A guide to forex trading strategies:
Plans are essential to stay a trader disciplined and focused. Here we'll cover the various trading styles that can be used to trade forex. Following this, we'll dive deeper into specific examples of forex trading strategies commonly used by traders.
A forex trading strategy helps to supply traders with insight into when or where to buy or sell a currency pair. However, no forex trading strategy is ‘best’ and not all forex trading strategies were created equal, and a few may work better in certain situations. Additionally, several trading strategies exist and every requires varying levels of technical and fundamental analysis.
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How to develop a forex trading strategy:
When choosing a forex trading strategy, it helps to remember of what type of trader you are and what types of strategies exist. However, it's not as simple as selecting a single trading strategy, as traders can prefer to employ a single strategy or combine several.
Firstly, you want to define your criteria for selecting a forex trading strategy. you ought to analyse factors that can help narrow down your search such as:
How much time you can set aside to trading forex
What currency pairs you would like to focus on
The size of your position
Whether you’re going long or short (learn the way to short pound sterling).
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Forex trading strategies:
The following forex trading strategies are utilised by traders to provide structure to their trading efforts. These strategies aren't specifically designed for forex markets but are rather general strategies that can be applied to all financial markets. The strategy you opt on will correlate to the type of trader you are. Open an account to start out practising your forex trading strategies via spread bets and CFDs.
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Forex scalping strategy:
Forex traders preferring short-term trades held for just minutes, or those that try to capture multiple price movements, would like scalping. Forex scalping focuses on accumulating these small but frequent profits also as trying to limit any losses. These short-term trades would involve price movements of just some pips, but combined with high leverage, a trader can still run the danger of significant losses.
This forex strategy is usually suited to those that can dedicate their time to the higher-volume trading periods, and may maintain focus on these rapid trades. High volume trading periods include:
8.00 am to 12.00 pm GMT when both ny and London exchanges are open
7.00 pm to 2.00 am GMT when both Tokyo and Sydney exchanges are open
3.00 am to 4.00 am GMT when both Tokyo and London exchanges are open
The most liquid FX currency pairs are often preferred as they contain the tightest spreads, allowing traders to enter and exit positions quickly. Some examples include:
AUD/USD – 0.7pts minimum spread
EUR/USD – 0.7pts minimum spread
USD/JPY – 0.7pts minumum spread
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Forex day trading:
If you would like to trade for short periods, but aren’t comfortable with the fast-paced nature of scalping, day trading is an alternate forex trading strategy. This typically involves one trade per day, which isn’t carried overnight. Profit or losses are a results of any intraday price changes in the relevant currency pair.
This type of trading would require sufficient time to research and monitor the trade, also as a good understanding of how the economy could affect the pair you’re trading. If major economic news were to hit that day, it could affect your position. discover more about forex day trading.
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Forex swing trading:
For traders preferring a mid-term trading style where positions can be held for several days, there's swing trading, which aims to form a profit out of changes in price, by identifying the ‘swing highs’ or ‘swing lows’ during a trend.
Although this strategy normally means less time fixating on the market than when day trading, it does leave you in danger of any disruption overnight, or gapping. Learn more about swing trading strategies.
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Forex position trading:
The most patient traders may choose the forex position trading, which is a smaller amount concerned with short-term market fluctuations and instead focuses on the long term. Position traders will hold forex positions for several weeks, months, or maybe years. The aim of this strategy is that the currency pair’s value would appreciate over a long-term period.
Forex position trading is more fitted to those who cannot dedicate hours each day to trading but have an acute understanding of market fundamentals.
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Carry trade forex:
A carry trade involves borrowing from a lower interest currency pair to fund the acquisition of a currency pair with a higher interest rate This strategy can be either negative or positive, counting on the pair that you are trading. The aim is to take advantage of the difference in interest rates or the “interest rate differential” between the two foreign currencies.