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Effective Trading Strategies You Should Know

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The world of forex trading is a very competitive one, and it pays to be well prepared before starting. One of the biggest mistakes of beginners is that they go into forex trading hoping to make a quick buck without actually knowing what to do. Although forex trading is quite like a form of gambling, there are certain strategies that should be learned in order to even out the odds. There are 5 key strategies that you have to know of before you get into trading.

Following the Trends

As the name implies, this strategy involves basing decisions on past trends. Traders who use this strategy would often follow the history of the volatile currencies that have been moving up and down. For example, a certain currency pair has been going up in the first quarter and then suddenly down. If it has reached its lowest range, then it will most likely go up. Once there is some indication of the price going up, then you can invest in it.

Trading Using the Fibonacci Strategy

The Fibonacci strategy is actually named after the Italian mathematician, Fibonacci.  The strategy involves using ratios of the Fibonacci Retracement method. The principle of this strategy is to always put two extreme points and place a trend line in between. Between the extreme points are ratios obtained from the Retracement. You must wait until the price reaches the high extreme point before you sell it. If you are buying, you must wait for it to reach the low extreme point before you buy.

Trading with the Scalping Technique

The scalping technique is often used by beginners as it has the least risk. Scalping involves making small profits after buying a pair and letting it increase in price even just a bit. Although your profit may be small, you can earn quite a sum if you do this a lot. However, you also have to be careful and patient because you might not notice when there is a sudden drop in price which could make you lose all those earnings. Just make sure that you are always monitoring the market if you want to use this strategy.

Using Support and Resistance Charts

This strategy is a little bit different than the other two as it makes use of a chart. The support and resistance chart is a very effective tool in pointing out the movements of the market and can even show people when to buy and when to sell. It serves as a guide map to those who want to know how the market will maneuver.

Monitoring with Candlestick Charts

Another type of chart that is often used by forex traders is the Candlestick chart. By far, the Candlestick chart is the most popular among traders because it makes use of mathematical formulas to predict future trends. The analysis is often based on part trends, but the chart will not reveal too much of past activities. As this chart is the most popular, it is also the one that is most widely used in forex trading platforms like CMC Markets.