Advanced Trading

As you gain experience and insight into how the Forex market operates, you will no doubt want to practice more challenging strategies unfit for a novice trader. Through the use of more advanced strategies, you can increase your profits while more effectively controlling your risks. The following are some advanced methods of trading you can use when your confidence has grown and you've mastered the basics.

Hedging and Options

Hedging ultimately comes down to taking both a long and short position on the same currency by using more than one currency pair.

An example would be when you felt that the Australian dollar would probably fall against the US Dollar, so you short the USD/AUD. However, you also believe the AUD is going to gain strength against the Euro. At this point, you can buy EUR/AUD, thus playing both possibilities. In a sense, you may be able to win twice, but you will be able to greatly reduce your risk since at least one of these plays is likely to be profitable.

Position Trading

Position trading has two possible components: merely buying and holding or performing a brief series of trades equivalent to dollar cost averaging. For example, if you have exposure to a currency pair like GBP/JPY, you may simply be following a long term trend. In a case like this, you can merely allow the trend to carry your position until your research and intuition tell you to close it.

However, you can also use Position Trading to make a profit even if your initial trade ends up being unprofitable. If you short a particular currency pair at one price and it ends up rising later, you can then short it again at its higher price. If and when it subsequently downtrends again, your aggregate position will still be profitable.

CHARTING STRATEGIES

There are several types of Forex charts. There are commonly used ones such as Line, Bar and Candlestick Charts, as well as less commonly used ones such as Equivolume, Kagi and Renko Charts. Regardless of what a chart may look like, the four variables tracked by any Forex chart are:

• Price
• Volume
• Time
• Momentum

Price

Every known Forex chart tracks the price of the currency pair in question. The price can be shown in a variety of different ways, but most traders focus on the high price, the low price, as well as the opening and closing prices of a given currency. Through tracking the high and low prices, a pattern sometimes emerges and informs a trader whether the price will rise or fall in the near future.

Volume

The volume of a pair is tracked on the Equivolume chart. Experienced traders know that when there is a large amount of activity by either buyers or sellers of a currency, its value will move. If more volume is being sold, the price moves downward, and vice versa will occur when there is a large amount of buying. Often, the end of a trend can first be seen as a reduction in volume on the dominant side.

Time

In most charts, time is an important factor. Some traders consider a particular time of day to coincide with particular types of price movement. Additionally, time is important for traders who are interested in the duration of a particular trend. The duration of a trend can indicate how long it may continue.

For example, if you track a short term trend on a one-hour chart, every minute would be important. Each of these minutes can see several pips of movement. The shorter the duration of your planned position, the more important time becomes to your plan.

Momentum

Momentum measures where a currency's price has moved. With this information you can often determine where the currency is likely to move next. By tracking the momentum, you can ignore the tiny momentary movements and focus on the significant ones.

A significant movement is one where a previous rising or falling trend is broken. In such cases, the price of a currency tends to rise or fall further than it has recently. During the early parts of these movements, a trader can open a position and profit from the continuation of the trend.