Different Styles and Systems in Forex Trading

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There are many Forex brokers around these days. Because of the popularity of this investment vehicle, new Forex brokers have been popping up on a daily basis. Anyone new to Forex can get lost trying to decide with which broker to open an account and Forex broker review sites such as DailyForex.com are extremely beneficial in helping novice traders to make that chose. One of the factors on which he should base his/her decision is the broker’s trading platforms and trading systems.

Brokerage variations in trading styles and systems should match the sentiments of the trader in order for him/her to feel confident in trading. Proper research into the broker’s history and experience should indicate the direction and course he has followed in the past and is most likely to take in the future. Despite the plethora of trading classifications offered online, a few popular styles and systems have maintained their prominence throughout the years.

As far as trading styles go, there are four basic varieties. These include scalping, day trading, swing trading, and position trading. Scalping is a type of trading within day trading, but it differs as to the length of time that trades are held. Scalping trades are extremely rapid, often held for a few seconds, or at most a few minutes. Trades are executed within just a few seconds of each other and often in opposite directions (i.e. they are long one minute, but short the next). Day trading trades are held for a few seconds to a couple of hours and are more suitable for traders that enjoy starting and finishing a trade in the same day.

Swing trades are usually held for several days Swing trading is most suitable for people that have the patience to wait but once they have entered a trade they want it to become profitable quite quickly. Swing traders almost always hold their trades overnight, so it is not suitable for people that would be nervous holding a trade while they were away from their computer. And position trades are trades that are held the longest and include trades that last for several years. Position trading is only suitable for the most patient and least excitable traders.

Moving on to trading systems, one system which has regained its popularity of late is Ichimoku Kinko Hyo. Ichimoku Kinko Hyo is essentially a trend trading system developed by a Japanese newspaper man called Goichi Hosada in the mid-20th Century. Its use as a marketing chart was introduced to the public in 1968 after years of testing by Hosada and his students and was not very popular at first. The concepts proved difficult for Westerners to grasp and the components were listed in Japanese. As a result, it was used mostly in Japan and throughout the Asian markets. The system was re-introduced on a global scale over the last decade when traders all over the world reawakened to the prominent success of the system. In fact, in addition to its use as a Forex indicator, Ichimoku Kinko Hyo is now being used for trading commodities, stocks and futures. Ichimoku Kinko Hyo works best at the daily and weekly intervals.

Literally translated, Ichimoku Kinko Hyo means “Equilibrium Chart at a Glance” and the methodology uses five distinct components in trending. Each of the five components is considered as part of the whole assessment of the market.

Using Ichimoku enables a trader to quickly see the big picture and form an understanding of the underlying security. Rather than looking at indicators and moving averages separately, Ichimoku provides the opportunity to see a ‘macro’ view of what is happening. From there, it is easy to decide if a trader wishes to short, long, or even sidestep a security.

The 5 indicators are:

Tenkan sen—(translated as ‘the turning line’). This is the highest high+lowest low divided by 2 for the last # of time periods being analyzed (ex- 9 periods).

Kijun sen— (translated as the ‘the standard line’). This is the highest high+lowest low divided by 2 for a second, longer time interval (ex- 26 periods).

Chikou span– translated as the ‘lagging line’, this is the value of the closing price over the same time period as the Kijun Sen.

Senkou Span A– this ‘first leading line’ is the tankan sen+kijun sen divided by 2, looking at a longer interval into the future (ex – 26 time periods forward).

Senkou Span B– the ‘second leading line’ is the highest high+lowest low divided by two for a time span that is double the Kijun sen into the future (ex – 52 time periods forward).

All these terms, listed in the Japanese language can certainly confuse even the most experienced trader at first but with some training and patience it can prove to be a very successful Forex indicator.

By Cina Coren

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