You can trade forex on these two methods:
– Counter trend trading or counter retail trading
– Trend trading or break-out trading
Trend trading or break-out trading:
Any market, whether forex or commodities, are similar in their patterns. It tends to consolidate, by moving “up and down” between a certain price range. A breakout occurs when the directions of price rise of fall towards new highs and lows and out of the consolidation pattern. The difficulty with this type of trading is that you will be wrong 50 – 60% of the time, which are very difficult for the most traders to stomach.
You will make money out of trend trading by consistently identify break-outs and trade them. While doing so keep your stop losses in place, to be taken out of a wrong trade. About 50-60% of these trades will turn against you, but once a break-out do realise, you will make a huge gain, that can be offset against all the small losing trades.
Breakout trading is not day trading. You will typically be in a trade for a week to about 1 – 2 months. By taking up an online trading course, you will also be able to learn the best exit strategies to follow and to profit up to the point where the market eventually turns against you.
Counter Trend trading or Counter Retail trading:
The opposite side of break-out trading is counter trend trading. As explained above the market will consolidate or move in a certain pattern for about 60-70% of the time.
Meaning if you opt into counter trend trading, you will “bet” on the fact that the break-out will be fake and will again consolidate or the price will reverse. This in fact means…when the market break-out long, you will go short, and if the market break-out short, you will go long.
Your question would probably by now be, what is the best option of the two to trade? I believe there is no right answer. It all depends on your personality.
If you will be able to handle a lot of small losses, to eventually (once a break-out occur) cash up on a big winner. Then break-out trading might me your answer. If you would much rather have a lot of smaller wins, without the possible big break-out wins of trend trading, then counter trend trading should be your answer.
The wonderful thing about forex trading is that both are correct answers and options. It all depends on you what will fill and suit your needs and personality.
The most important aspect is to be consistent in what you do and never ever get greedy. Happy trading.
Note: Currencies, Commodities, Cryptocurrencies and CFD’s traded on margin carry a high degree of risk. As such they may not be suitable for all investors. Investors should ensure they fully understand the risks associated with leveraged financial trading before deciding to trade because you can lose some or all invested capital. Investors may choose to seek independent advice and should not risk more than they are prepared to lose.
Forex Company Comparison:
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