Understanding Directional Forex Strategy Approaches

In order to trade successfully, you should understand basics of forex strategy. You will be in a good position to take advantage of different approaches under different market situations only after you know about them. Let us have a look at some of the most common approaches within directional forex strategy group.

· Strategies that follow trend: Trend-following systems can be used to implement the trend-following strategies. These systems will generate signals telling the traders when to initiate a trade. These systems look at the market trend and analyze it for a specific price move giving you signal when the move has occurred. The principle behind this approach is that a trend is more likely to continue rather than going reverse once it has been established. This approach seems to work in various situations. However, under certain situations, it never works.

· MA (Moving average crossover): MA or Moving Averages is the most common approach at the present time. Most of the traders are using this approach to trade currencies. It is a directional approach that uses the moving averages to draw out a strategy to take maximum profit from trades in foreign exchange market.

· Breakout Systems: This is an easy to develop approach and used by many traders around the world. It relies on a simple trading principle i.e. the price movement (to a new high or low) indicated continuance of a trend. The approach uses this principle to open a trade in the direction of the trend using the underlying principle. The rules for this forex strategy are predefined.

· Pattern-recognition: This approach covers various patterns that traders use. It includes pattern approaches such as triangles and flags.

· Risk management approach: Risk management approach is an essential for every currency trader. Mostly, the traders will set arbitrary points for exit to avoid the catastrophic losses.