying among traders, but usually a very low percentage of the traders know what it means exactly and how they can trade based on it:
Trading is not about buying low and selling high. It is about buying high and selling higher!
What does it mean? One meaning is that you should wait for the market to form a trend. To do that, market should start moving toward a special direction strongly. Then it starts following the same direction again, after it has moved against it for a limited time. In general, it means you should wait for the market to start a trend. Then you should wait for a continuation signal to follow the trend. To do that, the market should go up for a while (in case of forming an uptrend) and then goes down a little and then it starts following the upward direction. So you buy when that market has started going up long time ago. So you buy high and you will sell higher :)
It makes a lot of sense, doesn't it?
Now the question is how you can distinguish the beginning of a profitable trend. It is a million dollar question. We learn to find and locate the reversal signals but they mainly learn to follow the trends using the continuation signals.
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