| Forex Strategy for Short Term Trading |
 A short term forecast of currency exchange rates has two elements. One is a current trend and the other is the possibility of a reversal. The traders use graph techniques to identify the current currency trend. The charts that are used are candlestick charts to verify whether the currency pair is in a particular trend and if the trend is going up or down. The momentum indicator like the Relative Strength Index (RSI) is used to predict whether the trend is likely to reverse or continue the same way once the trend itself is identified. By using such tools in your forex strategy, you are more likely to be successful in forex trading.Forex trading can be very demanding as the currency markets are always changing prices suddenly. Even the trends can change all of a sudden in a new direction. A wise trader will have to select a forex strategy that is short term oriented to restrict the downside risk in trading. Short term forex strategy will involve day trading in which a position is opened only for a day. A good short term trading forex strategy is to place a position in a currency pair with tight stops around it. A stop is an instruction to close a position. A tight stop is a stop in which the position is closed at a price that is not very far away from the opening price. This limits the risk with a proper stop loss forex strategy. A stop loss order is the maximum amount that you are willing to lose on a position. When the market settles at the stop loss price, your position can be sold. In the same way, a take-profit order will be an order to close your position at a minimum profit level that will be acceptable to you. Using the tight stops will expose you to risk for only a very short period of time. The currency market trades round the clock Monday through Friday. The traders who pick up experience will learn to follow certain trading patterns within a day cycle. For example, a trading volume may pick up around 0800 Eastern Standard Time when maybe the New York traders will become very active. A trader who is comfortable with a short term forex strategy may like to trade only at high volume periods of a day for some reasons. One reason may be that the bid/ask spread may be the lowest during such high volume periods and that will help save on the trading costs. Other reason could be that the high volume may encourage a less volatile and a more liquid market. When there is less volatility, there are very few surprises and that is a consoling fact for tight stop traders who do not like being stopped out for a loss. An alternative that is there for a trader in his short term forex strategy is to trade binary options on currency pairs. These options are usually short term bets that are about four hours in duration. The bets are on the amount and the direction of the price movement that the currency pairs are likely to go through. To successfully do trading on a day basis, a trader has to get an accurate prediction of exchange rates with suitable money management techniques in his forex strategy to take |
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