Rules for Picking Foreign Exchange Trading Short Term Options
There are a lot of forex traders that look at short-term trading. If this is the kind of foreign exchange trading you are considering then you have to know how to pick the correct trading options. There are a number of points that you have to consider when you look at short-term trades and which currency pairs to use.
Foreign Exchange Trading in the Right Market
The forex market has two main different conditions and they are range and trend. Most short-term foreign exchange trading is done in the trend market. Of course, there are a number of strategies that use the small movements of the range market. If you are not using these range trading strategies then you have to be aware of the market conditions.
It is said that the forex market trends for 20% of the time and ranges for the other 80%. Whether this is true or not remains to be seen, but this does show that you have to know what market you are dealing with. When you look at the currency pair you have to consider what the market conditions are. If the market has changed from trend to range then you may not be able to trade.
Many traders assume that when you trade on the short-term you have to trade all the time or as often as possible. This leads to traders not being very patient with their short-term options. When you trade on the short-term you have to be patient and wait for the right opportunity. If you do not wait for the right opportunity then you are going to end up losing on your trades.
The right opportunity will depend on the strategy you are using. If you are trading on the intraday trends then you have to wait for the right time to enter on the trend. Traders who are not patient could enter the market when the trend about to turn and lose their money. The large amounts of leverage than many short-term traders use also make it very important to be patient.
Look for a Strong Trend
Many new short-term traders make the mistake of trading on any trend that they find. While this often leads to profits it can also lead to overtrading. Many expert traders recommend waiting for the large trends so you can make a bigger profit on the one trade. Of course, this will also depend on the strategy you are using because some short-term strategies do not use big trends.
These strategies will include scalping and guerrilla trading. These two strategies are considered extreme short-term strategies because each trade only lasts a few minutes. These strategies cannot work with a big trend because the position needs to be open longer than the strategy allows.
When you are looking for this strong trend you should use the intraday charts and a MACD histogram. The intraday chart allows you to see how long the trend has been going and to identify patterns that affect the trend. The MACD histogram is a good trend strength indicator.