There is still information that you need to familiarize yourself with before entering the forex market. Here is the basic knowledge you need to learn about forex trading, and the strategies you can use.
What is Forex Trading?
Forex trading involves the speculation on the price of one currency against another. You can buy, sell, and exchange currencies in the foreign exchange market. And as a forex trader, you can generate profits from fluctuations in the exchange rates between currencies.
Every foreign exchange transaction involves the exchange of one currency for another. This is mainly the reason why the forex market use currency pairs; to more easily compare the prices of each pair.
How does it work?
An example of effective forex trading is when you feel like the euro will rise against the U.S. dollar. You can then buy the EUR/USD currency pair at a lower price and hopefully sell it later at a higher price to generate profits. But, in case the opposite happens, you should remember that you will then be in a losing position.
But trading in the forex market is not the only way to conduct forex trading. It also takes place in our day-to-day lives.
Whenever you decide to purchase imported or foreign products, you already witnessed the result of a Forex trade. Even though you bought the product in your local currency, that doesn’t mean it was sold using the same currency. For example, if you live in the U.S. and you wish to buy an imported bottle of wine from France, you can pay for it in dollars when you purchase in your local store. But before the price was converted to dollars, either the wine producer or the American importer had to have exchanged the equivalent of U.S. dollar (USD) into Euros (EUR) to complete the transaction.
Forex Trading Strategies
There are numerous Forex trading strategies available for you to choose from. Some have been proven to be more effective than another. We’ll now be telling some of the most popular Forex trading strategies you can use in 2018 according to Kishore M (in no particular order). Find out which one will fit your needs and demands before you begin trading.
When conducting fundamental analysis, you will have to examine the fundamental indicators of an economy. This can help you determine whether a currency is undervalued or overvalued. Aside from this, you can also predict the performance of a currency relative to another currency.
You can start the analysis with the currency inflows and outflows of an economy. These data are usually released by the nation’s central bank in a regular basis. You can also watch the news and data releases from a country to speculate on future currency trends.
Fundamental analysis can prove to be a complex strategy. Mostly since it involves many elements of a country’s economic data which can help determine the future trade and investment trends.
Another favored trading strategy is the technical analysis. It often involves studying both the past and recent behavior of currency price trends on charts. This can help you in determining the possible direction that the trends might take in the future. Traders who use technical analysis generally believes that market movements can be determined based on supply, demand, and mass market psychology.
Day Trading Strategy
The day trading strategy alludes to trades exited before the end of the day. This can remove the possibility of being harmed by large movements happening overnight. Trades in this strategy usually only last for a couple of hours; additionally, price bars are set to one or two minutes.
Trend Trading Strategy
Another one of the most common strategies used in the market in trend trading. When you follow a trend, you can identify the direction that the prices have generally been moving towards. You can then make predictions by observing the trends and using various indicators available for use.
Trending markets can offer you the best opportunity to gain profits since it signals that the trend moves in one general direction. You can then use the information to your advantage by entering the market in the direction the trend is taking.
Some of the best indicators to use in trend trading are the: RSI, Moving Averages, and MACD.
Swing Trading Strategy
Swing trading is usually a medium-term trading strategy. It is most often used over a period of one day to a week. Traders hold a position for several days, aiming to generate profits from short term price patterns.
Swing traders also aim to set up trades during “swings” to highs and lows with a longer duration period. The purpose of this is to filter out some of the “noise” or erratic price movements usually taking place during intraday trading.
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Positional Trading Strategy
This Forex trading strategy is a type of long term strategy. The strategy can take place over a period of weeks, months, or years.
Position traders will mainly seek to maximize profit through the major shifts in prices; usually watching the end of day charts. They also typically have lower levels of leverage and smaller trade sizes. When deciding when to enter and exit a trade, they usually rely on fundamental analysis and technical indicators.
If you’re looking to generate fast profits, this might not be the one for you. Using positional trading strategy might require greater levels of patience and stamina from a trader.
Momentum Trading Strategy
Momentum trading and momentum indicators depend on the belief that strong price movements in a certain direction will result to a price trend that continues in that same direction. Additionally, weakening movements indicate the loss of strength of a trend. This can be interpreted as the market heading towards a reversal.
Typically, momentum strategies may consider both price and volume. Graphic aides like oscillators and candlestick charts are also often used.
Range Trading Strategy
This strategy is a considerably simple and popular trading strategy among traders. Range trading strategy is based on the belief that prices can often stay within a stable and predictable range for a certain period of time. This belief can be proven in markets that have an economy of the same quality. Thus, it’s highly popular in the forex market as currencies are not often subject to surprise news events.
As a range trader, you will mostly be buying and selling at easily predictable highs and lows of resistance and support. Such actions will happen frequently; sometimes taking place repeatedly in one or more trading sessions.
Some of the tools used by trend traders can also be used by range traders. The tools will be able to help identify opportune trade entry and exit levels.
The Forex market is not something you can simply play around with. It requires commitment for it to work the best possible way. You have to understand what affects it and how to navigate it properly. Don’t get us wrong, there will always be risks. What you can hope to achieve is to minimize your exposure to risks as much as you can.
There are numerous Forex trading strategies that can help you in finding your way around the Forex market. Forex trading is something that even beginners can master as long as you give enough time and effort.