Forex traders buy and sell currencies in order to make a profit. To do this successfully, you need to be able to determine the best entry and exit points for every trade. There are many different strategies that have been developed by traders and market analysts, and which traders often use, regularly improving and upgrading their strategies for the best possible performance. Here we’ll look at five of the most common types of Forex trading strategies that are used today.
Trend trading is one of the most popular Forex trading strategies. To use this strategy, you will need to identify trends in a currency price movement. Many traders use moving averages, directional indices, relative strength indicators, volume measurements and stochastics to identify these upward or downward trends. Once you’ve identified the trend, you will need to determine an entry and exit point based on the currency’s price position within the trend and the relative strength of the trend.
2. Fundamental Analysis
Fundamental analysis examines a country’s currency in an effort to determine if it is undervalued or overvalued in order to extrapolate how its value will move relative to the currency of a different country. This can be a complex undertaking as the fundamental indicators of an economy involve many factors. However, for a basic understanding, it is important to look at data published by a country’s central bank, which includes currency inflows and outflows. News and data releases are also helpful when it comes to fundamental analysis.
3. Technical Analysis
Technical analysis is a favorite strategy among Forex traders. This requires analysis of past currency trends, reviewing the behavior of the trends on charts. Technical analysis works on the assumption that market movements are determined by supply and demand, which then determines the limits and ranges for currency movements.
4. Range Trading
Range trading is a popular and simple strategy, which rests on the notion that currency prices will hold within a specific and predictable range for set periods of time. This strategy works best for markets where the economy is stable and the currencies are not susceptible to sudden movements due to surprising news events. Using some of the same tools and strategies as trend traders to determine entry and exit points, range traders may be able to buy and sell currencies more than once over a single trading session.
5. Swing Trading
Swing trading is a medium term trading strategy that is commonly used over a period of a day to a week. It involves setting up trades with highs and lows over a longer period of time in order to filter out anomalies and erratic price movements that are more commonly seen over shorter trading periods.
There are many different strategies for Forex traders that are suitable for short-term and long-term trading and it is important to find a trading strategy that fits your trading personality. A strategy requires constant work to polish and refine it before you can become a successful trader.