Tools and Strategies That Make You Forex Expert
by Adil Adeel
Every trader must know Forex trading tools and strategies to formulate a viable system with maximum profits and minimum risk. Here are some tools and methods to become an expert Forex trader:
Price charting methods
Studying price changes through charts is the simplest and easiest method considered among market analysts. Line charts, bars and candlestick charts are generally the most used charts in the finance world. In Forex trading, these tools are very essential for developing strategies and making good decisions. Beginners in this field must pay special attention to learning and applying these methods to get better results.
It is the most basic and simplest of all charts. It can be obtained by connecting a series of points together by a line. These points are the past prices of a financial asset. It tells us how the prices of an asset have moved over a given period of time giving an idea about the market trends.
Bar charts also represent the price activity over a given period of time, with each vertical bar representing a given time frame. The most commonly used time frames are 1 minute, 5 minutes, 15 minutes, 30 minutes, 1 hour, 4 hours, 8 hours, 1 day, 1 week and one month. Each vertical bar gives four important pieces of information; the top of the line indicates the highest price during that time frame. The bottom represents the lowest price. The right side of the bar has a horizontal line that displays the closing price and the line on the left tells the opening price.
Candlestick charts are very popular among analysts because of their many uses and are very ideal tools to complete Forex trading tactics. Each data point look like the shape of a candle with a wick and a body. The top of the candle tells the highest price of the day and the bottom indicates the lowest. These two points tell the daily trading range. The edges of the candle body represent the closing and opening prices; top edge indicates the opening price and bottom edge indicates the closing price. The color of the candlestick represents the rising and falling prices; red represents falling price and green represents a rise. The color scheme can vary from one service provider to another.
Some Advanced Trading Strategies
Hedging is a very important Forex trading strategy and every investor should learn this. Hedging can be called as a type of insurance which saves you from bad calls in investments. It protects your commodity, open forex or index positions from bad price movements. Hedging reduces the exposure to risks. For example, if there is a long position forecasting rise in prices then you will run the risk of fall in prices and might get into loss. Hedging technique makes use of derivatives and other financial instruments to protect your investment from big losses.
Potion trading is a long term strategy where you hold a position for a long term (months and years) and it focuses on movement in primary trends rather than short term day to day fluctuations. The benefit for a position trader is that he does not have to keep close eye on the market unlike a short term or a day trader.
There are numerous websites and forums where one can properly learn different methods and tools. But before you sign up for a site, make sure it is reliable and has good customer satisfaction rate.
Once you understand how to interpret and apply these tools, you will be able to formulate your very own successful strategies.
Adil Adeel, Senior Editor at free100forex.com
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