Traders have a lot of strategies to choose from to get a good sense of the market and to help decide what to use to their advantage. These are the top Forex strategies and their main characteristics:
Some traders opt for a single strategy while others might engage in testing and exploiting several different hybrid versions of the trading strategies. Because none is guaranteed to work 100%, traders should get familiar with several trading strategies and to build an arsenal of tools that could help them adapt and ease the process, in a constantly changing market.
The following are the major types of strategies and basic categories developed over time, that traders often decide to use.
Is one of the most popular and frequently used Forex trading strategies and it requires trend identification. Traders must follow currency price movements and decide their entry and exit point based on the positioning of the currency’s price within the trend and its relative strength. There are several tools available that each trader should use to evaluate trends, volume measurements and strength indicators before jumping into any investment.
A lot of traders opt for the technical analysis because it provides a more objective and scientific basis that helps them determine when to buy and sell currencies.
It involves reviewing the previous and recent behavior of currency price trends on charts to determine when is best to take action with a specific currency. Many traders believe that market movements are determined by supply, demand and mass market psychology, which establishes the limits and ranges for currency prices to move up and down.
It’s a good strategy to go for in some particular markets that tend to be more economically stable and predictable. It’s a simple and widely used method that is based on the idea that price can often hold within a steady and predictable range for a given period of time and traders may use most of the tools that trend traders use to identify the market and good trade entry and exit levels.
This is a medium-term trading strategy used over a short period of time raging from one day to one week. Swing trading has been considered a fundamental trading strategy in which stocks bought in one day are being sold a few days later. It is ideal for those who can’t monitor their charts throughout the day but can dedicate a couple of hours analyzing the market every night.
This strategy relies solely on the strength of the recent price trends. Momentum traders are on the look for trading volumes and rates of price changes, always betting that an asset price that is moving strongly in a given direction will continue to move in that direction until the trend loses strength.
This strategy is a form of momentum trading that requires very quick entries and exists and where the traders are on a constant search for trading breakouts in Google. The first result provides a basic guide, while the second reveals why traders should avoid them, making the trader quickly understand if the trade is going to work or not. It’s an aggressive strategy that requires fast reactions and good research.
In Forex trading, scalping refers to the process of making a large number of trades that generate small profits, individually. This requires rough analysis and implies placing multiple orders, which can be very time consuming. In addition, there are only a few hours a day when currencies can be scalped. For a scalping strategy to succeed, the trader must quickly predict where the market will go and to quickly open and close positions in the shortest time possible.
Fundamental analysis can be highly complex, engaging the trader into a serious research process, involving the many elements of a country’s economic data that can indicate future trade and investment trends.
Each trader should start by analyzing the currency inflows and outflows of an economy, which are often published by the nation’s central bank and to stay up to date with the news and data releases from a country to get a notion of future currency trends.