Forex trading activities are open to everyone as people can quickly grasp the general concept. However, it’s one thing to be a trader and another to be successful. Successful forex traders are able to stand out from the crowd through the effective forex trading strategies they employ in different situations.
As a beginner or professional looking to bet better at forex trading, there are several strategies you need to learn. Experienced forex traders understand that a single system is not sufficient to deliver profit every time. Therefore knowing the strategies and the right ones to use under certain market conditions is key to becoming successful. Read our other post on spot trading in crypto.
This article examines the top 5 forex trading strategies that may give you the desired advantage for profitable trading.
What are Forex Trading Strategies?
Forex trading strategies simply refer to the ways of reasoning and approach that forex traders take during trading. Basically, there are long-term and short-term strategies depending on the goal of the trader.
The forex trading strategy you chose will define how you approach the market, dictating your entry and exit points based on market conditions.
What are the Top 5 Forex Trading Strategies?
Although there are numerous strategies, let’s take a look at the top 5 strategies for profitable trading:
1. Trend Trading
The trend trading strategy simply follows the trends. Essentially, the strategy is based on the fact that price history moves in a trend and traders have to intelligent pick a top or a bottom. In trend trading, the trader identifies pairs that are trending either upwards or downwards and proceeds to determine which direction they should trade.
The trader then proceeds to find trade entries using a reliable trending indicator. Relative Strength Index (RSI) is one of the most common trending indicators and it moves up and down between a scale of 0 and 100. Basically, RSI tracks the strength of the movement of a currency pair. Traders may consider a price reversal if the RSI falls below 30 or crosses above 70. Additionally, it is important that you leverage the exiting strategy of this plan which is setting a stop limit with resistance and support.
This strategy is especially popular among novices as it is considered low risk while retaining a good potential for profit. The scalping forex trading strategy specializes in taking profit on small price changes after a trade you immediately entered becomes profitable. It is one of the forex trading strategies that yield decent profit by focusing on the number of winning trades but sacrificing the size of the win or profit.
Basically, with scalping, the goal is to have a much higher ratio of winning compared to losing trades while ensuring profits are more or equal to losses. It requires a strict exit strategy that the trader must follow as one huge loss could overtake all initially accumulated gains. Nonetheless, with great patience, scalping is effective.
3. Support and Resistance Trading
Essentially, spotting support and resistance levels on charts regardless of the asset being traded is a must-have skill for all traders. Support and resistance can be easily spotted on pie charts as they act as barriers within forex markets, preventing prices from either moving higher or lower.
Basically, understanding forex via support and resistant barriers is an effective way to successfully predict future price movement and earn a profit. They help traders highlight where not to enter a trade and display the overall sentiment of the market.
4. Fibonacci Trading
Fibonacci is one of the most popular forex trading strategies today. It was named after the famous Italian mathematician and is considered to be a medium to long-term strategy. Fibonacci is used for tracking repeating support and resistance levels and works when the market is trending.
Basically, the concept behind this strategy is to go short (sell) on a retracement at a Fibonacci resistance level when the market is trending down and go long (buy) on a retracement at a Fibonacci support level when the market is trending up. However, note that grasping this technique could take a period of consistent trading practice.
Another very popular forex trading strategy is the candlestick. Forex traders make use of these charts for technical analysis and price prediction. Candlesticks reveal the most about past price actions when trading, helping traders execute future price actions based on past reactions.
Candlesticks simply refer to price actions or movements for a specific period of time. Basically, this could be as little as one minute to as high as a week or month. Their thorough tracking is very useful in indicating possibilities for entries and exits. The Candlestick trading strategy is most effective in times of volatility and works in less volatile conditions too.
When should you change a Forex trading strategy?
It is important that you know when to swap forex trading strategies based on market conditions. Basically, you need to monitor your performance and make inferences to reach a conclusion on when it’s time to change and the strategy to adopt. Remain open to changes especially when you have not consistently seen returns from your preferred trading approach. Learn about FUD in crypto in our other article
With the right Forex trading strategy, you can earn a good profit, especially after thorough practice and mastery. Basically, there are several approaches out there and you need to properly research what each offer and how you can be successful using them.
Lastly, remember to be realistic with your goals and skills and always trade with money you can afford to lose.
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