A forex trading strategy denotes a system used by forex traders to decide when they should buy or sell a certain currency pair. There are several forex strategies that traders can put to use such as technical analysis or fundamental analysis. It’s a sign of great forex strategy if it lets a trader assess the market prior to executing the trades in Dubai. It should also be backed with a solid risk management system.
Forex strategies: an overview
You need to piece together numerous elements to create a forex trading strategy that suits you. You might come across several strategies to follow but what is key is that you understand and become familiar with the strategy. Each trader has a set of goals that are unique to them just like the resources. These two factors play a very important role in determining the strategy that is right for you.
Typically, there are three main criteria that traders can use as yardsticks to assess if a particular strategy suits them or not:
- Time and resources that may be required
- How frequently do trading opportunities arise?
- How far are you from the target?
1. PRICE ACTION TRADING
Price action trading refers to the study of price histories to create technical trading strategies. It can be used on its own or in sync with an indicator. While fundamentals are rarely ever used in price action trading, it is not a completely new phenomenon to weave in economic events as one of the substantiating factors. There are a number of strategies that come under the umbrella of the price action bracket.
Length of trade:
Price action trading can be used during various time periods, right from long, medium, and short-term. The fact that one can use them in a number of time frames for analysis is the reason why so many traders use price action trading. Within the scope of price action, there are many different categories like range, trend, day, scalping, swing, and position trading.
2. RANGE TRADING STRATEGY
Range trading refers to the method of recognising support and resistance points around which levels traders place orders for their trades. This strategy functions smoothly in the market without being heavily affected by market volatility. The main tool of such a strategy is technical analysis.
Length of trade:
Range-bound strategies can do the trick for any time frame and thus there’s no fixed length. Risk management is essential in this method since breakouts take place. As a result, a range trader may want to close any present range-bound positions.
Range trading can lead to very beneficial risk-reward ratios but this comes with long-time investments in each trade. Here are some pros and cons to help you sync your goals as a trader with the resources you possess.
Pros:
- A considerable number of trading opportunities
- A beneficial risk-to-reward ratio
Cons:
- Demands long periods of time
- Technical analysis becomes a necessary evil
3. TREND TRADING STRATEGY
Trend trading is basically an easy forex trading strategy that is used by amateur to experienced traders alike. Trend trading tries to bring in positive outcomes by making the most of a market directional momentum.
Length of trade:
Trend trading typically happens in the medium to long-term time period as trends keep fluctuating. Similar to price action, several time-frame analysis can be made a part of trend trading. Trend trading can require a considerable amount of labour as there are several factors to take into account.
Pros:
- A considerable number of trading opportunities
- A beneficial risk-to-reward ratio
Cons:
- Demands long periods of time
- Technical analysis becomes a necessary evil
4. POSITION TRADING
Position trading refers to a long-term strategy that is basically centred around fundamental factors. But, it may also include technical methods such as Elliot Wave Theory. The relatively smaller markets are generally not a part of this strategy as they have little to no impact on the bigger picture. This strategy could be used on all financial markets from stocks to forex.
Length of trade:
Position trades tend to have a long-term trend that could last for weeks, months or perhaps even years and should be considered by those who want to be in the game for a longer period. It is important for one to understand the way economic factors could play out when it comes to predicting trading decisions.
Pros:
- Demands a relatively low investment time
- Extremely positive risk-to-reward ratio
Cons:
- Trading opportunities can be limited
- One should be able to assess and appreciate technical and fundamental analysis well
5. DAY TRADING STRATEGY
Day trading refers to a trading strategy that has been developed to trade financial instruments within a single trading day. This means that all positions need to be closed before the market closes for the day. While this could be a single trade, it is generally a considerable number of trades that one opens and closes throughout the day.
Length of trade:
Trade times can go from super short-term, like the ones that wrap in minutes or hours but they should be opened and closed on that same trading day. Before you think about actually putting your money into this strategy, take the following pros and cons into account.
Pros:
- A remarkable number of trading opportunities
- Median risk-to-reward ratio
Cons:
- Demands long periods of time
- Technical analysis becomes a necessary evil
6. FOREX SCALPING STRATEGY
Scalping is a rather popular and common terminology that is used in forex trading. It essentially describes the process of accumulating several small profits frequently. This is done by entering and exiting many positions in a day. The strategy essentially works in the short-term as it works with the currency pairs that are largely liquid and thus allows you to work with much better spreads.
Length of trade:
Scalping is basically inclusive of short-term trades that bring a very minimal return. It generally works on much smaller time frame charts that could be as short as 30 seconds to up to a minute.
Pros:
- This trading strategy offers the highest number of trading opportunities among all forex strategies that are out there.
Cons:
- It can be demanding and you may have to devote long hours.
- Requires you to have a thorough knowledge of technical analysis
- It has the lowest risk-to-reward ratio
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