Market Strategies In Foreign Exchange

The market strategies in foreign exchange to be followed take a great deal to learn about the types of market existing in the forex world. Depending upon the trend that follows in market and the types of traders and investors that participate in the market, it has been categorized as follows:

• Trending market
• Directionless market
• Volatile market

With development of the different types of market, took place the development of different foreign exchange strategies to trade in these markets. The different features of different markets brought about the different rules of trading. And also the traders/investors are grouped as per their dealing in the market.

Strategies following trends

As the name suggest the trend following strategies follows the trends of the markets and are changed according to the trends as well. These market strategies in foreign exchange online are designed to take any kinds of big or small trend moves that may occur. The main feature for designing a trend following strategy is to make sure that no single big move in the market is ever missed.

And this factor can be accomplished by always being present in the market. This will help you notice the big moves talking place. One of the methods is to use a “stop” order in the foreign exchange market, always staying either above or below the instantaneous price, in order to mark your presence. And it is important that your strategy shouldn’t miss any big move otherwise you may not have enough capital to hold out through the drawdown for the next big move.

Another priority factor in foreign exchange strategies design is that losses during the market sideways mode should be limited, it is said as no strategy type can help you make money in every type of market condition.

It has been estimated that a market is in trend mode 15% of the time and is directionless 85% of the time. The trend-following strategies in foreign exchange, by definition, have 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.

The trends following strategies are most popular types of strategies that most of the traders follow. And these are the strategies with high of losing trades. Still these are popular because they can be very profitable over the times

Support and resistance strategies

The support and resistance (S/R) market strategies in foreign exchange take advantage of the directionless market. The main focus in support and resistance strategy is to make profit from the price fluctuations in the directionless market. The price movements opposite to those used in trend following strategies are acquired or used under this strategy of S/R taking the fact into consideration that markets are directionless 85% of the time.

The side swings in the choppy market are taken advantage from. This type of strategy has a higher number of winning trades, with small profits on each trade. It misses the full trend because it exits early in the trend move as the market becomes quickly overbought or oversold. The strategies in directionless market make use of the phrase “buy low, sell high”. That is buying of the commodities when prices are low and selling them when the prices get hiked. In support and resistance strategies there are small profits followed by larger strings of losses as the loss of money takes place when the market trends.

Strategies for volatile market

Strategies designed for volatile types of market are volatility expansion strategies. The trades generated by this type of strategy in foreign exchange strategies is usually of short term and the trader will be out of he market in an small amount of time. This kind of strategies produces winning trades. One feature of a volatile market is gaps. Gaps refer to places in a bar chart where there is no continuity or projection of price. The idea is that in addition to the price gap on the opening, we will require the price to move a distance at least equal to the previous day’s range away from the previous day’s close.

Each type of market has different features and takes a unique thought process for strategy design. It depends solely on the requirements and thoughts of a trader about what type of market you are most comfortable with and would like to trade. Another consideration is the financial and statistical factors of the strategies. It is wise to create different foreign exchange strategies that would be psychologically possible for trade too.