Trading Strategies

Trading Strategies

An Introduction to Trading Strategy

Recent years have seen the online trading environment grow exponentially.The internet and it’s facilitating connectivity have conquered the world; with data processed faster each passing day. It was really only a matter of time before the financial industry witnessed a shift and welcomed a variety of newcomers to the trading game – retail traders (that’s you). Now, anyone can access the most sophisticated financial markets in the world through online brokers.

Out of all the financial products available for trade online, the most popular by far are the forex and binary options markets. Each holds its own appeal; with positive and negative qualities to suit a number of trading styles and personalities. Wise investments in either vein of this industry are founded in good money management and trading strategies.

Summary of Binary Options and Forex Trading

I’m sure you know by now, that trading the forex market simply means to buy or sell a currency pair, in expectation of either higher or lower values to come. The difference between the entry and exit points represent profit or loss for anyone invested in the financial instrument. For facilitating access to the financial markets, forex brokers charge commission. This is usually included in the spread quote and taken from a trading account at the moment a new position is initiated.

Binary options trading is of course a little more simplistic, offering its own rewards and risks. The binary options broker asks to trade on the forecasted direction of an asset, predicting movements higher or lower within a specified time frame. If a product (commodity, FX pair, individual stock, indices) moves to the upside, a call option is traded, if movement is predicted downwards, then a put option is traded. To make things a little more exciting, there are other options now available to binary traders than simple high-low trades. Features and trading tools such as One Touch, Rollover, Double Up, early exits or trade extensions, are often available through popular platforms. These advanced features are in place to offer the chance of increased profit margins or lower risk opportunities to those wishing to trade more modestly in a volatile environment.

Now this is important: you must be aware that high and low risk, and also risk-free, are terms commonly thrown around in this industry. Yet, the fact of the matter remains that all online trading is a complex and often leveraged endeavour, which puts your capital at risk each time you open a position or place an option. It is only with thorough preparation and attention to the details, all online trade moves have the opportunity to be successful.

Leading Forex Trading Strategies

Despite all the additional features, software developments and the complexities of expiry dates / times included in binary options trading, those of you who are invested in traditional forex will encounter a tougher ride. Layers of technical analysis, hundreds of indicators, advanced platforms, trading theories and more, are just a few of the tools used to facilitate profitability after much dedicated study time. But there are ways to make things a bit easier from the outset.

There is a saying in this business that goes: ‘you’ve got to plan your trade, and trade your plan’. In other words, your success is very much dependent on how you initiate your goals from the beginning. In order to transform a novice into a triumphant professional, educated strategies and a respect for discipline are essential qualities.

A good strategy always begins with a personalised money management plan. The size of your account, the type of trades you want to undertake, the risk and reward involved, along with the exit point should things go wrong, must all be taken into consideration. Plus, where relevant, a fine scrutiny of the leverage involved with FX trading will also help you understand the depth of the risks about to be undertaken.

Following this essential step, there are of course various trading strategies that can be initiated.

Here is an outline of the most popular ones:

    1. Take into account a trade’s time horizon. Short-term trading is called scalping – traders pass in and out of the market hoping to gain small amounts of pips. Trading size here tends to be bigger and the time frame of the analysis is smaller. Medium-term trading is called swinging and traders are usually willing to leave a trade open upwards of a couple of weeks, until a specific target is reached.
    2. Scale into a trade. This strategy involves dividing your up your trading total and then entering a trade at different levels with the purpose to have a better moving average. It is usually applied when trying to pick tops or bottoms and is therefore a risky strategy.
    3. Trade with Elliott Waves Theory. One of the world’s most famous trading theories, Elliott Waves permits a trader to count waves in order to locate the breaking point in the market. This is often paired with other strategies for maximum effect.
    4. Trade with divergences. These are the best way to find out the turning points in a market. Usually traders on the hunt for a diverging price use an oscillator, followed by scaling in or out of their position.
    5. Trade with Fibonacci numbers. The famous golden ratio (61.8%) retracement is often used in combination with the Elliott Waves Theory. It discovers the third wave in an impulsive move; to understand which moment the market will travel fastest.
    6. Hedging. When or if your broker allows, hedging can be extremely successful (especially when paired with Elliott Waves). Waves of varying degrees can be traded using hedging techniques.
    7. Trend trading. This is very popular between traders who are looking at bigger time frames. The strategy implies buying dips or selling spikes in order to ride a trend.
    8. News trading. This simply means to look over an economic release and take a position in the direction of the news. A risky strategy when used alone as it bypasses the influence of any algorithms that may be affecting the trading arena.
    9. Trading with pending orders. One of the best strategies for trading, as pending order placement first requires planning – half the job is already done!
    10. Channeling. Falling into the same category as trend trading, the idea behind channeling is to sell in the upper side of a bearish channel, or buy at the lower side in a bullish one.

For now, this list should serve as framework, but as you progress in this diverse industry, it is certain that you will come across even better suited strategies for your personal trading style.