Currency Trading Strategies

Pros – Buy and hold strategy has proven time and time again to generate high returns on investment. Benjamin Graham, Warren Buffett, Jack Bogle, John Templeton, Peter Lynch are titans of buy and hold strategy, their experience proved us how well this strategy can work. The GeWorko method extends the currency cross-rate model to arbitrary assets and asset portfolios. Diversification is a golden rule in trading, which is the basis of basket trading strategy. If you feel ready to start hedging your currency risk, you can open an account with IFC Markets. To start hedging currency risks, there are a few steps every trader should do.

Forex Position Trading – Position trading requires an investor to hold a specific position for months to years. This is the best trading strategy ever, but it requires patience just as you would hold long-term stocks. History shows that you can make significant rewards with this strategy.

And vice versa, when the value is below 20, the market is oversold – up-move is expected to happen. Best scalping strategies lean on use of technical indicators including Bollinger Bands, moving averages, the stochastic oscillator, parabolic SAR and RSI. Bullish Percent Index – Measures the number of stocks with bullish patterns based on point and figure charts. When the BPI gives a reading of 80% or higher, market sentiment is extremely optimistic, with stocks likely overbought. When it measures 20% or below, market sentiment is negative and indicates an oversold market. Sinse fundamental analysis is about considering the intrinsic value of an investment, its application in forex will include considering economic conditions that may affect the national currency.


Let’s say a trader wants to place a limit order to buy 100 shares if the price breaks the resistance level. Alternatively, the trader can set a stop loss at or near the support level. As we mentioned earlier pivot points strategy could very well be traders best friend when identifying levels to develop a bias, place stops and identify potential profit targets for a trade. Before we start, if you are new to trading, it is best to start with the basics, “What is Forex trading”. Let’s say the publication of trade data by country X is better than expected. This will push the value of Country X’s currency up against the US dollar and investors will begin to move capital in the hope of a rising currency X.

forex trading strategies

Technical analysis is trading that helps to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity. The idea behind technical trading strategies is to find a strong trend followed by price rollback. It helps predict price movements by examining historical data – what is most likely to happen based on past information. Though, the vast majority of investors use both technical and fundamental analysis to make decisions.

The pivot point bounce takes advantage of market sentiment – buying or selling if price retraces back to the pivot point, which is a good horizontal support or resistance level. Day trading strategies are essential if a trader wants to benefit from frequent and small price fluctuations. An effective strategy should be based on deep technical analysis using charts, indicators and models to predict future price movements. All of the patterns are useful technical indicators which can help traders to understand how or why an asset’s price moved in a certain way – and which way it might move in the future. Range trading is a forex trading strategy that involves the identification of overbought and oversold currency, i.e buying during oversold/support periods and selling during overbought resistance periods. Scalping trading strategy is very popular in Forex trading Scalpers focus on making profit on small moves that occur frequently and favour markets that aren’t prone to sudden price movements.

Chart Patterns in Forex

Imagine a situation with the price fluctuating in a consolidation area near the support line. Bears sell assets, bulls actively buy, and then the price begins to rise. In such a situation, the bears regret going short, and as soon as the price returns to the support line, they will close their orders to have a chance to break even. The more often the price meets the resistance/support line and, repelling, keeps the movement vector, the stronger and more stable the trend. The price, as if meeting resistance, repels and tends downward, then, with a slight correction, rises back to the support line and bounces off.

forex trading strategies

While the price rallies, the fading trader will short X currency and profit from a possible downward correction. A point below the price is considered a bullish signal, and vice versa – a point above the price is used to illustrate that bearish momentum is in control and that it is likely to remain downtrend. When the dots are swapped, it means that there is a possible change in the direction of the price. For example, if the dots are above the price when they roll over below the price, this could signal a further rise in price. Parabolic stop and reverse – is used to determine the price direction of an asset, as well as draw attention to when the price direction is changing, also known as “stop and reversal system”. Stochastic oscillator – is a momentum indicator comparing a particular closing price of a security to a range of its prices over a certain period of time.

In many cases, foreign economic conditions, interest rates, and price changes affect much more than just a single currency pair. Forex excites the minds of beginners who want to conquer it, and the authority of the exchange attracts more and more new participants. Each trader in the financial market tries to develop his own safe investment strategy. If a beginner enters the phrase “Forex strategies” into Google, then the number of results can scare him and discourage him, there are so many of them.

Forex Trading Strategies every trader should know

So why have these simple lines become so widely used by investors? Let’s think about this together, but before that we may need to strengthen the knowledge of What is Forex trading and how does it work. Range trading strategy is one of the popular trading strategies in all the trading markets, and FX traders frequently use it.

Sentiment indicators are not exact buy and sell signals on their own, Trader has to wait for the price to confirm the reversal before acting on it. Traders can use the PMI since it is a leading indicator of economic conditions. The direction of the trend in the PMI tends to precede changes in the trend in major estimates of economic activity and output. Paying close attention to the PMI can yield profitable foresight into developing trends in the overall economy.

The foreign exchange market is the largest and fastest growing market in the world. Traditionally, it is the platform through which governments, businesses, investors, travelers, and other interested parties convert or ‘‘exchange’’ currency. Even if you are after automated day forex day strategies, or beginners and advanced tactics, you will need to take into account 3 essential components of every strategy;volatility, liquidity, and volume. FOREX Trading Secrets is a one-stop sourcebook packed with everything a trader needs to quick-start success in a 24-hour market. Lastly, it all starts with you – and, it will always end with you. What matters is how you position yourself to grab every great opportunity that comes your way.

  • This is because a trader needs to be very quick in order to make a profit.
  • Volume Trading is the number of securities traded for a certain time.
  • Worth mentioning, that momentum investing works, but not for everyone.
  • Increasing price and decreasing volume might suggest a lack of interest, this might be a warning of a potential reversal.
  • A trader interested in short term transactions with frequent small gains might be inclined in a strategy based on volatility.

Indicator is popular for generating overbought and oversold signals. Bollinger Bands rely on a simple moving average with a standard deviation set above and below to show how volatile a market might be. Traders believe that wider standard deviations indicate increased volatility in and vice versa, if the bands are narrow it might mean that the market is stable.

Why Do People Learn Forex Trading?

Simplifies the trading process, since traders can rely only on technical analysis. This calendar spread will pay off the most if ABC shares remain relatively flat until the Jun options expire, allowing the trader to collect the premium for the option that was sold. Then, if the stock moves upward between then and July expiry, the second leg will profit. Calendar Spread Options goal is to profit from a neutral or directional stock price move to the strike price of the calendar spread with limited risk if the market goes in the other direction.

Pivot Points Trading Strategy

Forex, also known as exchange or FX, involves buying and selling different currencies with the aim of earning profits based on fluctuations in the values of these currencies. This essential guidebook empowers you to understand the ins and outs of forex trading, develop winning strategies and identify the indicators necessary for success. Position trading is a mutual trading strategy where a trader maintains a position in a security for a long period, characteristically over several months or years. Position traders overcome short-term price variations in favour of indicative and profiting from longer-term patterns. It is this kind of trading that most closely look like investing, with the major difference being that buy-and-hold investors are restricted to only going extensively.

A trader should probably wait until a bearish wave runs out on the lower frequency charts and look to go long at a good level when the three time frames line up once again. Short-Term Time Frame – trades should The Problem of Overfitting be made on a short-term timeframe. As the smaller swings in the price action become clearer, the trader will be able to choose the best entry for a position already determined by the higher frequency charts.

Swing trading requires strong technical analysis skills like discovering support and resistance levels, candlestick pattern and moving averages. The reason why 90% of the investors fail in forex trading is because they do not follow sound forex trading strategies. They often indulge in social trading or copy trading without realising that each trader and their forex trading strategy is unique. These pattern types can be further broken down into specific chart patterns such as head and shoulders, wedges, triangles, etc.

Two lines and a histogram drawn against a time axis consist of the MACD predictor. First, we have the MACD line that is obtained by finding the distinction between the exponential moving average of 12 days and the EMAA of 26 days . By considering the higher, middle, and lower Bollinger Bands, the Bolly Band Bounce technique is executed. You believe the asset in question will remain within the rate of support and resistance . Then you check whether the price moves to the resistance or the help, then you bounce back to the middle.

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