Business

A Brief on Forex Trading Strategies

Trading strategies are the make or break of the market. Highs and lows won’t affect you too much if you have a good strategy. But picking a strategy can get confusing if you’re just starting out. Since sources like the MetaTrader 5 trading platform allow you to trade in multiple markets, you might want to experiment with them all.

But of course, each market type and trade type should be backed with unique reasoning. Here, we go over some common strategies you might hear about so you can pick the right one for your next win.

Price-Action Trading

This is the most commonly used trading strategy. Historical data points and patterns are considered to predict future trends. The length can be short-, medium-, or long-term, depending on the trade itself, and the outcome value that the trader estimates. Price-Action Trading is a broader term which encompasses various other types of trading, highlighted in the following sections.

Range Trading

Identifying support and resistance points is key for markets where trades have no discernible trend. RSI oscillators can indicate entry and exit points for the trade. In these markets, there are multiple entry and exit opportunities with favourable reward-to-risk ratios. However, you need to make sure you’ve performed sufficient technical analysis and are capable of being patient for the right exit point.

Trend Trading

One of the simplest things to do while trading is to (not blindly) follow trends. Trend trading takes advantage of directional momentum to yield high returns. Usually, these require medium to long-term investments, and just like with range trading, there is a favourable reward-to-risk ratio, with multiple entry and exit opportunities.

Position Trading

This long-term strategy is applied in the stock market as much as in foreign exchange. Although the reward-to-risk ratio is extremely positive, there aren’t many trading opportunities. This means long-term decisions must be made, and you probably won’t be able to back out before time without incurring a loss.

Day Trading

In recent years, day trading on venues like the MetaTrader 5 trading platform has become quite popular as people take their shot at bitcoin and cryptocurrency. In Forex, day trading can be extremely short-term. You can finish a trade in a matter of minutes! This means you can make multiple trades within the same day. The downside, however, is obvious. When you’re day trading, it’s not easy to make high profits.

Scalping

Another strategy that lets you make multiple trades in a single day is scalping. With this technique, you make small profits frequently, and each time frame could last between one minute and 30 minutes. You can use algorithms that notify you when it’s time to enter or exit the trade, and in that way, you earn small rewards throughout your day.

Carry Trading

Carry trade is comparatively easier to understand the technicalities than some other strategies. You borrow currency at a lower rate and invest in another currency that produces a higher yield. You then return the borrowed sum, and you’re left with the profits without really risking too much of your money. Since this strategy depends on the fluctuations of national interest rates, you’re looking at medium to long-term investments. It’s a good idea to read up on the economy of the country you’re planning on getting involved with.

Apart from these technical strategies, it’s also a good idea to make sure you always do your research, take minimal risks, and, most importantly, enjoy yourself!

Related Articles

Leave a Reply

Back to top button