Understanding the Forex Trading Strategies

forex trading strategy

 

Forex trading mainly revolves around trading currencies. Generally, either the value of a currency can rise or fall as a result of different factors including geopolitics as well as economics. The changes in the currency value are mainly the profit a Forex trader will get, and this is the main reason of getting into the trade. Trading strategies are usually set by following various analysis that are used in determining whether a trader should buy or sell currency pairs for a specific period of time.

These strategies are either news based or technical analysis charting tool based. They usually comprise of multiple signals that trigger the trader action of either buying or selling a certain currency. Some of the strategies are free while others are offered at a fee.

Additionally, the strategies are either manual or automated. The manual system will require the trader to sit and look at the signal to help them decide whether to buy or sell. On the other hand, the automated systems are more convenient to traders as you can customize the software to look for specific signals and give the interpretation. Although the trading strategies will not guarantee you hundred percent results in money-making, getting a proper understanding of what they are all about will help you to adopt reliable approaches when trading currency in the future.

Types of Forex trading strategies

 

Today there are very many trading strategies to utilize. However, as a trader, you need to sit down and identify which strategies that match the kind of experience that you would want to have. By so doing, you will get the strategies that offer the best signals for interpretation, helping you to make an informed decision when trading. If you are a beginner, use the following top strategies that are used by most successful traders in Forex.

1. Forex volatility strategies

 

The Forex market is always volatile. This means that the prices can make sharp changes within no time. The volatile strategies are developed to help you to take the advantage of the price action. These strategies usually work best for quick and short-term trades. Additionally, these systems are based on the increase of volatility. Although their winning percentages of the trade are usually higher, the profit that one will earn per every trade is comparably low. These strategies are best suited for traders who have a better understanding of the volatility perception.

2. Forex trend following strategies

 

These are also very useful to beginners. They mainly use the market trend marketing to guide the trader to achieving their long-term trading goals. Channel breakouts, as well as the current market price calculation, are usually used when generating the signals. This will help you to make an informed decision on the best direction to tale. Instead of forecasting or predicting the prices, you can use these strategies to follow the market trend only.

3. Forex scalping strategies

 

In Forex, scalping mainly involves making several trades with each of the trade making a small profit each. When you utilize the scalping strategy, the profits are usually in-between 5-10 pips for each trade. Since you need to get into multiple trades at once, this strategy requires you to make constant Forex market analysis. This makes them somehow demanding, as they require you as a trader to be fast in predicting where the market is heading to so you can either open or close the position in the shortest time possible.

 

4. Forex pivot point strategies

 

The pivots are the indictors that allow the range bound traders to identify the entry points. These points are very important to the trend traders as well as the breakout traders as they help then to spot the key points that need breaking for any given trading move that qualifies as a breakout. If you have a broad understanding of pivot and the calculations around it, you will find these strategies very helpful when trading the currencies. Remember calculating the pivot using the closing time of the short time frame usually, reduces both the accuracy and the significance of the point of rotation. It is important to know that your calculations need to be accurate as they make the Forex market backbone.

5. Forex chart pattern strategies

 

Charts are very important in Forex as they help traders to determine the best currency markets. Although there are, very many charts that can be used when trading the most common patterns are the head, shoulder and triangle patterns. The triangle patterns will occur in short periods and can either ascend, descend or be symmetrical. The prices usually converge with low and high creates the triangle, forming a tight price area. On the other hand, the head and shoulder charts lean to the side of a topping formation where an uptrend occurs as well as a bottoming formation where there is a downtrend. When the trend line is broken, the pattern often complete in a head and shoulder pattern.

How to choose the best Forex trading strategy

 

As aforementioned, there are very many trading strategies available. This makes it confusing for traders, especially beginners to pick the ones that work for them best. However, the below tips will allow you to have an easier time when picking the best strategy.

• The first thing to do is to set your trading goals and decide whether you want to go for short term or long term. This will help you to decide whether you want to do it part time or full time. With this, you will be able to choose the best strategy that is perfect for you.

• Compare the strategies available and pick the one, which is unique. This will help you to choose a strategy that is in accordance with your best interest.

• Always experiment before settling on a strategy. This gives you much understanding of what a strategy is all about and tests whether it will work for you or not.

• Be familiar with the trading styles will help you in picking the most appropriate strategy. For example, if you are a short-term trader you should consider trading styles such as scalping, day trading swing trading among others.

Conclusion

 

It is good to understand that the trading strategy you choose will help to make or break your trade. Do not rush into picking any strategies, as it may not work for you. Make sure you invest time and energy to learn as much information as possible on different strategies for you to make an informed decision.

 

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