FOREX
Trading Strategies
In trading the FOREX market, a trader must
use a set of strategies to get ahead of the game and avoid further losses.
Following is a list of the basic strategy used by most of the traders to make
more profit in FOREX trading.
Two
basic forms of FOREX Trading Strategies in 2023:
1. Long
Trade- Traders bet that the price of a currency pair will increase in the
future,and they will profit from it.
2. Short
trading - the opposite of long trading. It is a bet that the price of a
currency pair will fall in the future.
Four
basic types FOREX Trading Strategies in 2023:
1. Scalp
Trade –
In this strategy, you must hold your position
as a trader for a short period of time, such as seconds or minutes, and the
number of profits you can make is limited in terms of number of times.
Percentage in Points (Pips). This trade is considered cumulative in the sense
that a small profit made in each individual trade is going to add up to a
larger amount at the end of the day or in your preferred time period. Using
this strategy, you need to rely on predictability of price movements, but this
strategy cannot handle volatility. Therefore, you should limit your trading to
the most liquid currency pairs and place your positions during the busiest
times of the day to trade.
Pros
a) have lots of trading opportunities every
day
b) Can earn a healthy income from
Cons
a) Higher financial costs (paying for your
software, newsfeed, connections, etc.)
b) Staring at screens for several hours a day
c) it's a very stressful endeavor
2. Day
Trades –
These are short-term trades in which your
position is taken and liquidated on the same day. The duration of using a day
trading strategy can take hours or at least minutes. If you want to become a
day trader, you need to equip yourself with technical analysis skills and
knowledge about important technical indicators in order to make profits. In
comparison, day trading strategies also rely on gradual gains throughout the
day, just like scalp trading.
Pros:
a) If you are good, you can make money in
most months
b) No overnight risk as you close your
position by the end of the day
Cons
a) It's
stressful because you're constantly watching the markets, you
b) Can lose much more than intended if you
encounter massive slippage (from Black Swan events)
c) Huge opportunity cost because you can earn
a full-time salary elsewhere
3.
Swing Trade
In this strategy, you as a FOREX trader need
to hold your position for a period of more than a day or 24 hours. For example,
you can limit your trading positions to a few days or weeks. The swing trading
strategy is very useful during major announcements by governments or during
times of economic turmoil. Since you will have a longer time frame using this
strategy, you do not need to monitor the markets throughout the day. As a swing
trader, you must have a deep understanding and be always updated on economic
and political developments as well as their impact on currency movements, in
addition to technical analysis.
Pros:
a) You don't have to quit your full time job
to become a swing trader
b) It is possible to be profitable every year
because you have more trading opportunities
Cons:
a) won't be able to ride the big trends
b) overnight risk
4.
Position Trading
Using this strategy, you should hold your
position on your chosen currency pair for a much longer period which could last
for months or even years. This type of trading strategy requires more
fundamental analysis skills as it provides a rational basis for your trading.
Pros:
a) No need to spend much time trading as your
trades are long term
b) Less stress in your trading because you
are not worried about short-term price fluctuations
c) A favorable risk to reward (possibly 1 to
5 or more)
Cons:
a) A strong understanding of the fundamentals
that drive the market
b) Requires a large capital base because your
stop loss is wide
c) Can't make profit every year due to less
number of trades
5.
News Trading
Some FOREX
traders with deep pockets and a good appetite for risk can use news trading
strategies, although they are probably not ideal for FOREX beginners. These
strategies can be based on fundamental and technical analysis and they usually
benefit from the remarkable volatility seen in the FOREX market shortly after
major news releases.
News traders generally need to monitor the
economic calendar for major data releases. They then closely watch the market
before the event to determine key support and resistance levels so that they
can react immediately after the event based on the results. News traders need
to maintain strict discipline when managing their currency positions during
such fast markets and often place stop-loss and take-profit orders in the
market.
An example of an economic calendar and a data
release event that a news trader can use is the US unemployment claim. This
data was particularly volatile during the COVID-19 shutdown in the US and the FOREX
market fluctuated significantly after its release. While those job numbers were
disappointing, what mattered most to the market is how the results differ from
the market consensus.
In the bottom position, the number of
previous unemployment claims was 3,176K, the expected number was 2,500K, and
the result was worse than expected at 2,981K. Its release should have put
pressure on the US dollar against other currencies.
Other
FOREX Trading Strategies:
Some traders are using strategies that are
based on broad areas of technical analysis, such as breakouts and moving
averages, to test or polish themselves. Business outlook even more so.
What
is FOREX trading?
FOREX trading refers to the simultaneous
buying and selling of currency pairs such as USD/INR, EUR/INR and others to
generate profits or hedge businesses against adverse exchange rate movements.
What
is a FOREX trading strategy?
A FOREX trading strategy helps you decide
when to buy or sell. It involves studying fundamental (market environment,
economic data) and technical (trends, breakouts) factors. Price action trading,
position trading and day trading are some of the top FOREX trading strategies.
What
are the Best FOREX Brokers for Trading?
eToro, FOREX.com, CedarFX, FBS, AvaTrade,
Pepperstone, IG, XM Global, FOREX Capital Markets (FXCM), Interactive Brokers
What
are some FOREX trading mistakes?
The most important is the lack of sufficient capital and high leverage with margin.
Is FOREX
trading a Good Career?
FOREX
online trading has quickly emerged as an easy way to make
money. Truly FOREX trading is a challenge, but so lucrative that novices and
experts become addicted. Due to high liquidity, easy accessibility and its 24 x
7 schedule, online trading in FOREX is a promising career path.
Is FOREX
trading a gamble?
FOREX is gambling in a trading sense, but it
is not the same as betting in a casino, because in FOREX you invest you are not
betting.
Why
do most FOREX traders fail?
Poor risk management, and even worse, no risk
management is a major reason why FOREX traders lose their money quickly. Risk
management is the key to survival in FOREX trading including day trading. You
can be a good trader and still be wiped out by poor risk management.
How
can I make money fast in FOREX trading?
The way to make money fast in FOREX is to
understand the power of compounding growth. For example, if you aim for 50% per
year in your trading, you can grow an initial $20,000 account to over a million
dollars in less than 10 years. Break the norms, get more.
How long does it take to learn FOREX
trading?
With some hard work and dedication, it should take you 12 months to learn
how to trade FOREX
Is FOREX Easier Than Stocks?
Money markets have a greater reach than stock markets. Traders can trade
stocks almost 24 hours a day from Monday to Friday, but it is not particularly
easy to access all those markets. FOREX trading, on the other hand, is much
easier to do round the clock, Monday to Friday.
Do you pay tax on FOREX?
Four types of taxes are relevant to FOREX traders:
Income Tax - The tax you pay on your total
income.
Corporation tax - The tax you pay on your limited
company's income.
Capital Gains Tax - The tax you pay on your gains
from selling the property.
Stamp Duty Reserve Tax – a tax or duty that you pay when
you buy shares
How do I close my FOREX account?
a) Check your trading platform to determine if you have any open trades
outstanding. If you are a long term trader, you may have some FOREX trades
still open. ,
b) Obtain an account termination form from your FOREX broker. ,
c) Complete the form. ,
d) Submit the form to your broker as requested.
Which bank account is best for FOREX
trading?
Standard Bank is recognized as the leading provider of online FOREX trading
to investors worldwide. Standard Bank prides itself on competitive pricing,
good liquidity and a range of 160+ different FOREX crosses.
Can I trade FOREX without a broker?
Yes, you need to use a FOREX broker to trade FOREX. You will need to open
an account and deposit enough collateral (margin) so that you can place orders
to your broker to buy or sell FOREX.
Who controls the FOREX market?
It is decentralized in the sense that it is not controlled by a single
authority, such as an international agency or government. The major players in
the market are governments (usually through their central banks) and commercial
banks.
How is money made in FOREX?
One can make money from FOREX trading by correctly predicting the price
movements of a currency pair and opening a position for profit. For example, if
you believe a pair will decline in value, you can go short and lose profits if
the market falls.
Can FOREX Brokers Manipulate the
Market?
A common belief about financial markets is that price manipulation is not
possible when the market is too liquid. Instead, it is much easier to
manipulate an illiquid market. This means that the FOREX market, where $5 trillion
worth of currencies are traded every day, is not susceptible to manipulation.
What is an ECN Broker?
An ECN broker is a financial intermediary that uses an electronic
communication network (ECN) to provide clients with direct access to other
participants in the equity and currency markets.
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