E-Currency Trading Strategies In Forex Trading

As we know, there are three types of market strategies in e-currency markets- Trending, Directionless and Volatile. The different trades in the forex markets are traded using different types of market strategies in e-currency. Let’s take a look at these e-currency trading strategies - Trend Following Strategies, support and resistance strategies and volatility expansion strategies below:

Trend Following Strategies

The trend-following e-currency trading strategies are designed for trending markets, and to take a position for all the big trending moves that may occur in the forex currency trading market. While designing these market strategies in e-currency trading, the most important thing is that the strategy must never miss the big move. And the easiest way to ensure that you never miss a big move is to always be in the market, that is, to always be either short or long. If you always have a position, you will always be there when the big move takes place. The other method is to always have a “stop” order in the market, resting either above or below the current price. This is the same order as a stop loss, but it is used to enter the market rather than exit. Using a stop to enter the market will protect you because if the market moves quickly in either direction, you will be stopped in before the big move begins.

When the currency market is in directionless phase, a trader can face several losses in a row and most likely significant drawdown. Therefore, if a trading strategy misses a big move, a trader might not have sufficient cash to hold out through the drawdown in the trading market till the next big move. Another e-currency trading strategies which needs to be in place should be to limit the losses during the market’s sideways mode. It is very important to recognize that no market strategies in e-currency trading will make money in every market condition. It is therefore very important to identify the market action in which the different e-forex strategies make money and the market actions in which these can lose money. Once it has been founded that you have found the market action in which the strategy will lose money, it becomes a strategy design priority to minimize losses during that particular market action. If the strategy is designed to make money in a trending market, it will lose money in the choppy phase. Your priority should be to minimize the losses in the directionless market.

There are different types of market strategies in e-currency trading which help in making money through one or two trades of the year and lose money for the rest. The most common indicator used for trend following strategies is moving averages, most often two, a short moving average and a many researchers have estimated that any market is in the trend mode 15% of the time and is directionless 85% of the time. A trend-following strategy then, by definition has a low percentage of profitable trades. A trend-following strategy is psychologically difficult to trade, but if you think you can successfully trade without constant positive feedback, it can prove to be very profitable.

Trend-following e-currency trading strategies are one of the most popular types of strategies. With a high percentage of losing trades, one might be wondering why it is so popular. Well, the answer is really simple; the trend-following market strategies in e-currency trading can be very profitable over time. The other reason is that people like to follow and make money on the big trends. It is human nature to encash the big moves in the market.

Support and Resistance Strategies

There are different levels used in different e-forex strategies. Support refers to the price level that is repeatedly seen as the bottom and when the price reaches this level it tends to rise. While Resistance is defined as the levels which are upper prices that the currency rarely trades beyond. Support and resistance levels contain price movements for a period of time. When currency prices break through support or resistance levels, the prices are expected to continue in that direction. For example, if the price rises above the previous resistance level, it is seen as bullish – the price should continue to rise. To find support and resistance levels, price charts need to be analyzed for unbroken support and resistance levels. Charts can be analyzed in any time frame; however longer time frames establish more important support -resistance levels. Traders can use support-resistance levels to determine when to enter or exit a transaction.

Volatile Expansion Strategy

Volatility expansion e-currency trading strategies are designed to do well in volatile markets. The trades generated by these types of market strategies in e-currency are usually short-term, and when trading this type of strategy, you will be out of the market a significant amount of time. Volatility expansion strategies generate a high percentage of winning trades, although these trades usually generate small profits per trade. The volatility expansion strategies are used to measure current volatility and enter the market when there is an abrupt increase in volatility. These types of e-currency trading strategies are known for making a quick exit, usually after only a few bars.