Trading Forex without a strategy is a recipe for disaster. It is like starting out on a trip across uncharted territory. Proven methods take some guesswork out of the market frenzy. Discover some of the most popular strategies this year.
1. Swing/Momentum Trading
This strategy focuses on medium-term changes, and it involves capturing larger market moves. You can trade with major trends and against them during the correction periods. The method also involves overnight positions — check the Trade in Forex guide for more details.
Traders enter and exit the market based on the buy and sell signals from momentum indicators, such as the Moving Average Convergence Divergence (MACD) and the Relative Strength Index (RSI). They focus on overbought or oversold stages and tend to buy ahead of support and sell ahead of resistance.
2. Scalping
This approach is not for the faint-hearted, as it requires quick reaction and attention to the smallest changes. Scalping has the fastest pace, and it is also rather stressful for beginners. The method is based on short-term tick charts. It is preferable for traders whose brokers offer tight spreads with minimal or zero slippage.
3. Day Trading
As the term suggests, this method requires opening and closing all positions within the same trading day. As no trades remain open after the market closes, you do not have to pay overnight fees. This style is usually combined with technical analysis and charts with intraday price action.
One of the most popular techniques is breakout rating. You wait until the exchange rate moves out of its range, and an increase in volume confirms the new direction. Traders must always look for confirmation before making a move.
4. News Trading
The fundamental approach is hardly ideal for Forex newbies, but it is popular among traders with deep pockets and higher risk tolerance. They monitor the financial news and economic calendars for important data releases and then watch the market closely to spot support and resistance. The US unemployment claims for 2020 contained dismal numbers and put pressure on the US dollar.
5. Trend Trading
This method involves following the dominating trend or direction for the chosen asset. Traders often buy on pullbacks in bullish markets and sell on rallies in bearish markets. They take positions in the direction of the trend and hold on to them until they reach their objectives or the trend starts reversing. Trend trading requires the use of trailing stop loss orders, which protect against dramatic turnarounds.
The Bottom Line
These are some of the most prominent Forex strategies this year. Any of them can work for you. Try them in the demo mode before putting any real capital at stake.
