Trading trend with forex

Trading trend with forex

by Stock Specialist ~ Thursday, July 30, 2009

Forex trading involves the buying and selling of currencies. The manner in which this is done is by trading currency pairs. The major currency pairs are GBP/USD, EUR/USD, USD/CHF, USD/JPY, AUD/USD and USD/CAD.

There are three main methods of trading forex as follows:

1. Day trading

2. Swing trading

3. Long term trading

It has been identified that currencies follow trends. The trend will be either a rise in the value of a currency compared to another currency, or, a fall in the value of a currency compared to another currency. An example of a rise in a currency trend could be when the Euro increases in value against the US dollar. An example of a fall in a currency trend could be when the Euro declines in value against the US dollar.

You need to decide which of the three trading methods mentioned above that you are going to implement in your trading.

The moves of currency pairs throughout the day are often in a random manner making it very difficult to profit from day trading.

It is more apparent with swing trading when short term trends commence and end. This makes swing trading more profitable than day trading.

Long term trends in forex trading can last for quite a while, making this long term trading quite lucrative. There is a drawback to long term trading as the profits generated during the trend will experience days when they decrease. At times like this traders may close their forex trades as they find it difficult to deal with decreases in their profits. As a result the forex trader may well lose out on future trends in the currency pair.

Whichever method of trading you follow, ensure that you are trading in the direction of the trend so as to increase the probability of generating profits.