WHAT IS A FOREX TRADING STRATEGY?

A forex trading strategy defines a system that a forex trader uses to determine when to buy or sell a currency pair. There are various forex strategies that traders can use including technical analysis or fundamental analysis . A good forex trading strategy allows for a trader to analyse the market and confidently execute trades with sound risk management techniques.

1. PRICE ACTION TRADING

Price action trading involves the study of historical prices to formulate technical trading strategies. Price action can be used as a stand-alone technique or in conjunction with an indicator. Fundamentals are seldom used; however, it is not unheard of to incorporate economic events as a substantiating factor. There are several other strategies that fall within the price action bracket as outlined above.

Length of trade:

Price action trading can be utilised over varying time periods (long, medium and short-term). The ability to use multiple time frames for analysis makes price action trading valued by many traders.

 

2. RANGE TRADING STRATEGY

Range trading includes identifying support and resistance points whereby traders will place trades around these key levels. This strategy works well in market without significant volatility and no discernible trend. Technical analysis is the primary tool used with this strategy.

Length of trade:

There is no set length per trade as range bound strategies can work for any time frame. Managing risk is an integral part of this method as breakouts can occur. Consequently, a range trader would like to close any current range bound positions.

 

 

3. TREND TRADING STRATEGY

Trend trading is a simple forex strategy used by many traders of all experience levels. Trend trading attempts to yield positive returns by exploiting a markets directional momentum.

Length of trade:

Trend trading generally takes place over the medium to long-term time horizon as trends themselves fluctuate in length. As with price action, multiple time frame analysis can be adopted in trend trading.

 

 

4. POSITION TRADING

position trading is a long-term strategy primarily focused on fundamental factors however, technical methods can be used such as Elliot Wave Theory. Smaller more minor market fluctuations are not considered in this strategy as they do not affect the broader market picture. This strategy can be employed on all markets from stocks to forex.

Length of trade:

As mentioned above, position trades have a long-term outlook (weeks, months or even years!) reserved for the more persevering trader. Understanding how economic factors affect markets or thorough technical predispositions, is essential in forecasting trade ideas.

 

5. DAY TRADING STRATEGY

Day trading is a strategy designed to trade financial instruments within the same trading day. That is, all positions are closed before market close. This can be a single trade or multiple trades throughout the day.

Length of trade:

Trade times range from very short-term (matter of minutes) or short-term (hours), as long as the trade is opened and closed within the trading day.

 

6. FOREX SCALPING STRATEGY

Scalping in forex is a common term used to describe the process of taking small profits on a frequent basis. This is achieved by opening and closing multiple positions throughout the day. This can be done manually or via an algorithm which uses predefined guidelines as to when/where to enter and exit positions. The most liquid forex pairs are preferred as spreads are generally tighter, making the short-term nature of the strategy fitting.

Length of trade:

Scalping entails short-term trades with minimal return, usually operating on smaller time frame charts (30 min – 1min).

 

7. SWING TRADING

Swing trading is a speculative strategy whereby traders look to take advantage of rang bound as well as trending markets. By picking ‘tops’ and ‘bottoms’, traders can enter long and short positions accordingly.

Length of trade:

Swing trades are considered medium-term as positions are generally held anywhere between a few hours to a few days. Longer-term trends are favoured as traders can capitalise on the trend at multiple points along the trend.

 

8. CARRY TRADE STRATEGY

Carry trades include borrowing one currency at lower rate, followed by investing in another currency at a higher yielding rate. This will ultimately result in a positive carry of the trade. This strategy is primarily used in the forex market.

Length of trade:

Carry trades are dependent on interest rate fluctuations between the associated currencies therefore, length of trade supports the medium to long-term (weeks, months and possibly years).

 

 

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