Forex traders must devise strategies that help them to achieve the results they desire. Your strategy allows you to determine when to purchase or trade a currency pair. A good Forex strategy is one that allows you to evaluate the market and implement a trade successfully.
There are a number of Forex trading strategies available to traders. These strategies can be classified into a structure that allows traders to find the one that favors them best. A Forex trader in HK may shun a strategy that appears great to a trader in another country.
Applicable Forex Trading Strategies
There are myriads of Forex trading strategies that traders can adopt. What you need to do as a trader is to pick one that you are comfortable with. To pick the best strategy for you, here is what you should figure out:
- Time needed
- How often trading chances come up
- Distance to target
Every trader has their own set of goals as well as resources that are crucial when choosing a strategy. Your strategies should be tailor-made to suit the resources you have at your disposal. Here are a few strategies to choose from.
Price Action Trading
Price action trading involves an analysis of past process to come up with a technical strategy. This strategy can be applied on its own or with an indicator. It may be a good idea to include economic occurrences for evidence. Sub-strategies that go well with this one include the following:
Length of Trade
This refers to your trading time frame. This could be long, medium or long-term. You are allowed to adopt many time frames, which makes price action trading a favorite strategy among many traders.
There are various methods you can use to determine your entry of exit points. These include:
- Recognizing trends
- Using candle wicks
- Fibonacci retracement
The strategy involves finding support and resistance points and basing your trades around these points. It works just fine and does not require any apparent trends or predictability or the lack thereof.
You will not find a set length of trade since you can work with any time frame you choose. However, it is crucial that you manage risk because breakouts are likely to occur. As a result, a trader using this strategy will close all current positions.
The more popular timing tools employed here are oscillators such as RSI (Relative Strength Index), stochastics and CCI (Commodity Channel Index).
The Trend Trading Strategy
Any trader-including the beginner-can use this strategy. It seeks to achieve positive returns by taking advantage of a market’s momentum in whichever direction.
This strategy opts for medium to long-term length of time because the trends may seesaw in length. You can employ more than one time frame with this strategy.
The entry points are selected by an oscillator such as CCI or RSI. The exit points are dependent on calculations that are based on the ratio of risk-reward.
This one is best applied in long-term trading. It focuses on fundamental factors; not technical ones. The strategy does not pay attention to minor market fluctuations since they have little effect on the wider market picture.
Also, position trading is applicable in all other markets, including the stock market. The length of period is long-term and it can run into years. It is, therefore, the preserve of the Forex trader who is in Forex trading for the long run.
There is no strategy that can be said to be superior to the other. The strategies chosen by different traders are dependent on individual issues such as availability to trade and funds available.
Consequently, as a rookie trader, you cannot design your trading strategies based on another trader’s strategy. The results may not be as you would anticipate. A new trader should go in not only armed with information but also fully understanding their strategy.