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You're probably confused as hell about what to do, where to start, which program to use, which indicator to incorporate, etc. This article will clarify on Forex Trading 101.

The Trend Is Your Friend

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.

Following the trend is following the herd. What're the pros for trend following? Your trading accuracy increases because you'll be one with the market, instead of opposing it. You'll make fewer trades following the trend than other strategies.

You still have to have a complete system, however. Here are some tips to read:

Trend Following Entry/Exit Tips:

1. Enter on retracements and not in the middle or top of a swing. Entering on support is a little bit tougher, but it's well worth it.

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 good thing about fading is that when you are right in your analysis, the reward greatly exceeds the potential loss. If your reward to risk ratio is 10:1, it means you can be wrong 9 times and still be profitable. Well of course, you wouldn't want to catch a falling knife, you wouldn't want to gamble and guess; your trading system still needs to have a positive edge and you still need to have done your homework.

Two entry signals include a doji and a close below the previous low (or above previous high). Fading, which is very different from trend following, requires a different set of skills. That basically summarizes fading, so now let's talk about the final forex trading style.

Breakout Trading

This type of trading is entering when price makes a new high or low. If the market breaches the 52 week high, you might want to enter then. Or if the market breaches the past 20 week's low, you might want t short it then. The keyword is "breach". Of course, you should make sure that your system has a positive edge and is profitable. Breakout trading is just another way of entering the market. Of course, the way you exit a trade is totally up to you; you might want to trail by the most recent lows. Or perhaps you'll have a predetermined exit.

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.

Where Do I Go From Here?

That last paragraph brings up another important point. You can trade however you want. These trading styles are just to expose you to different ideas. Of course, if you want to, you can follow the trend and enter on a breach on only the trend's side. You can use whatever combination that suites you.