The consensus about forex trading is that it is not an easy feat for the everyday person. While this might have been valid years back (when the market was dominated by larger bodies, hedge funds, and more prominent institutions), the narrative is gradually taking a different trajectory. The market is becoming more accommodating of individual and small-scale traders, and there are now strategies that could support these traders in their everyday trades. Here is an article on the top 5 trading strategies that could give you an edge in the forex market.
An Overview of Forex Trading
Forex, also known as foreign exchange, is a popular concept that involves the exchange of currencies either for commercial purposes, businesses, profits, or international trades. The foreign exchange market is a global marketplace that enables individuals and organisations to exchange national currencies. This exchange process is basically what foreign exchange trading entails.
Forex trading is about making speculations on currency prices for the sole purpose of making profits. These currencies are mainly traded as pairs, and these speculations revolve around whether the price of one currency will rise or fall against the other. When trading forex, most people depend on technical analysis, charts, and tools that could increase their odds of making accurate predictions. While the market can be highly profitable for traders, it is noteworthy that return on investment (ROI) takes time and is also highly dependent on economic trends. At the same time, the trading strategy you employ in your positions could also make a difference.
Investors can use various trading strategies depending on their general outlook or expertise, risk tolerance, determination, etc. However, below are five strategies that new traders can easily execute in the market.
1. Trend Trading
The financial market is highly dependent on trends, which is not exclusive to the forex market alone. Investments like cryptocurrencies are also known to follow trends in price performance. For forex traders, the trend trading strategy focuses on making profits from currencies by predicting price movements related to their past and present momentum. They follow the trend and enter long positions when a currency signals an upward trajectory and the opposite when they notice downward movements. Trend trading strategy follows obvious patterns and performances and predicts similar movements. Popular technical indicators that help find market trends include moving averages and relative strength index (RSI).
2. Position Trading
Position trading is one of those strategies that require a lot of self-control, and for you to execute this, you’d need to be able to drown out the noise and buzz. Trading strategy focuses on long-term trends and holding positions for the long term. This trading method is often not the best for short-term investors, as traders who use it sometimes keep a trade open for as long as a year or more. Position trading focuses on bullish outlooks for the long term and holds till the bulls hit.
3. Range Trading
Range trading strategy is another popular option for new traders to adopt. It involves speculating the range at which a currency will reach its resistance point. The goal of range trading is to buy at the support level and sell at the resistance level. The support level is at that point where the chart shows increased willingness in buyers’ interest, causing a heightened demand. The opposite of support is resistance, and here, selling overwhelms traders’ desire to buy. Range traders look out for that support level where prices have declined and sell when the charts indicate a resistance level where prices are high enough for them to meet their targets.
4. Swing Trading
Swing trading is advantageous in short-term trades. It involves leaving a trade open for days to capture short- or mid-term gains. Swing trading is often accompanied by technical analysis and watching the market for trading opportunities. The goal here is to capture opportunities on the move and capitalise on the volatility of some assets. The aim is to catch on to unexpected breakouts, benefit from upward trends, and move on to the next opportunity. Swing trades are often risky because you might get the opposite while holding a trade for breakouts.
5. Breakout Trading
In a breakout strategy, traders look for unexpected changes in price trajectories and enter a position immediately after a trade enters a breakout range. This strong momentum or price movement could signal upward trajectories and is a possible opportunity to explore. This strategy involves opening your position early enough to profit from the sudden wave or new price trend.
Final Note
Although there are countless trading strategies, the five listed above are popular amongst new traders, making them excellent places to start. If you’re wondering how to find out which of these trades work for you, you can test them out in a demo trading mode using virtual currencies. Find a strategy that suits you the best, and gradually work your way towards mastering it.
