forex-trading-strategies

Different types of forex trading and strategies?

Forex Trading:

The word Forex means Foreign Exchange, Forex Trading in simple terms is the trading on currencies from different countries.

Forex trader using Forex trading strategy techniques to decide which one buy and sell a currency pair.  Trading strategies can be based on technical analysis. trader’s currency trading is usually made up of trading signals that trigger buy and sell decisions.

There are five types of Forex trading with strategies 

1.Position trading: Position trading is long-term trading where you can hold a week or even months. The time-frames you’re looking to trade on are generally the Daily or the Weekly. As a position trader, you depend primarily on a fundamental analysis of your trade (such as NFP, GDP, Retail Sales, etc.) to offer a bias. You may also be able to use technical analysis to better time your entries.

  • Do we analyze the fundamentals of EUR/USD and determine bullishly, but we don’t want to go long at any price.
  • So, we wait for EUR/USD to come to Support before taking your position.
  • Now if your analysis is correct, we could enter at the start of a new trend before anyone else.

An example:

Image result for position building trading

Now, let’s talk about the advantages and disadvantages of position trading.

Advantages:

  • Don’t need to spend much time trading because our trades are longer-term
  • Less stress in your trading as you’re not worried about the short-term price changes
  • A favorable risk to reward on your trades (possibly 1 to 5 or more)

Disadvantages:

  • Require a great knowledge of the fundamentals driving market
  • Need a bigger capital base because your stop loss is wide
  • May, not a big profit every year  because of a low number of trades

2.Day trading: Day trading is a short-term trading strategy where you can maintain your trade for minutes or even hours (comparable to swing trading but at a “faster” rate). The time-frames you trade on are generally 5mins or 15mins. As a day trader, you aim to catch forex price movements.

  • The shifting average bounce Now… If you’re a day trader, you’re not going to be concerned with the fundamentals of the economy or the long-term trend, because it’s irrelevant.
  • Instead, you will identify your bias for the day (whether it’s long or short) and trade that direction for the session.

An example:

Image result for diagram

  • This chart represents a USD/CAD 4-hour time frame at 1.2900 resistance.
  • If the price can’t break about it, chances are, today will be Down day.

forex strategies

  • The chart represents a 15-minute time frame; you noticed a Shooting Star has formed which signals to sell pressure.
  • You can take a short trade with a target profit at Support (blue box).

Advantages:

  • If you’re good, you can make money for most of the months
  • No overnight risk because you close your positions by the end of the day

Disadvantages:

  • It’s stressful as you’re constantly watching markets Can lose a lot more than you would expect
  • Can lose a lot more than intended if you suffer massive slippage (from Black Swan events)
  • Huge opportunity cost as you could be earning a full-time salary elsewhere

3.Swing Trading: Swing trading is a medium-term strategy where you can hold days and even weeks. the time frames you trade on are generally 1 hour or 4 hours. As a swing trader, your concern is to catch “a single move” in the market (otherwise called a swing).

It is therefore essential to know technical concepts such as support and resistance, candlestick patterns and moving average.

Forex trading strategies - USDJPY

Advantages:

  • Don’t have to quit your full-time job to be a swing trader
  • It’s possible to be profitable every year because you have more trading opportunities

Disadvantages:

  • Will not be able to ride big trends
  • Have overnight risk

4.Scalping trading: Scalping trading is the shortest when you can trade minutes or even seconds. As a scalper, your concern with what the market is doing now and how you can take advantage of it.

The main tool you’ll use to trade is order flow (which shows you the buy and sell orders in the market).

 an example 

Advantages:

  • Have lots of trading opportunities each day
  • Can make a healthy income from trading

Disadvantages:

  • High financial cost (paying your software, news feed, connection, etc.)
  • Glued to the screen for many hours a day
  • It’s a highly stressful Effort

5. Transition trading: Transition trading is an idea to trade at a lower time frame, and if the market moves in your favor, you can increase your target profit or track your stop loss at a higher time frame.

an example:

Let’s say you traded the breakout for GBP / JPY 1-hour time frame and the price went quickly to your advantage.

  • Next, You noticed the 4-hour timeframe of the 20MA.
  • So instead of making profits, you’re trailing your stop loss by using the 20MA,
  • hoping to ride a bigger move. And if you’re wrong, you’ll be out of a trade when the price closes below 20MA.

forex strategies

Now, there are variations in transition trading.

But the main idea is this:

  • Find an entry on the lower time frame
  • If the price moves in your favor, consider planning your exits on the higher time frame

Advantages:

  • Can get an insane risk of reward (potentially 1 to 10 or more)
  • Can reduce your risk as your entry is on a reduced time frame

Disadvantages:

  • Only a handful of your trades will lead to monster winners
  • Must understand multiple time frames

 

You may also like to Read…...

Related posts

Stock Market and Share Market Features.

anusha

How to make money in the stock market trading

pavani

What is Nifty50?

pavani