<Last updated 14.04.2020>
Hi! If you are interested in online trading please read carefully the below where I explain some of the main trading styles and important information.
What is important in Trading Online?
It is important to assess the market conditions. A situation report on trading environment. This means we need to know what kind of market environment we are actually in.
By knowing in what market environment we are trading in, we can choose a trend-based strategy in a trending market or a range-bound strategy in a ranging market.
> A trending market is one in which price is generally moving in one direction.
>A range-bound market is one in which price bounces in between a specific high price and low price.
Different Types of Trading Styles
> Scalping The main objective for forex scalpers is to grab very small amounts of pips as many times as they can throughout the busiest times of the day.
> Day trading is another short-term trading style, but unlike scalping, you are typically only taking one trade a day and closing it out when the day is over.
> Countertrend day trading is like trend trading except that once you determine your overall trend, you look for trades in the opposite direction.
>Breakout day trading is when you look at the range a pair has made during certain hours of the day and then placing trades on either side, hoping to catch a breakout in either direction.
> Swing trading is a longer-term trading style that requires patience to hold your trades for several days at a time. Swing trading attempts to identify “swings” within a medium-term trend and enter only when there seems to be a high probability of winning.
> Position traders are those that have trades that last for several weeks, months, or even years. These traders know that fundamental themes will be the predominant factor when analyzing the markets and therefore make their trading decisions based on them.
Trading Interest Rate Differentials?
By selling currencies whose country has a lower interest rate against currencies whose country has a higher interest rate, you can profit from the interest rate differential (known as a carry trade) as well as price appreciation.
Carry Trade Example
> Borrow $10,000 from bank. Their lending fee is 1% of the $10,000 every year. With that borrowed money, you turn around and purchase a $10,000 bond that pays 5% a year. Profit is 4%, not discounted for inflation.
> A breakout occurs when the price “breaks out” (get it?) of consolidation or trading range. You’ll notice that unlike trading stocks or futures, there is no way for you to see the volume of trades made in the forex market.
Volatility is something that we can use when looking for good breakout trade opportunities. It measures the overall price fluctuations over a certain time and this information can be used to detect potential breakouts. Bollinger bands are useful tools for measuring volatility.
The ATR is also an excellent tool for measuring volatility because it tells us the average trading range of the market for X amount of time, where X is whatever you want it to be. When ATR is rising, it is an indication that volatility has been on the rise.
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