An effective forex trading strategy is vital to keep a trader focused and disciplined. A forex trading strategy assists the trader to have an insight into where and when to sell or buy foreign currencies. However, there is not any forex strategy that we can call the best strategy because every forex trading strategy is made for different situations and some may work better in a particular situation.
There are many strategies to trade forex, so it is crucial to choose the one that suits well your goals, experience level, and the context in question. In this article, we have mentioned the four popular forex trading strategies to help you find your best fit.
Trend trading is one of the simplest and most reliable trading strategies. As the name suggests, such type of strategy is based on the current price trends. To build a successful strategy of this type, you first need to identify the overarching trend direction, strength, and duration. All these factors will help in identifying how strong the current trend is.
In a trend trading strategy, you do not need to know the precise direction or the timing of reversal. You simply need to know when to exit the current position to limit losses and protect profits.
2- Position Trading
Position Trading is a strategy that involves holding the position of a trader over an extended period- anywhere from a few weeks to a few years.
This is a long-term strategy and requires you to take a macro view of the market. The success or failure of this strategy lies in the trader’s understanding of the market and their ability to handle risk.
3- Range Trading
Range trading strategy involves the concept of resistance and support. On a price graph, resistance and support levels can be viewed as the lowest and highest point the price goes before reversing in the backward direction. These support and resistance levels combined form a bracketed trading range.
In the forex market, prices continue to break previous resistance levels (creating lower lows in a downtrend and higher highs in an uptrend), forming a support and resistance pattern like stairs. However, in a ranging market, the movement of prices follows a sideways pattern and keeps bracketed between developed support and resistance thresholds.
4- News Trading
Forex is a multinational marketplace that is influenced by economic events worldwide. Understanding the potential impact of the economic events on the forex market helps the trader anticipate breakouts and market movements. Important news events include (i) interest rate decisions, (ii) business and consumer confidence survey, and (iii)economic reports on national inflation rates, gross domestic product (GDP), national trade balances, and nonfarm pay role.
5- Forex Swing Trading
The objective of swing trading is to make a profit out of variations in prices, done by identifying the swing lows or swing highs. Forex swing trading strategy is suitable for those traders who trade in a mid-term trading style using which positions could be held for a few days.
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