Short term trading can be very profitable and rewarding but risky too. To be successful at this strategy, traders must understand the risks and the rewards of trading with short term. They must not only know how to recognize good short-term opportunities, but also be able to guard themselves from unforeseen events. In this article, we'll examine the basics of forex short term trading and how you can profit from them.
Short term trading in forex trading currency market is very different from short term trading in most other markets. Short-term forex trading characteristically involves holding a position for only a few seconds or minutes and hardly ever longer than an hour. But the element of time is not the major feature of short term trading. Rather it is the pip fluctuations what are important. Traders who follow this style of short term trading in forex are among the fastest and most disciplined of traders.
The basics of short term trading must be understood and mastered to be successful. It is these fundamentals of short term trading that can indicate the difference between a loss and a profitable trade. Take a look at these very important principles.
Recognizing the right trades
If you are able to spot the difference between a good potential situation and the ones to avoid, chances are that you will have no trouble mastering the basics of short term trading. Don’t think that watch the evening news and reading the financial pages will put you ahead of the markets. For, while you are still going through the events and data, the market has already started reacting to the news.
Follow the moving averages
Tracking a moving average, which is the average price of a currency over a precise period of time, the general idea is to show whether a market is trending upward or downward. To be a good trader, you would want to find a region where the moving average is declining.
Recognize the cycle of patterns
It is seen that generally, the forex trading currency markets trade in cycles. Therefore it is important for a trader to watch the calendar at particular times for successful short term trading. It has been observed that since the last few decades, most of the profits have occurred in the November to April time frame. The May to October period has been relatively static.
Understand the market trends
If you understand the markets trends and act accordingly, you will have better chances of having a successful short term trades. Under negative trends, one should very little buying and consider shorting, while with positive trends, you can consider buying with very little shorting.
Short term trading employs many different methods and tools to make profits. It is up to the trader to learn how to use these tools and the right time to utilize them, thus making profits in both bull and bear markets. This is the key to mastering short term trading.