A Forex strategy refers to a set of rules and principles that a Forex trader follows to trade in the Forex market. It consists of a number of conditions that have to be fulfilled before the trader can enter and exit the market. In short, it is those specific guidelines with which a Forex trader approaches the Forex market.
Forex Trading Strategies
The importance of forex signals and their trading strategy cannot be overemphasized. Because trading in the Forex market without one tends to be haphazard, it is rarely successful. It is because of this reason that so many Forex traders fail. Why? Because they never have logical reasons for the trading decisions they take.
However, using a strategy is not even as important as using a proper one. That is, the strategy you use should be one that actually suits your needs. Hence, here is a discussion of five from which you can pick.
Price Action Trading
Price Action Trading is as it suggests: it is the trading of the actions of price. Price action traders are interested in only one thing: what is the price doing? What are its actions? They then analyse those actions to determine how the price will possibly behave sometimes in the future.
Importantly, you should note that price action trading embodies multiple different strategies which are very similar in their core principles. Those strategies can be used alone or in combination with others, which can help to complement them. However, a notable fact is that price action traders rarely pay attention to the news.
Why? It is because price action, as a trading strategy, is largely, if not solely, based on technical analysis. Hence, even as varied and amenable to different trading styles as it is, it can be challenging to be reconciled with fundamental analysis based Forex trading strategies.
How do you approach the market when it is ranging, without a clear direction to it? A ranging market is a market in which the price is actively moving sideways. The other descriptive word for this kind of market condition is consolidation. Consequently, such a market always proves challenging for Forex traders to trade.
To minimise the challenges associated with trading consolidating or ranging markets, the Range Trading Strategy has been developed. This strategy seeks to make the process easy by seeking to concentrate principally on the identification of the critical market zones, which can correspondingly provide invaluable guidance on the possible directions of the price.
Two such market zones are support and resistance. By focusing on these two, the Forex trader can, at least, predict possible market reversals even though the volatility may be low and the market may not be showing any sign of a definite trend. Thus, as a result of its nature, it is not surprising that range trading has little to nothing to do with fundamental analysis
Although it is, indeed, effective, range trading also has its inadequacies. For instance, sometimes, the market gives off fake signals. A very good example of such fake signals is breakouts. These occur when contrary to reversals that are expected at those zones, the market goes ahead to continue along its path.
Therefore, whether at the support level or at the resistance level, before you take any step, you should first confirm that indeed the market will reverse. You can do that by first checking if the price has hit the level and rebounded. Nevertheless, range trading is really effective in ranging markets.
Conversely, what do you do when the market has a clear trajectory? When, with just one look at the charts, you can easily predict where it is headed? Of course, that sounds simple. That is why also Trend Trading, the strategy of just following the prevailing market trends, is arguably one of the simplest trading strategies also.
Both beginner and experienced traders alike love to use trend trading. Most especially, it seems to be highly preferred by beginner traders because of its simplicity. “The trend is your friend” is one of the most basic trading recommendations. Nonetheless, it is simply highly promising that by just following the market’s direction, a trader can still generate reasonable returns from it.
Trend trading can identify a reasonable number of trading opportunities when the market is moving in a clear direction. Moreover, you do not need to risk a lot for rewards by trading trends. And finally, it is really easy to use.
Perhaps, there is no strategy adapted for trading Forex that is as exciting as scalping. Scalping is a high-frequency trading strategy that can be used to identify numerous opportunities in the market all within a short time. Scalpers seek to profit from small moves in the price by entering and exiting numerous trades within a short time.
To boost their chances for success in doing this, they, therefore, concentrate their trading and analysis energy on the major currency pairs. Scalping is risky. If you are not alert and capable of making quick decisions within a short time, it is advisable that you stay away from it.
Swing Trading lies between trading daily and holding positions for months, and even up to a year. Hence, swing traders hold their positions for more than a day but definitely for not up to months. It is because of this that swing trading as a strategy has been recommended for individuals who do not have daily time to devote to the market.
With swing trading, you do not have to keep your eyes glued on the charts for hours in a day or for months. That is, you do not have to devote too much time to analysing the market. Hence, the strategy is more relaxed, while still being capable of returning healthy gains.
Those are five more Forex trading strategies added to your Forex trading knowledge arsenal. With any of those strategies discussed here, you can, indeed, generate veritable Forex trading signals. Because of their potency, they are used by traders from all over the world.
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