The 5 Most Popular Forex Trading Strategies Explained | The Guardian Nigeria News
Forex trading is very popular in Nigeria. Investors like to freely trade currency pairs like NGN/USD and EUR/USD, or GBP/USD. Currency pairs can be traded almost around the clock and the barrier to entry is low. Most forex brokers offer mobile apps and allow investors to open a new forex account with low minimum deposits.
As in many other areas of life, a top-notch education is also a prerequisite for success in currency trading. Forex Trading Courses are an ideal starting point. All aspects related to forex learned in forex courses can then be practiced in a demo account with virtual money. Those who manage to make money on the demo account start trading with real money to steadily increase the account balance.
This article serves as an essential guide with frequently used forex investment strategies and explains the main features in detail.
buy and keep
The buy-and-hold trading strategy is mainly used by stock and ETF investors. The investor generally analyzes the financial health and growth potential of a company and invests for the long term. Buy and hold usually means holding the asset for at least a few years, but it can also be for life. But, of course, this mainly depends on the progress of the company in the long term.
In forex trading, things are a bit different. Investing is done by buying a specific currency. Forex traders make such transactions, for example, when they believe that the value of their local currency is losing value against another such as the US dollar. But forex trading is not limited to trading currency pairs tied to the local currency.
Forex traders analyze global and local economies instead of focusing on the financial data of certain companies. It is always a currency pair that is being traded, and investors expect one currency in that pair to go up in value and the other to go down in value.
Position trading is also a longer-term style of investing, but is not necessarily meant to buy and hold a currency forever. Instead, position traders look for big changes in the price of a currency pair, like, say, NGN/USD. Position traders hold their investments for a few weeks or months.
Instead of watching short-term charts, they track geopolitics, global shifts, and local developments. A position trader is patient, uses larger profit targets, and gives a trade significant distance to place a stop loss.
A position trader needs good knowledge about the economy and global interrelationships. Most of the time is spent analyzing potential deals, while deal management requires minimal time commitment.
Swing trading is prevalent among forex traders, and this is where patient and impatient traders find a comfortable level when investing in currencies.
Forex positions can be held for several days, but they can also last for a few hours or just overnight. Swing traders should understand fundamental macroeconomics and should also be familiar with technical analysis using charts, indicators and trend lines for visualization.
Macroeconomic conditions and market technicalities like breakouts above resistance or breakouts below support can influence the validity of a swing trade. Swing traders often use the 60-minute chart to assess trading opportunities and make trading decisions primarily based on technical analysis. In addition, they validate their conclusion by checking the economic conditions.
Trades of the day
Day trading currency pairs requires in-depth skills in day trading, forex trading platforms, and market dynamics. A forex day trader switches entirely to cash at the end of a trading day and starts new trades the next trading day. A day trader never holds a position overnight – otherwise it would be classified as a swing trade.
A significant advantage of day trading currency pairs is that large market movements during dormant periods do not impact portfolio performance. Instead, the day trader closes all positions before turning off the PC, and it is 100% cash safe in the account.
Daytime trading can last a few hours, but usually only 5-60 minutes. Therefore, day trading currencies require a high time commitment, excellent internet connections, and in-depth knowledge of trading technology and the forex market.
This lightning-fast forex trading strategy attempts to scalp only a few pips (basis points) from each forex trade. A currency scalper holds positions for a few seconds and only focuses on trading during ultra-volatile market hours.
Economic events such as the consumer price index, unemployment insurance claims, non-farm payrolls are where the forex scalper calls home. The scalper avoids trading during less volatile market hours, as commissions and the spread often eat into profits made from small market movements.
A forex scalper invests large amounts at a time. Thus, any internet disconnection can have a significant impact on returns. This is why a fast and stable internet connection combined with a reliable forex trading platform is a mandatory prerequisite.
Timing is everything in currency scalping. This is why most scalpers use high frequency trading algorithms and automated trading systems for this trading strategy.