There’s a tempting buffet of trading styles and strategies out there – truly something for every type of trader. New traders should ideally learn about each of these in detail, and then practice them to see which they find most comfortable and appealing. Many of the forex trading styles discussed below may be merged and combined within a more complete trading plan.
Forex Trading Strategies And Styles Exposed
1. Hopping On A Forex Trend. Perhaps the most vapidly discussed of strategies are the trend based ones. The reason this excites many a forex trader is their sheer earnings potential. Nothing in the forex world provides quite as much profit as a screaming trend that’s entered early and exited just in time. Despite the profitability and excitement that trend trading can bring, currency pairs tend to trend roughly no more than 20% of the time.
2. Earning Your Corn By Trading The Range. The status quo in the market is the range, when price action hovers steadily between support and resistance levels. The markets tend to be in ranging mode for a good 80% of the time which makes it important for the forex trader to have the skills and aptitude to trade this type of market.
3. Trading Breakouts. Breakouts can offer a lot of pips very quickly. These happen on all chart timeframes and all forex currencies on a regular basis. With this type of strategy the trader waits until a trading range (often a narrow consolidating one) is broken and trades in the direction of the break. While this sounds simple, in reality it can be somewhat tricky and many breakouts end up being false in the end.
4. Trading The Forex News. When news announcements are made, the forex price can go utterly bonkers. Little surprise then that some traders look to piggy back on the price volatility that news stirs up within the markets. Playing the news is a highly skilled and extremely tricky arm of currency trading – indeed, many traders will not so much as have open positions when news hits, leave alone trade it.
5. The Scalping Strategy. This is the shortest term of all trading strategies. The currency markets are astonishingly liquid and volatile. Therefore, there tends to be a lot of movement at any given time. Scalpers look to steal a few pips on the back of this movement – they literally take a few pips and close the trade. By doing this many times in a day, they are able to build many small profits into a big one.
6. Trading Overbought And Oversold Levels. A very simple and reliable strategy is in trading currency pairs when they are at overbought and oversold levels. Certain oscillators such as the Relative Strength Index and the Stochastic are highly apt in pinpointing price levels where currency pairs are either too highly bought, or too aggressively sold. Some traders will identify these market areas and then wait for the price action to turn before trading the inevitable reversal.
7. Trading Various Chart Patterns. The charts throw up many regular patterns that can be traded with high probabilities. While it’s always good to merge chart patterns with some indicators for more reliable trading outcomes, some traders swear by the high probability chart patterns that adorn their screens from time to time.