Trading Forex (FX) involves trading of currencies where you can buy one currency while selling another for speculation purposes. Forex trading just like any other investment involves taking calculated risks. When trading forex, you can make profits or losses. You need to master the best forex strategies that can work for you to benefit from forex trading. Currencies tend to fluctuate due to various factors like geopolitical, economical and more. The aim of trading in currencies is to make profits from the changes in prices.
Here are 6 major types of strategies that traders can employ in forex trading:
1. Forex Scalping Strategy
This strategy involves making a large number of trades and each trade makes small profits of about 5-10 pips per individual trade. This strategy requires constant forex analysis to be able to place multiple trades simultaneously and make profits. Trades in this strategy are very short-lived, possibly held just for just a few minutes and a trader seeks to quickly beat the bid/offer spread and make just a few points of profit before closing. If you opt for this strategy, you need to be very active in trading to avoid missing out on good opportunities.
2. Forex Trend Following Trading Strategy
This strategy attempts to make use of the market trend mechanism with an aim of taking advantage of the long-term goals. Traders who choose this trading strategy use channel breakouts, current market price calculation and the moving average to determine the market direction and to generate signals. If you opt for this strategy, you do not need to forecast or predict the price levels. You simply follow the trend. This strategy deploys a risk management component that makes use of the current market volatility, current market price and the number of shares held.
3. Forex Volatility Trading Strategy
Price volatility involves sharp movements in the prices. Volatility breakout systems are systems that are made to take advantage of this type of price actions. Their characteristics are: they don’t take advantage of the big moves, deals with short terms and quick trades, are based on the increase in volatility and the winning percentage of trades is higher, but the profit earned per trade is comparatively low. It is thus advisable to opt for this strategy if you have a good understanding of this volatility system.
4. Forex Breakout Trading Strategies
Breakout strategy is a strategy that occurs when there is a breakout. A breakout is a point where the market tends to break away or starts to move away from a trading range. The trading range can be for any length. A breakout occurs if the price exceeds the higher or, the lower range. In simpler terms, a breakout occurs when the price moves beyond the highest high or lowest low for a specified number of days. For you to make money using this strategy, you need to be involved in buying higher and selling higher in the bull market and if you are dealing with the Bear market, you have to sell low and buy back lower.
5. Forex Swing Trading Strategies
This trading strategy is simple and does not require you to hold the long-term trends to make profits. Swing trading involves having a set target and once you reach that target then that is the moment you opt out. This strategy is an excellent option if you are just starting forex trading as you do not have to be a long-term trend follower.
6. Forex Support and Resistance Trading Strategies
Support in forex is actually a zone where the buyers tend to be more than the sellers, and the price tends to increase in value. The resistance is the opposite of support and means that the sellers are more than the buyers and thus that result in a price drop. These terms represent the tendency of a market to bounce back from previous lows and highs. Support is where the markets tend to rise from a previously established low and resistance is where the market tends to fall from a previously established high. You can opt to buy at the resistance and sell at the support. Resistance and the support are important parameters that tend to keep on changing depending on the market dynamics. Explore the Forex Support and Resistance Strategies thoroughly before you decide to apply this strategy.