Forex trading and investment: what options are there?
Trading discipline is a key aspect of successful trading in equities and foreign exchange. Dealers often ask: Is there a way to consistently make good buying, holding and selling decisions?
Yes, there is a proven way to maintain disciplined trading behavior, using one or more currency trading strategies.
What is a currency trading strategy?
Investopedia defines one Forex trading strategy as a techniqueto make purchase or sell decisions for a currency pair at a specific time. A strategy usually consists of trading signals, which are the trigger for buying and selling decisions.
Trading strategies may be based on fundamental analysis, technical analysis or news-based events. Because different trading strategies work differently and are unique to different people, there is no strategy that can be considered the best or most profitable.
Trading strategy - manual or automated?
Forex trading strategies can be either manual or automated.
- In manual trading, the movements of currency pairs are monitored by one person. The goal is to identify trading signals that tell you if the currency pair you are monitoring is to be sold or bought.
- On the other hand, in automated trading the trader develops an algorithm that not only identifies trading signals but also executes trades.
5 various currency trading strategies
Most of the traders used today Currency trading strategies However, they fall into one of the following 5 types:
Forex Trading Strategy Type #1: Daily Trading
As the name suggests, include Day trading strategies leaving trades before the end of the day. The price bar graphs are usually set to one to two minutes and the trades last only a few hours.
The main advantage of day trading is that it reduces the risk of loss due to large overnight fluctuations in the value of currency pairs. The strategy is ideal for beginners. A good example of a day trading strategy is the 50 points strategy per day.
Scalping strategies involve holding trades for a few minutes to beat the bid / ask spread for a small profit. Scalping typically uses technical analysis tools, and trading is based on real-time analysis of currency pairs.
There are manual and automated forex scalping systems. In a manual system, the trader identifies signals by visual inspection and interprets them as either buying or selling opportunities. An automated scraping system uses software for technical analysis and interpretation of trading signals. The technical analysis is timely and gives Forex scalpers real-time charts for trading decisions. Forex Scalping allows the trader to trade as many trades as possible in a single day. Try it in the Dax30.
Forex Trading Strategy Type #3: Swing Trading
Swing Trading is considered a medium-term currency trading strategy. The trader holds trading positions for several days to make small profits from short-term price changes of currency pairs.
Intraday trading creates a lot of noise in currency movements. Swing traders try to set up trades so that their position is not affected by very short-term movements in the currency market. In other words, swing trading filters out unpredictable price fluctuations and enables traders to set up desired swings at low and high levels over a longer period of time.
Forex Trading Strategy Type #4: Trend Trading
As the name implies, trend trading strategies follow the trend. Current currency developments can be reliably used as indicators of the direction of future currency prices. The trader uses the price direction indicated by the trend to select entry and exit points for trading.
It is noteworthy that the strength of the trend in the use of trend trading strategies is of paramount importance. Various instruments are used to assess trends, including the moving average indicator, relative strength indicators, Stochastics or directional indices.
Currency Trading Strategy Type #5: Position Trading
This type of currency trading strategy is based on a long-term valuation of currency pair movements. Position trading aims to maximize profits due to strong exchange rate movements. The trader constantly analyzes end-of-day charts and uses his knowledge of the market fundamentals, to make trade decisions.
Since positional strategies can also take years, a lot of patience and discipline are required of the trader. This includes tracking long-term macroeconomic trends for different economies. Therefore, the position trading is more suitable for experienced traders.
Conclusion: The perfect currency trading strategy does not exist
There is no currency trading strategy that is guaranteed to work all the time. A determined trader should familiarize himself with a variety of strategies to make sure he has a collection of useful trading tools to meet the challenges of the ever-changing marketplace. It is also important to note that general market information should not be used as investment advice.
Make a detailed assessment of each currency trading strategy that you want to use before you apply it in actual trading. Contacting a Forex Trading Advisor would also help you to make a good decision on the type of trading strategy you want to use.
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