Basic Trading Strategies for the Forex market is an excellent option for anyone who wants to make money. read the rest of the article to learn more…
But, if you are one of those traders who looks for the ‘Holy Grail’ in the Forex market, you are not going to find it.
The Forex market doesn’t have a ‘Holy Grail,’ so if you want to earn, you must work for it.
The most common problem faced by naive traders is that they are unable to understand basic trading strategies. Hence, when trading they struggle a lot and finally, they end up losing money.
Generally, Forex trading is all about self-learning; you will not be guided by anyone.
So, you must enter the market only after accepting this factor. If you are not ready to learn the market, you will not be able to trade successfully.
However, I’ll help you understand the basic trading strategies in the Forex market.
One of the simple strategies that you must consider is the trend. If you understand the trend, you will be able to manage to trade for some time until
you master other trading strategies.
If you are through with trend trading, you don’t have to face difficulties when opening a position.
You will find long, short, and medium trends in the market. Hence, before you begin trading, decide on your strategy.
Based on the strategy, the trading chart must be selected, and remember, the trend is your friend until you treat it that way.
What if you come across a downward trend? You must remain calm until
price recovery occurs.
Support and Resistance Levels
You must understand support and resistance levels. You will not be able to understand trading unless you understand support and resistance levels.
It is recommended to purchase near support and sell near resistance levels. You will find the resistance levels near the previous high.
However, if a resistance level is broken, it turns into a support level and vice-versa.
If you want to trade Forex, you must have proper knowledge of support and resistance levels.
You have to expect breakouts when the market goes above the consolidation boundaries.
The market will reach different highs or lows.
If you are finding a new trend, it means there has been a breakout previously.
So, now, you can consider breakout as a signal to indicate a new trend occurrence.
Yet, some breakouts do not imply new trends.
However, in Forex trading, even when you are dealing with simple strategies, it is better to focus on the risk management concept.
If you are aware of risk management, you don’t have to face huge losses.
Instead, you’ll be able to manage losses.
The retracement strategy is all about the concept that prices don’t move in a straight line, instead stops and change the direction in the middle.
Usually, the ones who consider retracement strategy make sure to wait until the retracement in price occurs and then look for longer price movement.
Mostly, traders consider the Fibonacci ratio for confirmation and to find the
points to enter and exit Forex trades.
Range trading is when the trader believes that prices can be held for a specific range within a specified period.
So, range trading is possible when the economies are predictable, and the currency value will not often change due to sudden news.
When range traders trade, they sometimes trade more than one trading session.
Both trend traders and range traders use the same tools to find trade opportunities.
Momentum trading is when the trader believes that the price trend will continue in a particular direction for some time due to the substantial price movement.
On the other hand, weak price movement will lead to a lot of reversals because the trend will not have the strength to perform.
Both volume and price are considered when using the momentum strategy.
This is a different trading strategy that you must try.
The trader will gain benefits by considering the interest rates of different countries.
The difference between the interest rates will create a profit.
The interbank interest rate will be paid if the currency is held overnight.
The trader will select the currencies of a country that has a lower interest rate so that he or she can benefit when exchanging with the currencies of a country that has a higher interest rate.
You might need trend trading to identify the differences accurately.
These are some of the trading strategies, but let’s discuss more in detail.
Yet, you must never try any of the strategies without testing them on a demo account.
If you use a demo account to test your strategy, you don’t have to bear any cost. It’s free so that you can try out as many strategies you want.
Now that you’ve understood the basics let’s learn about long-term trading.
Well, you can select the trading term that you prefer, yet it is better to know both long-term and short-term trading methods.
Hence, let’s start with long-term trading.
You must understand that trading style will vary as per the level of risk a trader can take up.
A higher percentage of traders prefer short-term trading. But the worst part is when naive traders enter the market.
They are not even aware of the types of trading. But you must not belong to that category.
Instead, before entering the market, you must ensure to learn the types of trading available in the market.
Even though I don’t like to emphasize that only a fewer number of traders succeed in trading, it is the ultimate truth.
But, you must believe that you will fall into that lesser number of successful traders.
In Forex trading, the determination is important!
If you are a short-term analyst, your pip targets will be lesser, but if you are a long-term analyst, your pip targets will be higher.
However, your pip targets have a direct impact on the profit and stop-loss placements.
When you are dealing with long-term trading, the stop losses should be more comprehensive and allow price actions to do its part.
The technical analysis is related to long-term trading. But, on the other hand, long-term trading and fundamental analysis are different.
The traders who trade long-term must consider macroeconomics factors including geopolitical factors, global commodity price, and even interest rates.
Thus, you must understand that fundamental analysis used in short-term trading will not be used in long-term trading.
So, using the fundamental analysis, the long-term traders will be able to find the entry points to enter into trades.
Usually, traders assume that the costs in the Forex market are spreads. Well, if it were short-term trading, then, the assumption would have been right.
But, in long-term trading, there are many other costs than spreads.
In fact, spreads might not seem like a cost for long-term traders because it is one time cost when they enter into long-term trades.
But, there are costs like swap and rollover.
Yet, you can’t treat this like a huge cost because they are minimal.
Plus, at times, there are positive impacts of swap and rollover costs.
Whatever the trading time frame you choose, you must make sure to manage your positions once you enter into trades.
But, if you are a long-term trader, you have ample time to manage your positions. Of course, you can make adjustments even after surprise news and data releases, but you should never be neglectful when you are trading Forex.
Finally, the best thing about long-term traders is that you’ll not be as emotional as a short-term trader.
Your emotions will be less intense because you only trade a few long-term positions.
Basically, when you trade less, emotions are less.
Also, you will not be spending much time in analyzing your trades so that you are not subjected to emotional issues as much as short-term traders.
Still, there’ll be an emotional crisis, but as traders, you must practice handling your emotions successfully!
Also, deciding whether to trade long-term or short-term is in your hand, and it has a lot to do with your personality!
Short-term or Swing Trading
Short-term or swing trading is a highly preferred trading style.
The moment you enter the Forex market, you’ll be confused about what to do and how to open an account and much more.
These are the common issues faced by naive traders, but the crucial issue is related to selecting the trading strategy.
The trader will be confused about whether to select long-term or short-term trading.
The usual mistake followed by beginners is that they copy the strategies that everyone thinks successful.
Of course, you must be up-to-date with the market knowledge, but it doesn’t mean that you can copy strategies.
If you think that they will create positive results, not unless you make an effort to understand it before actually using it in trading.
Sometimes, the trading strategy that suits trader A might not suit trader B.
Hence, and you can’t assume that someone else’s strategy will work for you.
If you want to see yourself as a professional trader, in the long run, you must create the strategy that best works for you.
Most prefer using short-term trading strategies so that they can trade a lot in a short amount of time.
When you day trade you wouldn’t have to bear the swap cost. Of course, as I mentioned before, the choice is in your hand.
But it is always better to learn the concept.
Basically, short-term trading is when the trades are held open for a short time.
There are chances for a position to remain open for a few days, but usually, it will be open for one day.
However, most short-term traders believe that they don’t have to handle risks when they are trading short-term.
But, it is not true because the Forex market involves losses and risks. At a point in trading, you will face losses even if you don’t want to.
But, it doesn’t mean that you will continue to make profits. If you plan accordingly, you’ll be able to control risks.
Neither short-term nor long-term is risk-free because Forex involves risks.
But compared to long-term trading, short-term trading has fewer risks, so that makes the traders consider it.
Perhaps, beginners will not be confident in managing risks, so trading short-term is a good choice.
But remember, what comes easy will not come without its own demand. Hence, short-term trading has a lot of requirements.
You must be focused, composed, and calm when trading the Forex market using short-term strategies.
Also, fundamental and technical analysis can be used in short-term trading.
However, do you think short-term trading is successful? Well, it depends on the number of profitable trades that you trade.
When trading short-term, the speed and consistency count a lot.
Even though the market is available 24 hours, it is tough to remain consistent in trading.
The most common problem involved with Forex trading is delaying to close position even though it doesn’t work as per requirements.
But, why do traders do this? They think that the situation will improve and their expectation will come true.
If you keep expecting changes, you are going to blow your account completely.
Rather than closing positions, consider stop-loss placement so it might help to control losses while reducing risks.
The stop-loss is an excellent choice to avoid risks and handle losses. Basically, a stop loss will close the position once it reaches the exchange rate.
Some traders prefer scalping, but remember you need to provide a lot of attention when you are utilizing it.
But, just because it requires a lot of time, you shouldn’t avoid this strategy because sometimes, it might work for you.
Instead, you can try scalping on a demo account so that you will not lose money, but you can check whether it works.
Let me tell you, as a beginner, and you will benefit a lot when you utilize short-term trading.
Plus, it is an excellent way to start your journey.
You will learn a lot of things when you trade short term.
But remember, Forex trading is all about practical things.
If you are planning to trade short-term, you must ensure to test it on a demo account because it is free and everything including loss is a demo.
But the problem with the demo account is traders tend to consider the fact that it is free and trade without a limit.
They forget that the demo account is a practice.
When the traders forget that the demo account is a practice, they end up over-trading or trading without discipline.
Hence, this is something to be remembered when testing your trading strategy on a demo account.
Also, remember, if you treat demo account like a practice account you will gain a lot of benefits.
You’ll be able to clear all your doubts related to trading.
It is more like testing the water before swimming.