Foreign exchange is the process of changing one currency into another for various purposes such as commerce, trading, or tourism. An Fx or Foreign Exchange trading is the global market space where the currencies are exchanged at an agreed price. Forex Trading has several strategies, but the question is, which are the best Forex Trading Strategies that one needs to follow?
A Forex Trading Strategy is a system that a trader uses to determine when to trade the currency? But why does it matters so much? The value of foreign currencies changes every day, and the best strategy would allow the trader to make maximum profit.
To determine which strategy is best for the Forex, traders compare them using multiple criteria's -
Price action trading is an approach to price predictions and speculations used by Forex and other traders. This approach involves historical data and past price movements involving all technical analysis tools such as charts, bars, trend lines, price bands, high and low swings, technical levels, and many more based on the trader's fit.
The Trends in Price Action Trading can be determined over various timeframes such as short-term, medium-term, and long-term. This gives the trader flexibility to analyze using multiple timeframes and conclude to either sell or buy. Several support/resistance levels in the price action trading help the FX trader make a move; a few of them are Fibonacci retracement, Candle Wicks, Trend Identification, Indicators, oscillators, and other symbolic identifiers.
Range trading strategy is one of the popular trading strategies in all the trading markets, and FX traders frequently use it. The Forex traders identify the support and resistance points in range trading strategy and place the trades accordingly.
Technical analysis such as the use of Oscillators is the key to Range Trading Strategy, and this strategy works perfectly without any volatility or discernibility, which makes it one of the best FX trading practices. It can be used in conjunction with Price Action trading and gives a substantial number of trading opportunities.
Used by FX traders of all experience levels, Trend Trading Strategy works on the principle of momentum. FX traders believe the security will keep the momentum in the same direction as it is currently trending in this strategy. In other words, this strategy attempts to generate profit by utilizing the market's directional momentum.
FX traders know that such a strategy is not a fit for a short timeframe as the trend keeps fluctuating. It is a good option for a medium or longer timeframe where the trend could be analyzed in a zoomed-out frame. It involves a risk-reward ratio used for exiting, while for technical analysis, oscillators such as RSI and CCI are used.
A long-term strategy that has proven to be one of the high returns and positive risk-reward ratio is one of FX's best trading strategies. The concept involves the use of Elliot Wave Theory, and since it is a long-term strategy, smaller market fluctuations are ignored.
The position trading strategy requires a high understanding of technical and fundamental analysis on long-term and comprehensive charts.
It is also important to understand how the economic or socio-economic factors affect the trading numbers through a constant eye on the trends or changes in the environment of a particular country the trader is trading for in the short, medium, and long-term.
This is a common strategy employed not only in FX trading but other markets such as stocks. In this strategy, the decision is made by the end of the day, and the trader sells all the commodities before the market closes. Day trading is not limited to a single trade at the end of the day, and multiple trades are common in this strategy for the entire day. Besides, one can understand that it is a short-term strategy and usually ends with a 1:1 risk-reward ratio.
Technical Analysis plays an important role, without which it would be a blind trade and may incur losses.
These are the most used and good Forex trading strategies that a trader can use along with technical and fundamental analysis. When using a trading strategy, it is important to compare it with other strategies based on criteria such as time involved, frequency of trading, and typical distance to the target. Each strategy is perfect in its own way, and it may appeal to some of the traders, and some may find other best alternatives, but what is important is to use the right strategy that fits the trader's trading pattern.
Other Best Trading Strategies are - Forex Scalping, Profit Parabolic, Candlestick, swing, and carry trade strategies.
The market has several trading strategies which may appeal to some and others might not like, but our suggestion to beginners would be to try Range Trading or Trend Trading with complete analysis and use them if it fits best.
Profitable trading strategies involve high risk, and however, if one wishes to use them, a few are the Scalping strategy, Profit Parabolic strategy, and Candlestick strategy.
Position Trading (Overall Swing trading) is a well-known and successful trading strategy when it first came out.
Range Trading is one of the best short-term Forex Trading strategies. The key lies near the support and resistance period in the trading market.
Forex Trading's risk-reward ratio signifies how much the trader is ready to risk in trade to the aimed profit target.