This article looks at a few of the available forex trading strategies you can make use of.
Once you have gone through your forex training, you need to develop a trading plan and decide on your forex trading strategies. There are a number of strategies for you to choose from. Some of these are quite easy to use and there are some more complicated ones available. The most suitable strategy for you will depend on your trading style. You also have the facility to combine strategies to find the one most suitable for your requirements.
Day trading is classified as a forex trading strategy. Many people see this more as a method than a trading strategy. This strategy involves holding on to your trades for a specified and limited time period. These trades will generally not last longer than a trading day. Many day traders do not keep their positions for longer than a few hours. This strategy is more suitable for traders with experience as you have to be alert to market movements at all times during your trading day.
One of the forex trading strategies you can make use of is trend following. Many recommend this strategy for forex beginners as it is quite easy to follow and the data required to implement it is readily available. The strategy requires that you use forex charts to check the market trends. You can make use of daily charts or weekly charts. If you are a beginner in the market, you should not use the shorter timeframes as the weekly and daily charts give you the opportunity to follow the trends in a more effective manner. Once you have the trend charted, it will indicate whether you should trade down or up.
Carry trading is a simple strategy which is suitable for beginners. It is also known as interest rate trading. This strategy involves buying and holding a currency that has a higher interest rate than the other currency in your pair. For each trading day that you hold onto this pair, you will earn on the difference in rates. The one main benefit of carry trading is that even if the currency pair does not move at all, you will still be earning. To obtain the most benefit from this strategy, you should leverage your positions. You should bear in mind the risks of leverage in that it can turn against you if your trade goes the wrong way.
The main disadvantage linked to this trading strategy is that your currency pair will be affected by the smallest market movement. This raises the risks involved with this type of trading. If the market experiences any movement at all, the currencies could decline quite quickly and you may not have sufficient time to exit your trades.
Fundamental Forex Trading Strategies
This also goes by the term ‘news trading’. The strategy uses fundamental analysis to do market predictions. Traders who use this strategy observe the current news and events and use that information to forecast the movements in the forex market. Many traders find this an unsuitable strategy due to the time required for analysis and the scope of the data that is required. You also have to be quite quick with your trading once the news releases are done.