Introduction
Look:
Being familiar about the tools that you can use and the strategies that you can apply in forex trading can help you in minimizing the risks and maximizing the profits.
Let’s get started!
Price Charts
Price charts are very important in trading currency pairs and without this tool you won’t be able to create or implement a workable trading strategy.
Here’s the thing:
It is vital for you to learn how to use these charts in order for you to spot trends and be able to make solid forecasts.
So let’s begin.
Here are the most common types of charts that you need to be familiarized with:
Line
Look:
The line chat is the easiest price chart to understand but serves as the most important of them all to learn the fundamentals of forex trading.
How’s that?
Basically, the line chart outlines the changes in the price of an asset in a specific timeframe.
Line chart on eToro’s platform
Bar
Now get this:
Bar charts are the more complex version of the line chart which can be applied for basic trading strategies.
The difference is that this chart outlines the changes in the price of an asset with the use of an upright bar that denotes a specific timeframe.
Here’s the point:
For every bar, you will be able to get the vital details for a certain period including the following:
- Highest price
- Lowest price
- Opening price
- Closing price
Bar chart on eToro’s platform
Candlestick
Note:
This is the most popular among the three chart types and is commonly used for technical analysis.
But remember this:
Each candlestick represents a timeframe.
For a rising price, the closing price and the opening price for a period can be determined from the body while the highest price and the lowest price for the period can be verified from the candle’s wick and tail.
A green candlestick indicates a rising price while a red candlestick signifies a falling price.
See the difference?
Candlestick chart on eToro’s platform
Advanced Trading Strategies
Hedging
This is one of the most important strategies to execute in forex trading.
With hedging, you are taking action to secure your open positions from any possible changes in the value of your selected asset that could revert what could have been a money-making position.
For example…
Placing a short position and anticipating the prices to go down has a potential risk of rising prices and you could possibly incur losses.
But with the use of hedging, you can significantly lessen this risk and protect your trade from losing all the money you invested in this position.
Position Trading
This strategy is commonly used by forex traders that prefer long-term positions since there’s no need to monitor the market in the same way that is done on a short-term trade.
This 4-minute video pretty much explains the long and short of trading so you might want to watch this in order to understand the concept better.
Put it this way:
A long-term trade generally holds a position for longer periods and this could take days, weeks or months.
And by employing technical and fundamental analysis and using advanced charts, there is a high potential to make a profit with position trading.
Implementing Advanced Trading Strategies
It all comes down to this:
When you are trading on an asset, regardless if it is a currency pair, commodity, stock, index or even a cryptocurrency…
You are basing it on market sentiments.
By being able to decipher these elements with fundamental and technical analysis and taking all these factors into consideration, you will be able to implement a sound trading strategy that will make you a very profitable trader.