Perhaps one of the most important things to consider when trading is which strategy to implement, which can be overwhelming because of the many options.
Why choosing a strategy is crucial
It is often said that if you fail to plan, you plan to fail; the same applies to Forex trading. It matters not if you are a novice or an experienced trader, in order to improve your chances of truly capitalising on the markets, it is of utmost importance to adopt a trading strategy and be consistent. There are two overarching categories of Forex trading strategy analyses that can be implemented, namely fundamental and technical. The difference between the two is that the former is guided by macro-economic data and its impact on the currency pair of interest, while the latter looks at historical trends in order to make projections on the prospective movements of currency pairs.
Equally important is selecting a credible platform to trade on, needless to say that it should be one of the trustworthy Forex trading sites that are available to the public.
Tried and tested strategies
Although there are several Forex trading strategies to consider, which can be somewhat overwhelming, some of the tried and tested ones include Swing Trading, Day Trading, News Trading, Scalping, Trend Trading, Position Trading and Grid Trading.
Short-term strategies
Swing Trading is generally considered a short-term strategy, but can be implemented as a medium-term one, and requires a trader to keep a close eye on the markets and any movement. Such traders are focused on profiting from the peaks and dips that occur within a certain period, and are often not concerned with the long-term movement. This strategy requires both technical and fundamental analysis because of the rapid movements which can be a good or a bad thing, depending on whether or not the movement is in your favour.
As the name suggests, Day Trading is concerned with daily activity and strategizing to capitalize on the volatility thereof. However, this is a strategy that is not advisable for novice traders, as it requires a level of familiarity and great understanding of the markets because of the need to make immediate analyses and movements.
News Trading is guided by knowledge on key economic events, as it improves one’s projections of how the global markets and currencies will be affected by the major events. Traders can then make informed short-term predictions based on factors such as interest rate decisions, economic reports and consumer and business confidence surveys.
Scalping is said to be the most short-term form of trading there is, as the time period of trade is seconds to minutes. In such cases, traders only hold their positions for these small periods of time based on their knowledge and understanding of the busiest times, the tightest spreads possible, and the fast-paced environment.
Trend Trading can be implemented as either a short-term or long-term strategy, depending on the end goal. A short-term strategy, much like the abovementioned options, requires a focus on trends that materialise on the market within a matter of minutes, hours or days. Experts have described this strategy as one of the most reliable and simple strategies. In this case, a trader needs to identify their most ideal and lucrative exit point and act on it.
Long-term strategies
Position Trading requires a broader and more comprehensive understanding of the markets and the movements, particularly as it for a period of anywhere between a few weeks to years. Therefore, it is imperative to have a grasp of both micro- and macro-economics. Because both do impact one’s investments, it is crucial to consistently manage risks and be cognizant of the smaller market fluctuations, however, the cous remains on the long-term strategic positioning.
Given the nature of Grid Trading, it can ultimately become a medium to long-term strategy, unintentionally so, as the grid may expand without closing any trades with a profit. Moreover, liquidating a grid can require weeks or months. Simply put, Grid Trading is when one places buy and sell orders at set intervals, in an effort to profit from the trends in whichever direction of movement. However, experts claim that one of the biggest drawbacks of this strategy is that if careful oversight isn’t conducted, it makes on vulnerable to losses.
