Forex Trading: Essential Trading Strategies

Forex is also known as foreign exchange. It is a marketplace where traders can exchange currencies. Like any marketplace, it is filled with many kinds of traders with different needs. The forex market has a suitable trading form that meets the different needs its traders have.

Choosing a specific trading form may not be easy especially for a novice. It requires some understanding of the different markets and strategies that exist. Let’s take a look at the different trading strategies.

Types Of Trading Strategies

The forex market is filled with many different traders. Each of these has specific needs and preferences which will determine how they trade.

A trader needs to determine how long they intend to trade. This will be affected by several factors. Ultimately, traders can trade long-term or short-term, or somewhere in between. There are many strategies that traders can apply.

  1. Day Trading

As the name suggests, these are the kind of traders that trade daily. They don’t leave any open trades overnight. They open all their trades during the day and then close them at the end of the day.

Day trading aims to take advantage of price movements in the day. It requires keen monitoring during the day to determine the direction of price movements. Trades make profits or losses based on the direction the trade takes.

This kind of trading requires in-depth knowledge to execute successfully. A day trader uses multiple techniques to help them make decisions faster and also to ensure that they are successful. Some key characteristics can help identify a day trader.

  • Their main focus is on technical patterns rather than data analysis.
  • They trade in high volumes.
  • Rather than focusing on long-term trading, they trade via day averages.
  • To gain more profits, they focus on quick turnovers.

This kind of trading strategy requires monitoring price movements throughout the day. If can’t closely monitored, it can lead to serious losses.

  1. Swing Trading

These are traders that are somewhere between short-term and long-term trades. Such trades are longer than a day (they continue overnight) and positions can be held for several weeks.

Swing traders, as their name suggests, focus on buying when prices begin to rise and opt to sell when they start to drop. This kind of trading requires a close analysis of price movements. Timing is key for a swing trader.

Key characteristics of swing traders include;

  • They use a blend of analysis techniques. Both fundamental and technical analysis is essential for swing traders.
  • They focus on short-term price movements. This helps the traders to capitalize on the upward swing.
  • Swing trading also focuses on extremes. These can either be high or low.

A major benefit of swing trading is that it has a high chance of making a profit with a low risk of making losses. It is a beneficial means of trading for those who don’t have the time to focus on price movements throughout the day. Keeping an eye on movements for a few hours daily is enough to make good decisions.

  1. Position Trading

If day traders could be placed on one end of the trading spectrum, then position traders are the other end. They focus on long-term trades. Position trades can keep trades open (hold positions) for weeks, months, or even years.

They mostly focus on fundamental analysis for their decision-making. This involves in-depth research and data analysis and looking for opportunities.

Some key characteristics that define position traders include;

  • Low volume trades. Many times they only hold a few trade positions in a year.
  • Most of their decisions are affected by economic models such as the national economy, the condition of the market, and interest rates.
  • It mostly focuses and relies on fundamental analysis to make decisions.
  • Position movements are captured in bulk. Position traders hope that prices will appreciate over time.

Due to the nature of position trading, they can cause long-term losses if predictions are wrong.

Wrapping Up

Forex trading is a lucrative marketplace especially for those who are in the market for speculative purposes.

There are many benefits to forex trading including the few barriers to entry even for beginners. Retail trading allows individuals to trade on the forex market. A novice should research the different strategies that exist before beginning to trade. Having a clear understanding of how long you want to trade, whether long, medium, or short term, is essential.