Forex Trading Techniques

Depending on the type of person you are, there are many Forex trading techniques that might appeal to you and many that might turn you off. In terms of the trader types, Forex trading is not really that different from stock trading. There are ultra-conservative traders who think nothing of entering just two or three trades a month while at the same time making sure that the trades they do enter are sure things that will definitely make them money. There are also ultra-aggressive traders that look to trade on a minute-by-minute basis, and in doing so, end up increasing their risk whilst at the same time increasing their potential profit. These archetypes rely on certain techniques to help make their strategies possible and while a full discussion is impossible in this short space, two examples of such techniques are sufficient to illustrate the variation.

Fibonacci Trading

The first example technique is known as Fibonacci trading. Fibonacci was an Italian mathematician and philosopher from a long time ago who created a mathematical sequence of numbers that were eventually named after him. In the Fibonacci Sequence, the numerical progression is achieved by adding up the two previous numbers in order to get the next spot in the sequence. For this reason, the Fibonacci progression is 1, 1, 2, 3, 5, 8, 13, 21, 34 and so on.

What makes the Fibonacci sequence so important for Forex trading is that many people that have done studies along those lines have been able to observe the fact that the Fibonacci sequence appears to hold true for certain Forex movements. In other words, there are times when Forex trades appear to strongly follow the Fibonacci sequence and move one unit in a certain direction before reversing and moving one unit in the other direction before reversing a third time and moving two units in the original direction and finally reversing and moving three units in the direction opposite. There is no hard and firm evidence to support this beyond empirical data that is prone to error values, but the Fibonacci connection is strong enough that if you can recognize it, you can profit from it easily. Ultra-conservative traders can recognize gradations in the strength of Fibonacci progressions as they occur and for that reason only take ones that are absolutely certain.

Chasing the Trend

This technique is a far cry from a second Forex trading technique known as “chasing the trend”. The entire premise of this technique is that you should be able to do as little work as possible and still reap the rewards of a very strong trend. Under this strategy, you would begin a swing trading session and follow every trend that came up with the hopes of gaining a small victory. You could gain a series of small victories and stitch them together into a large gain over the day if you apply this technique properly. It is a favorite of ultra-aggressive traders because it keeps them in contact with a trading session on a nearly constant basis. It is highly instinct-based and therefore is a far cry from the methodical and precise Fibonacci technique outlined above.