Forex Trading Strategies
Every Forex trader trades with a unique style using tools and analysis that suits them best. Choosing Forex trading strategies before trading is very important as it will likely to have an impact on your future trading decisions and will help you build your distinctive trading personality, there may be some styles that may suit you and some that may not suit you at all. The best way to find out what kind of trader you are, is by trying it out preferably on a demo account. Once you find out what kind of trading you are comfortable with, you will have a clear mind and will be able to create trade ideas based on your trading strategy.
Aside from these strategies there are also a few ways of taking profits that traders have developed. One of these strategies is to take part profits as the trade moves in their direction and then minimizing their risks by moving their stop losses to where they got into the trade, at break-even. This way, they allow themselves to get into a risk-free trade, which is basically a lot less pressure and it allows them to stay in that trade longer and letting the market drive in bigger better profits, if it does go back and stop at break-even, they still make a profit on that trade on half their lot size. The whole idea is to stay in the trade as long as possible and to rake in as much profit as possible from that trade.
Forex trading strategies and styles
Now let us discuss the different types of Forex trading strategies that are and practice by various traders:
- Day trading
Day trading as name suggests is a trading strategy in which positions are opened and closed within the same day. Positions are not held overnight. By making use of technical indicators such as pivot points etc traders enter various positions. Some traders also take into account news releases and events happening on the same day and buy or sell the given currency pair according to the sentiment they hold. These trades are mostly based on resistance and support levels, fib levels and price action.
- Position trading
This type of trading is practiced by traders who have a longer perspective. In other words you may refer to this type of trading as buy and hold approach. These traders are quite patient and look up charts on longer timeframes such as daily, weekly or even monthly to get into a trade. They usually enter a position on the beginning of a new trend and hold that position as long as that particular trend seems to break. Nowadays though in the Forex market, trends form and break quickly and easily so this trading style is quite difficult.
- Swing Trading
Swing traders use technical and fundamentals analysis to enter a position. Having a pre-planned risk-reward ratio, they adjust their take profits and stop losses accordingly and keep their trades open until they find a perfect place to exit. They keep their trades for a few days or couple of weeks but not longer than that. They are not in a hurry to close their position on the same day like day traders. Although they do not trade as aggressively as day traders, but they have to monitor the market every few hours to avoid missing out any opportunity. Traders like this usually trade on higher time frame charts like the H4, daily and the weekly, though they may look at lower time frames to get better entries.
Scalpers make use of the market fluctuations to earn some pips. Entry at a spike formed due to some news release or event and then closing it at a point on reversal where they can get some pips in hand is their strategy. Their trade may range from couple of second to hours depending on the reversal patterns. They have to be very active to look out for such possibilities. These traders usually trade on lower time frame charts like the 1M, 5M and 15M.
Did we forget to mention any Forex trading strategies or styles? Got anything to add? Feel free to post a comment!