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4 Basic key Tips to Know About Trading

4 Basic Key Tips to Know About Trading

Here is the 4 key tips to understand and follow in forex Trading

1. Momentum entry signals are based on the beginning of a strong move through, and break out of, a short term trading range. Momentum trades are based on the principle of even higher highs or lower lows on a chart, based on a new trading range and trend. Momentum is usually a short term trade. Momentum traders are looking to capitalize on a move and then get out into the follow through strength. This is where the 5 day EMA and 10 day EMA are used.

2. A trend trade is where you enter with the flow of the markets trend of higher highs and higher lows, or lower highs and lower lows, in your own time frame. Trends can also be measured by moving averages that are going higher or lower on the chart. This is where you use the 50 day and 100 day moving averages to capture a longer term trend of weeks and months. 

3. A trend following trade attempts to capture an entire trend, and will give back paper profits in search for these longer term trends. Trend followers can capture trends that go on for years. Trend followers also tend to get out of markets as trends begin to shift, and can make money taking short positions in down trending markets. The 200 day is the moving average the majority of them key off of.

4. Moving averages are not very useful tools for swing trading tightly range bound markets. They are primarily for trading trends or deep swings inside of long term trends. 

Some traders look for signs that a moving average in their time frame is beginning to slope upwards or downwards, and consider it one indicator of a trend beginning, continuing, or changing. There are no magic moving averages that always lead to profitability, there are only those that allow you to make money during trends based on your own personality, risk tolerance, and time frame. 

Each trader must decide how to incorporate moving averages into their own system and time frame. Moving averages are best used for trend identification and trailing stops after entries are taken based on other technical parameters. While single moving averages are not standalone signals for creating trading systems, they are one of many tools that a trader can use for signals inside their trading plan. It is possible to use moving averages as standalone signals to trade individual stocks and commodities that are under heavy accumulation or distribution, if you keep your losses small and let your winners run. 


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