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Top 8 Forex Trading Strategies And Their Pros And Cons

Main talking points:What is a Forex Trading Strategy?Forex Strategies: A Top-level OverviewPrice Action TradingRange Trading StrategyTrend Trading StrategyPosition TradingDay Trading StrategyForex Scalping StrategySwing TradingCarry Trade Strategy

Discover what type of forex trader is buried within your DNA with our interactiveDNA FX QuizWhat 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 includingtechnical 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. Forex Strategies: A Top-level Overview

Forex strategies can be divided into a distinct organisational structure which can assist traders in locating the most applicable strategy. The diagram below illustrates how each strategy falls into the overall structure and the relationship between the forex strategies. Forex Trading Strategies That Work

Forex trading requires putting together multiple factors to formulate a trading strategy that works for you. There are countless strategies that can be followed, however, understanding and being comfortable with the strategy is essential. Every trader has unique goals and resources, which must be taken into consideration when selecting the suitable strategy.

There are three criteria traders can use to compare different strategies on their suitability: Time resource requiredFrequency of trading opportunitiesTypical distance to sasaran

To easily compare the forex strategies on the three criteria, we've laid them out in a bubble chart. On the vertical axis is ‘Risk-Reward Ratio’ with strategies at the top of the graph having higher reward for the risk taken on each trade. Position trading typically is the strategy with the highest risk reward ratio. On the horizontal axis is time investment that represents how much time is required to actively monitor the trades. The strategy that demands the most in terms of your time resource is scalp trading due to the high frequency of trades being placed on a regular basis.1. Price Action Trading

Price action tradinginvolves 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.

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.

There are many methods to determine support/resistance levels which are generally used as entry/exit points:Fibonacci retracementUsing candle wicksTrend identificationIndicatorsOscillators

Within price action, there is range, trend, day, scalping, swing and position trading. These strategies adhere to different forms of trading requirements which will be outlined in lebih jelasnya below. The examples show varying techniques to trade these strategies to show just how diverse trading can be, along with a variety of bespoke options for traders to choose from.2. Range Trading Strategy

Range tradingincludes 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 animo. Technical analysis is the primary tool used with this strategy.

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

Oscillators are most commonly used as timing tools.Relative Strength Index (RSI),Commodity Channel Index (CCI)andstochasticsare a few of the more popular oscillators. Price action is sometimes used in conjunction with oscillators to further validate range bound signals or breakouts.

Example 1: USD/JPY Range Trading

USD/JPYhas been exhibiting a prolonged range bound price level over the past few years. The chart above illustrates a clearsupport and resistanceband which traders use as entry/exit points. The RSI oscillator demonstrates timing of entry/exit points as highlighted by the shaded blue and red boxes – blue: overbought and red: oversold.

Range trading can result in fruitful risk-reward ratios however, this comes along with lengthy time investment per trade. Use the pros and cons below to align your goals as a trader and how much resources you have.

Pros:Substantial number of trading opportunitiesFavourable risk-to reward ratio

Cons:Requires lengthy periods of time investmentEntails strong appreciation of technical analysis3. Trend Trading Strategy

Trend tradingis 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.

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 ekspresi dominan trading.

Entry points are usually designated by an oscillator (RSI, CCI etc) and exit points are calculated based on a positive risk-reward ratio. Using stop level distances, traders can either equal that distance or exceed it to maintain a positive risk-reward ratio e.g. If the stop level was placed 50 pips away, the take profit level wold be set at 50 pips or more away from the entry point.

Example dua: Identifying the Trend

In the simple example above,EUR/USDexhibits an upward demam isu validated by higher highs and higher lows. The opposite would be true for a downward musim.

EUR/USD Trading the Trend

When you see a strong isu terkini in the market, trade it in the direction of the musim. For example, the strong uptrend in EUR/USD above.

Using the(CCI)as a tool to time entries, notice how each time CCI dipped below -100 (highlighted in blue), prices responded with a rally. Not all trades will work out this way, but because the isu terkini is being followed, each dip caused more buyers to come into the market and push prices higher. In conclusion, identifying a strong ekspresi dominan is important for a fruitful isu terkini trading strategy.

Trend trading can be reasonably labour intensive with many variables to consider. The list of pros and cons may assist you in identifying if musim trading is for you.

Pros:Substantial number of trading opportunitiesFavourable risk-to reward ratio

Cons:Requires lengthy periods of time investmentEntails strong appreciation of technical analysis4. Position Trading

Position tradingis a long-term strategy primarily focused on mendasar 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.

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.

Key levels on longer time frame charts (weekly/monthly) hold valuable information for position traders due to the comprehensive view of the market. Entry and exit points can be judged using technical analysis as per the other strategies.

Example tiga: Germany 30 (DAX) Position Trading

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