Forex trading has a lot of earning potential for those willing to try their hand. Still, the world of forex trading may not be as rosy as it seems from outside. It can be competitive and confusing, and that’s why you need the correct approach. This means having patience, willingness to take risks, and most importantly, employing the correct strategy. Here are five of the best forex trading strategies you should consider learning more about.
1. Support and Resistance Trading Strategy
Support and Resistance are areas on your trading chart that prevents a price from being pushed in a certain direction. A support line puts a stop to downtrends caused by increased demand. A resistance line, on the other hand, is caused by a selloff when price levels shoot up. When a price either is halted by either line or shoots past it, a trader can quickly determine if that direction is correct and therefore bet on it. If the price goes in the wrong direction, the trade can be reversed at only a small loss. If it goes in the right direction, a trader turns a profit.
Support and Resistance also indicate the general market sentiment, enabling a trader to know if or not to enter and exit. It also creates a map of the price chart, highlighting where prices have bounced before.
2. Scalping Strategy
Scalping is a strategy used by forex traders who want to turn a profit quickly. The idea is to make many trades and gain many small profits. A scalper places a trade every time there’s a small move in the market. Scalpers have to keep a watch on the charts throughout the day, or at least during the busiest times.
Scalping is somewhat safe for beginners because it’s a low-risk strategy. Scalping strategies have the advantage of assured wins because traders can exit a trade before it closes. There are no mistakes with scalping. The MACD indicator is among the most popular tools used by scalpers to momentum in the market.
3. Candlestick Strategy
Candlestick charts are one of the most popular forex charts. They display the same information as bar charts, but in a more visually heightened format. They show price reactions for certain periods of time, ranging from one minute to a month.
If you use Candlesticks correctly, they can give you a fairly accurate idea of current market conditions. Here’s why you should use forex charts:
- They are easy to understand because they have a clear set of patterns
- They allow you to read the current market sentiment
- They help you identify a trade’s future movement
4. Trending Strategy
This strategy is based on the premise that prices tend to move in a particular direction, either a downtrend or an uptrend. When trading using this strategy, it’s advisable to choose currency pairs that have a higher propensity to trend and to experience liquidity more than others.
Traders typically identify currency pairs that are either moving up and down to identify trading opportunities. Next, they identify trade entries using one of many trend indicators. Two common examples are the Relative Strength Index (RSI) or the Average Directional Index indicator (ADX). The RSI oscillates between a scale of 0-100 to track the speed and movement of a price, while ADX detects when a price is heavily trending.
This strategy can be your trading friend, but remember to set a Stop Loss to minimize loss and Take Profit to lock in profits.
5. Swing Trading
Swing trading is a simple forex trading currency that lets you set a certain target and then exit the market. Most swing trades last more than a day, but others may go up to several weeks. The idea is to combine chart patterns of several days to gain bigger price moves than you would in a day. Swing trading saves time and allows you to pursue other interests, like a full-time job. Another plus is, you can avoid risk by investing in only a few trades that you can monitor for short time durations. If you’re a trader who is not in a position to analyze market movements and monitor figures throughout the day, but can spare a couple of hours at night, then swing trading is for you.
Summary
All these strategies can help you capitalize on forex trading and become a pro within no time. Still, you should first acquaint yourself with the ins and outs of each before going full-steam ahead, so you avoid losing big amounts of your money during your initial attempts.