Using A Directional Strategy When FX Trading

Directional FX Trading

The majority of beginner traders assume that all forex trading is completed using a directional trading strategy.  While a great deal of trading is completed using this strategy, there are other non-direction trading strategies.  These strategies are generally the long-term options where you are trading on a ranging condition. However, new traders are told to look at trades and directional trading.  It is important for you to know how to identify trends and how to trade on these trends.

The FX trading strategies

There are a number of FX trading strategies that use trend direction.  The way you identify the trend will depend greatly on the strategy you are using.  Different strategies will use different technical and fundamental tools to determine trends.  It is important that you know about some fundamental and some technical tools that can help you with this.

Trading with forex news

Forex news or fundamentals are not used to actually identify the trend, but rather to identify when a trend can occur.  It is also possible to use the news to determine which way the trend will be moving.  The direction of the trend is based on the content of the news release.  If the one of the currencies in your pair increases in value because of the news release then you should trade according to the trend.

Fundamental directional strategies will use a combination of forex news and technical analysis.  This allows you to know when the trend may occur and to find the appropriate entry and exit points.

Trading with chart patterns

There are a number of chart patterns that you can use in a directional FX trading strategy.  These patterns include triangles and flags.  You should look at these two patterns because they are among the easiest to spot and recommended to new traders.  There are a number of other trend related patterns that you should know about.

With triangles you are looking for a trend reversal.  This is what this chart pattern indicates and this allows you to get into a trend very soon.  This is the key to being successful and profitable with directional trading.

Trading with moving average crossovers

One of the most commonly used technical analysis tools for directional strategies is the moving average.  To use the moving average you need to place tow of them on the chart.  The two averages need to work on two different rates.  One of the averages needs to be faster than the other for this strategy to provide indicators of when to enter the market.

Your entry indicator will be when the one moving average crosses over or under the other moving average.  If you do not see this cross then you should not be opening a trade.  However, you also need to set your exit points according to when the averages start to turn.

There are a lot of traders who find this directional strategy to be unreliable.  This is due to the lagging nature of the moving average and the fact that it is susceptible to false signals.  Before you use this directional strategy you need to test it on a demo account to ensure you know which indicators to look for.

 

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