Forex traders utilize a number of strategies as well as techniques to identify the ideal entry as well as exit points for buying and selling currencies. In fact, traders and market analysts are constantly improving their strategies to design new methods for understanding the movements of currency markets. In this article, discover the different types of forex trading strategies that work for traders.
This is one of the most commonly used strategies wherein traders closely observe the economy’s fundamental indicators to analyse whether a specific currency is overvalued or undervalued. Remember, fundamental analysis constitutes elements such as a nations’ economic data which indicates investment and trade trends in the future. Traders can therefore, analyse a currency’s outflows and inflows that are published by the country’s central bank.
Scalping is essentially an intra-day strategy which is all about placing numerous trades and every trade results in small profits on an individual basis. When a trader uses the scalping strategy, then he/she expects to earn a profit of around 5-10 pips per trade. If you decide to choose the scalping strategy, then you will have to constantly analyse the foreign exchange market and also place a number of trades. Also, if you choose to scalp the currencies, then you will only have to scalp for limited hours in the day and open as well as close trade positions within a couple of seconds.
This strategy is all about reviewing the past as well as the recent movement of a currency’s price trends on the charts to understand where they can move in the future. One of the reasons why traders resort to technical analysis is because they believe that the movements within markets are determined by demand, supply as well as the psychology of the mass market or majority of traders.
Trend trading strategy is undoubtedly one of the most popular trading strategies. It involves identifying a downward or upward trend in the price movement of a currency. It also involves selecting trade exit and entry points on the basis of how the price of a currency is positioned with a given trend as well as the relative strength of the trend.
Range trading is another popular trading strategy, which revolves around the fact that prices often fall in a predictable and steady range for a specific time period. This is mostly relevant in the markets with a predictable and stable economy. Thus, traders who opt for range trading indulge in frequent buying and selling at predictable lows and highs of resistance & support, mostly over 1 or more sessions of trading.
This is another strategy that helps traders to earn attractive profits. Momentum indicators and trading style revolves around the fact that strong movement in price in a specific direction indicate that a particular price trend shall continue in the same direction.
This particular strategy is utilized over a week or a day’s time. Traders who rely on the Swing trading strategy look at setting up trades on high or low swings on a long term basis.