Investing is an exciting opportunity that can provide short-term gains and long-term financial security when done properly. Just like a football team does not go into a big game without a plan, you should not enter into investing until you decide on one of many effective strategies to increase your chances of success.
This is especially important in volatile markets like the foreign exchange (Forex) market. If you are unfamiliar with Forex but would like to learn about this exciting investment opportunity, check out FOREX: The Complete Trading System to learn more about the potential opportunities available to you in the currencies marketplace.
In this article, you will learn about three strategies that are especially useful for beginning Forex investors. They are relatively easy to follow and can produce significant profits when done correctly.
Please note that you should practice Forex trades using a free dummy account from one of the large brokers to learn how to effectively use these strategies before you begin investing with your hard-earned money. Once you are comfortable with using these strategies, creating a live account is very simple and you will be ready to enter the Forex market with the knowledge and skills necessary to become a successful investor.
Currency Analysis
One of the easiest Forex trading strategies to master is known as currency analysis. This is a relatively foolproof method of predicting market movements and currency fluctuations. There are two different methods used to analyze currency: technical analysis and fundamental analysis.
Technical analysis relies on the price of currency pairs to identify trends and measure the price volatility of a given currency. With this information, you’re able to detect the trading signals (when to buy and when to sell). Check out theTechnical Analysis and Chart Reading Skills Bundle course for more information about technical analysis.
Fundamental analysis takes a different approach. Instead of evaluating the currency pairs, fundamental analysis requires that you look at outside factors such as the unemployment rate of a specific country and the stability of the current political situation in that country. Politics can have enormous impact on the value of currency and many fortunes have been acquired by relying on the techniques of fundamental analysis.
Both of these currency analysis strategies are excellent for beginners because the analysis process is not very complicated and trading signals are usually easy to spot.
Day Trading
This is one of the most popular Forex trading strategies and it is employed by both beginners and experienced investors alike. As a day trader, you will not hold any trading positions overnight. You may make multiple trades within a single day but you will liquidate all of your trading positions before the market closes.
If you decide to use a day trading strategy, remember that the longer you hold a trading position, the higher your risk of losing on the trade. By studying the currency fluctuations on a daily basis, it becomes apparent that practically every currency fluctuates throughout the day. Although these price fluctuations may be small, many trades over the course of a single trading day can result in significant profits.
Many experts recommend that day traders use significantly more investment capital than some of the other strategies mentioned because the fluctuations are magnified with larger amounts of money. Since Forex relies on leverage, it is relatively easy to make large trades without having a lot of capital on hand. The drawback to this system is that you can easily lose money that you cannot afford to repay if leverage works against you during a particular trading day.
Range Trading
Sometimes also known as support and resistance levels, this popular Forex trading strategy is easy for beginners to learn and implement. This system relies on the fact that each currency has price fluctuations throughout the day and the week that remain relatively constant.
Many commonly trading currencies have relatively predictable price movements and by studying the charts for a few days, identifying the trading signals is straightforward. For instance, if a currency generally fluctuates between $1.20 and $1.54 throughout the day, these would represent your trading signals. The support price is $1.20 – this is when you want to purchase this particular currency. The resistance price is $1.54. As the currency value approaches this number, you want to trade out of the position and cash in your profits.
As you can see, the key to this method is studying the average fluctuations of your target currency well enough to identify the support and resistance prices. Although the profits generated using this range trading strategy are typically not as significant as traditional day trading or currency analysis, the consistent profits you can reap using this method make it one of the better options to consider as a novice Forex investor.
These three strategies represent the most basic Forex strategies that actually work. There are hundreds of other strategies and there are even more “systems” that claim to guarantee profits. Unfortunately, these systems are often plagued by failure and do not work in many situations.
Currency analysis, day trading, and range trading rely on sound investment principles. Instead of gambling your money away haphazardly, you can use these strategies to create quantifiable profits in a relatively short period of time.
If you have never traded Forex before, please remember to set up a free dummy account where you can practice these strategies prior to investing real money. Although adopting these strategies isn’t difficult, there is risk inherent to any investment opportunity and currency exchanges are considered one of the more volatile investment opportunities available. Of course, great risk comes with the potential for significant rewards but there are many more people who have lost fortunes trading Forex incorrectly than those who have gained a fortune.
By practicing these strategies and looking for trends that can guarantee small but consistent profits over a long time period, you significantly increase your chances for long-term success as a Forex trader.
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