Choosing a trading strategy that works for you
When it comes to choosing and implementing a Forex trading strategy to adopt, there are several factors to consider. There is no clear cut way or one-size-fits-all approach to this, mostly because each person’s trading style and goals differ. While it is generally believed that traders do so with the intention to capitalise on the markets, the time frame and risk tolerance of each are just two of the most common aspects to consider when making such a decision, as this will likely inform all future trading activities. Moreover, Forex trading with reliable brokers is always advised.
While experienced traders may have already established their preferred way of trading and the strategy that most suits them and their goals, novice traders may require more assistance and guidance in that regard. Below are six simple Forex strategies that are worth considering, should you be looking to learn or improve on your approach to trading.
Simple Forex strategies to consider
The Fundamental Trading Strategy is an analytic way of planning one’s activity based on economic fundamentals and global situations that govern trade, currency movement and equities. This informs one’s trading activity because of the perceived or predicted impact of these conditions on the markets. The conditions inevitably have an impact on currencies and guide how a trader should act in order to capitalise on the trading environment.
- Range Trading Strategy
One for the more stable and predictable economies is the Range Trading Strategy, which is based on the assumption that the market conditions will remain relatively the same as before. This creates a sense of comfort and allows traders to determine points of entry and exit based on previous data and analytics, which are expected to be similar as before because of the state of the countries’ economies, amongst other factors.
- Breakout Strategy
The Breakout Strategy is one that is said to be beginner-friendly and is defined by price movement that occurs outside the defined support of resistance area. This particular strategy can be implemented based on data from different intervals, i.e. daily or weekly, depending on one’s trading style and activity. The key here is to pinpoint when to join a trend in its beginning stages and then subsequently capitalising on that.
- Moving Average Strategy
The Moving Average Strategy is a commonly used one in Forex trading, according to reports. This entails mapping out the averages within the market over a certain period of time, and then basing your predictions on that. Additionally, there are sub-categories of this strategy, such as the Simple Moving Average (SMA) and the Exponential Moving Average (EMA), with the key difference between the two being speed; the latter reacts faster to changes than the former.
Regarded as one of the most popular Forex trading strategies, the Carry Trade option is often preferred to profit from the interest rates of the countries in the chosen currency pair. However, this happens if the exchange rate between the countries remains unchanged. Simply put, the Carry Trade strategy sees one funding the low-yielding currency with the high-yielding currency from the pair, which can prove lucrative if the interest spreads are high.
- Momentum Trading
As suggested by its name, Momentum Trading is a strategy that requires close monitoring of the trajectory of the markets and trends, and making the assumption that it will continue in a similar manner for a while. As such, traders are encouraged to invest during the upward trajectory until the peak, and sell just before the adverse realises. For this strategy, it is imperative for traders to master the art of being able to identify the most opportune time to enter the market, how long to keep that position for, as well as when to exit.