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So you’ve delved into the wonderful world of Forex and you’re as confused and paralyzed as a deer at a headlight. No worries, let this article enlighten you on some of the most fundamental types of trading systems.

Trend Following

Trend following is the most common type of trading system. Because the majority of the market follows a clear direction, it means that the majority of the market participants agree on the direction as well.

Trend following, to a certain extent, means going with the crowd. If the market is rising most of the time, you’ll have an easier time riding the market’s waves. What’s so good about this trading method? First, the accuracy, the probability of you making a winning trade, is higher. You won’t have to make too many trades, but you’ll make plenty of profit.

Of course, you’ll still have to know the exact rules of when and how to enter and exit. But here some tips:

Trend Following Tips:

1. Try entering on corrections and retracements. How do you know when the market might trend following again? Enter on support and look at price action. If the trend if up, and you see buying, that’s a good place to enter.

2. Trail your trade using the continuously forming mini-supports to maximize your profit.

Trend following is a very common, basic trading method. To qualify the common saying, “The trend is your friend, until it ends.” Let’s take a look at another trading style.

Fading

Fading is the opposite of trend following; it’s arguing with the market’s trend. Essentially, it’s bottom picking. What’re the potential rewards for fading?

The first obvious advantage is that when your trade is a winner, the rewards are significantly bigger. For example, if the reward to risk ratio was 8:1, you could’ve had 7 losing trades but still come out net positive. Keep in mind that your system still needs an edge; you can’t just gamble and hope for the best. Do your homework!

Maybe the market has been going up for the past few months but now you see a huge doji. You might want to short it now, or you might want to wait for a close below the recent low. The point is, fading is a very different trading style from trend following. Now, let’s explore the final trading style.

Breakouts

All you have to remember regarding the breakout method is the keyword “breach”: you enter whenever the market breaches the highest high or the lowest low. This can be the 52 week high/low or even the 20 day high/low, it’s up to you. Next, you’ll need to determine how you will exit your trades.

So what’s the difference between trend following and breakout trading? Ok, they might seem pretty similar, and they kind of are. The key difference is the entry. With breakout trading, you enter with the breach of a prior high or low. With trend following, a breach doesn’t have to occur, but rather you can enter on a dip.

So Now What?

Realize that you can splice and dice the methods to suite your taste. You could enter only in the market’s primary direction, and use the close above a recent high as a signal, or even the doji.