Forex trading is much easier than it might first seem, and with the use of different trading strategies, it really isn’t very difficult to find a strategy that suits you. You can trade wherever you are, meaning you can place an order and trade forex in Singapore while still at home on the other side of the planet. What this does require, however, is a solid strategy.
In this article, we’ll explore eight forex trading strategies you should try out, whether you work at a trading company or as a sole trader.
1. Trend Following
Trend following is one of the more popular trading strategies as it involves the trader trying to enter and exit trades as the market begins to move against you. This is one of the more popular trading strategies, and while many have tried to time the market to perfection, very few have succeeded. This isn’t an easy win but instead a strategy that requires a lot of background reading and research.
2. Fibonacci Retracement
Fibonacci retracement is a common strategy that uses Fibonacci levels. These levels, shown as percentages, indicate how much a price has changed from its highest or lowest point before reverting again. This is a useful strategy because it provides an indication as to how much support or resistance a trade generally has, helping us estimate future movements and how much they can change within a range.
Used most commonly to identify potential reversals in the market, divergence is a very popular trading strategy that’s utilized by many traders. Reversals occur when a trade moves one way while other indicators, such as momentum, continue to shift in the opposite direction. This can indicate the sudden shift or snap in movement, realigning with the way in which the momentum moves.
4. Price Action
One for those amongst you who enjoy cold, hard research, price action is a strategy that involves a lot of reading and analysis. The intention of this forex strategy is to operate independently of indicators, helping traders make snap assessments on the fly by using tools such as support levels, resistance bands, and candlestick patterns to get a stronger idea of how prices might move in the future. It takes time to master this technique, and there aren’t any shortcuts, but it’s worth persevering with.
5. Fundamental Analysis
Arguably the most popular method of analysis used by forex traders, fundamental analysis is well-known for its reliability and accuracy. However, it must be done correctly if you’re to get reliable results. It involves using a variety of different indicators such as economic data, global interest rates, and political events, to get a stronger idea of where the market might move, though knowing which events will have an impact is where the money is.
6. Sentiment Analysis
Somewhat similar to fundamental analysis, sentiment analysis also looks at external factors to understand how the markets might change. Many become confused when it comes to sentiment analysis but it typically involves using factors such as news items and social media chatter to gauge how the market is likely to behave. If there has been a lot of negative press online, you can expect the market to behave unfavorably.
7. Technical Analysis
Technical analysis is another popular forex trading technique that traders commonly use to gain an advantage over others, covering a variety of different techniques and sister strategies. Like many of the methods used by traders, it follows trends to try and find a gap in the market and an opportunity to capitalize on a sudden change. This is a broad subject that’s worth studying in greater detail.
8. Risk Management
Risk management isn’t a trading strategy exactly, though it is still an important aspect of any strategy and should be carefully considered by any professional trader. If you want to be a great trader, risk management is a central aspect. It involves using tools such as stop-loss orders and monitoring profit levels in order to achieve the best possible returns without any added risk.
Tips for Forex Traders
If you want to trade successfully, there are several different things you can do to make sure that your habits are healthy and that you follow the best practices outlined by the trading community.
1. Do Your Research
If you plan on becoming a successful trader, regardless of whether you work for a brokerage or as an independent trader, you should make sure that you do the necessary research that’ll allow you to make decisions based on understanding the global markets inside and out.
2. Use a Demo Account
Before you begin trading, you should look into getting some practice under your belt first. Many online trading platforms offer demo accounts as a way for traders to familiarize themselves with the various trading strategies and techniques available to them.
3. Have a Plan
Failing to plan thoroughly for your trading activity only sets you up for failure and means that you are starting at a disadvantage when compared to other traders. Having a plan will help you stay disciplined and focused when trading, which is essential for success.