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FOREX Trading Strategies

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Still, confused where to invest and how to invest? Want to know the best FOREX trading strategies? Which FOREX trading strategy is good for you? So, here are we to help you out in the chaos. This article aims at three main parts that namely are “What is a FOREX trading strategy?”, “FOREX trading strategies that work and can give apt results” and “Top five FOREX trading strategies with their pros and cons”. Thus, by the end, you will be well acquainted with main FOREX strategies that you can invest in! Let’s begin!

What is a FOREX trading strategy?

A FOREX trading strategy defines a system that a FOREX trader uses to determine when to purchase or sell a currency pair.

FOREX TRADING

There are different FOREX strategies that traders can use, including a technical analysis or a fundamental analysis. A good FOREX trading strategy allows a trader to analyze the market and to conduct transactions with sound risk management techniques confidently.

FOREX trading strategies that work and can give apt results

FOREX trading requires a combination of multiple factors to formulate a trading strategy that works for you. There are many strategies that can be followed, but it is essential to understand and be comfortable with the strategy. Each trader has unique objectives and resources that must be taken into account when selecting an appropriate strategy.

There are three criteria traders can use to compare various complicated techniques and different strategies on their suitability according to their needs:

  1. Time resource required
  2. Frequency of trading opportunities
  3. Typical distance to target

To easily compare the FOREX strategies on the three criteria, we’ve put them in a bubble chart. The vertical axis is ‘Risk-Reward Ratio,’ with strategies at the top of the graph having a higher reward for the risk taken by each trade. Position trading is typically the strategy with the highest risk reward ratio. Time commitment is on the horizontal axis, which represents how much time is needed to actively monitor trades. The strategy that is most demanding in terms of your time resource is scalp trading due to the high frequency of trades being placed on a regular basis.

Top five FOREX trading strategies with their pros and cons

  1. PRICE ACTION TRADING

Price action trading involves studying historical prices in order to formulate technical trading strategies. Price action can be used either as a stand-alone technique or in conjunction with an indicator.

PRICE ACTION TRADING

Fundamentals are rarely used; however, the incorporation of economic events as a substantiating factor is not unheard of. There are a number of other strategies that fall within the price action bracket below.

Length of trade:

Price action trading may be used over different periods of time (long, medium and short-term). The willingness to use numerous time frames for analysis results in price action trading valued by many traders.

Entry/Exit points:

There are many methods that helps in determining the support or resistance levels which are generally used as entry or exit points:

  • Fibonacci retracement
  • Using candle wicks
  • Trend identification
  • Indicators
  • Oscillators

There’s really wide variety, trend, week at, scalping, flip and position trading within price action. These schemes are compatible with the various forms of trading requirements that will be outlined in depth below. Examples show a variety of trading techniques for these strategies to show how diverse trading can be, along with a range of options for traders from which to choose.

  1. RANGE TRADING STRATEGY

Range trading entails the description of key resistance points where traders will place trade around these key levels.

RANGE TRADING STRATEGY

This strategy works well on the market, with no success factors and no discernible trend. Technical analysis is the prime motivator used in this strategic plan.

Length of trade:

There is no defined class per trade as a range of shackled strategies can work for any time period. Risk management is an essential part of this approach as outbreaks can occur. As a result, a range trader would still like to close any current bound spectrum positions.

Entry/Exit points:

Oscillators are most frequently used as tools for timing. Relative Strength Index (RSI), Commodity Channel Index (CCI), and stochastic are some of the most highly regarded oscillators. Price action is often used in accordance with oscillators to further verify bound range signals or clogged pores.

Range trading can result in effective risk-reward ratios, but this comes with long-term investment per trade. Just use pros and cons underneath to integrate your goals as a trader and the amount of resources you have.

Pros:

  • Significant number of trading opportunities
  • Advantageous risk-to-reward proportion

Cons:

  • Requires long periods of investment in time
  • Includes a strong appreciation of the technical analysis

 

  1. TREND TRADING STRATEGY

Trend trading is a straight forward FOREX strategy used by several traders of all levels of experience.

TREND TRADING STRATEGY

Trend trading attempts to generate positive returns by taking advantage of market directional momentum.

 

Length of trade:

Trend trading usually takes place out over medium to long term as trends themselves change rapidly in length. As with price action, a multiple timeframe analysis can be used in trend trading.

Entry/Exit points:

The entry points are usually indicated by the oscillator (RSI, CCI, etc.) and the exit points are calculated on the basis of a positive risk-reward ratio. Using stop level distances, traders could either match or exceed that distance to keep a strong risk-reward ratio, e.g. If the stop level is 50 pips away, the take profit level will be reduced to 50 pips or more away from the entry point.

Trend trading can be sufficiently labor-intensive with many things to take into consideration. The list of pros and cons may help you to find out if you are interested in trend trading.

Pros:

  • Significant number of trading opportunities
  • Advantageous risk-to-reward ratio

Cons:

  • Requires long periods of investment in time
  • Includes a strong admiration of the technical analysis

 

  1. POSITION TRADING

Position trading is a long-term strategy focused primarily on fundamental factors, but technical methods such as Elliot Wave Theory can be used.

POSITION TRADING

Smaller, smaller, smaller market oscillations are not considered in this strategy as they do not affect the broader picture of the market. This strategy can be applied from stock to FOREX on all markets.

Length of trade:

As discussed above, positioning trades have a lengthy outlook (weeks, months or even years!) restricted for the most resolute trader. Recognizing how economic factors affect markets or a detailed technical predisposition is essential in the forecasting of trade ideas.

Entry/Exit points:

Key levels on longer period of time frame charts (weekly/monthly) hold crucial data for position traders due to a detailed competitive view. Entry and exit points can be assessed using a technical analysis as per the other strategies.

List of pros and cons based on your goals as a trader and the amount of resources you have.

Pros:

  • Requires minimal investment in time
  • Highly positive risk-to-reward ratio

Cons:

  • Very few opportunities for trading
  • Includes a strong appreciation of the technical and fundamental analysis

 

  1. DAY TRADING STRATEGY

Day trading is a tactic for trading financial instruments on the same trading day.

DAY TRADING STRATEGY

That is, all roles are closed before the market closes. It can be a single trade or multiple trades across the day.

Length of trade:

Trade times range from quite short-term (matter of minutes) to short-term (hours) as lengthy as commerce is opened and closed on the trading day.

Entry/Exit points:

In the example below, traders will seek to enter positions at the time the price breaks through the 8-year EMA in the direction of the trend (blue circle) and exit using a 1:1 risk-reward ratio.

Before pursuing this strategy, consideration should be given to the pros and cons listed below. Day trading involves a lot of time and effort for little reward, as shown in the EUR/USD example above.

Pros:

  • Significant number of trading opportunities
  • Median risk-to-reward ratio

Cons:

  • Requires long periods of investment in time
  • Includes a strong appreciation of the technical analysis.

So, this article aimed at three main parts that namely are “What is a FOREX trading strategy?”, “FOREX trading strategies that work and can give apt results” and “Top five FOREX trading strategies with their pros and cons”. I hope this was helpful and I have helped you out to overcome the chaos. If this article was not able to do justice to you, you can ask you queries anytime and we are here to help you out with this. Mentioning the most statement of the article once again; Always remember it is never too late or too early to start something. If still you are stuck between anything, we are always here to help you out with any of your problem!

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Read This Also: Forex Trading – A Complete Guide for Beginner

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