8 Real Forex Trading Strategies in 2022 That Will Work Wonders for You
What is a Forex Trading Strategy?
A forex trading strategy is a trader’s system for checking when to buy a currency pair and then sell that currency pair. Traders use various trading strategies, including technical and fundamental analysis. You can analyze the market with confidence and execute your trade with good risk management techniques through a good trading strategy.
Criteria that traders use to compare the suitability of different strategies
There are several factors to consider before formulating a functional trading strategy. Different traders use different strategies because each has unique goals and resources that play a key role in developing a suitable strategy. Therefore, traders use three main criteria to compare the suitability of different strategies:
- Time for a required resource
- Number of business opportunities
- Typical approach distance
The analysis of the strategies on these 3 criteria determines their Risk-Reward ratio. To increase your understanding of these trading strategies, please visit http://reviewfx.com
Price Action Trading Strategy
It is a strategy that uses past price data to design technical trading strategies. You can take price action as a standalone technique or in conjunction with an indicator to formulate a strategy where trading fundamentals are rarely used.
You can use price action trading over varying time frames, and this ability of price action trading to use multiple time frames for analysis is highly valued by traders.
Several methods are used to determine entry and exit points;
- Fibonacci retracement
- Use candle wicks
- Identifying trends
Price action trading includes other trading strategies discussed below.
Forex Range Trading Strategy
Range trading is a strategy that involves identifying support and resistance points at key levels, and traders use these to place their trades. It has low volatility and uses technical analysis as a tool.
There is no limit to setting a particular trade duration as it works for any time frame. Risk management is at the heart of this strategy.
Oscillators are the commonly used synchronization tools here. Among the oscillators, Relative Strength Index, Commodity Channel Index and Stochastic are the popular oscillators.
Trend Forex Trading Strategy
It is a simple strategy used by most traders of varying levels of experience. Trend trading exploits the directional momentum of the market to generate positive returns.
Trend trading is a strategy that takes place over a medium to long term time horizon, as trends keep changing in length. Here, multiple time frame analysis is used along with price action trading.
Usually an oscillator designates the entry points and a positive risk-reward ratio calculates the exit points. Traders can either match this distance or go further to maintain a positive risk-reward ratio by using stop level distances.
Position trading strategy
It is a long-term strategy that focuses primarily on fundamentals. However, you can use Elliot Wave Theory as a technical method. Smaller or minor fluctuations in the market do not affect the position trading strategy.
As this is a long term strategy; thus, it is reserved for more conservative traders. Understanding how economic factors affect markets is key to predicting trade ideas.
The key levels mentioned on the longer term charts contain important information for position traders. The technical analysis used for other strategies also applies to this strategy.
Day trading strategy
It is a trading strategy in which financial instruments are traded on the same day and all positions are closed before the market closes. There may be one or more trades throughout the day.
It is a trade that lasts a very short time from the opening to the closing of the trade on the same day.
Traders in this trade will enter when the price breaks in the direction of the trend and exit using a 1:1 risk-reward ratio.
Scalping trading strategy
Scalping is a term commonly used in forex to frequently define the process of earning small profits. You can achieve this by opening and closing several positions per day. And you can do this manually or by using an algorithm that works according to predetermined guidelines to enter or exit a position.
It is a short-term trading strategy with minimal returns and works in shorter time frames.
Scalpers use indicators to check for trends, and these trends help traders see the bigger picture over longer time frames. Traders can use oscillators for shorter time frames to perform scalping.
Swing trading strategy
Traders use a speculative trading strategy to take advantage of range and trend related markets. Traders can join long and short positions by selecting “highs” and “lows” respectively.
Swing trades are believed to be medium term as positions are held between a few hours and a few days. Here, long-term trends are favored because you can capitalize on the trend at multiple points.
Here, oscillators and indicators are used to select entry and exit points and times. It applies to both trending and range bound markets.
Carry trading strategy
It is a strategy where you borrow one currency at a low price and invest it in another, giving you a higher return. This will result in a positive carry trade.
Here, the duration of the exchanges depends on the fluctuations of the interest rates between the associated currencies. This shows that this is a medium to long term trading strategy.
Here, two things are considered, currency risk and interest rate risk. The best time to open a trade is at the beginning of a trend because the interest rate will not change regardless of the trend.
Forex trading is a highly liquid market that has become very popular over the past two decades. This article discusses some top strategies you can follow to become a reputable forex trader and earn a healthy living. If you have any questions, please let us know.