9 Amazing Currency Trading Strategies for Every Aspiring Forex Trader: The moment you clicked on this article, we understood that there is a currency trader hidden in you, looking for opportunities. We hope you must be having some basic knowledge about currency trading since you searched for some forex or currency trading strategies. If you are not, then first get through this simple yet effective article on understanding the currency market.
Everybody these days are behind the share and equity market, but only a few people are aware of the high potential currency market. These people take the full advantage of this thing and earn profits by selling and buying currencies of different nations. These currencies frequently change their prices because of several factors. The thing which should matter to you the most is which country’s currency you would be picking up.
The basic rule is actually straightforward; buy the currency of the country, which you think is most likely to go up against your base currency. Inflation, interest rates, political scenario, economic condition, rules & regulations, etc. are some of the factors influencing the price chart of any currency. You can read about these factors in detail here.
Why do you Need Currency Trading strategies?
Have you ever wondered why some traders are so good at switching currencies and earning hefty profits! However, when you try your hand in this, you just FAIL!
You did all your homework and read about the factors too, but still, the overall gain is either too small or nothing. So, what is missing here? One thing.
And that’s what you’ll get here! Now without wasting a single minute, let us move forward to 9 forex trading strategies of which every trader must be aware.
9 Currency Trading Strategies for Every Trader
1.Price Action Strategy
We would start with the most widely used forex trading strategy, i.e. price action. This strategy doesn’t require you to know some rocket science. You just need to examine and analyze the past prices of an asset to formulate and execute some other strategy. You can call it a superset under which many different strategies come. Strategies such as scalping, range trading, day trading, swing trading, and position forex trading come under it.
The reason why people love this strategy is because it works almost anywhere, anytime, and for any duration. Be it short, medium, or long term; or be it volatile, trending, or ranging market condition. And don’t worry; there are some analyzing methods to like a candlestick, support & resistance, etc. You can choose anyone based upon your requirements.
2. Trend Following Trading Strategy
Another widely used and successful currency trading strategies is a trend following. It involves examining the current trend, i.e. identifying where the price is moving, upward or downward. There are several tools and techniques to understand and find the current trend, such as volume measurements, moving averages, stochastics, etc.
Identifying the trend is not much difficult, and that’s why we would suggest this strategy for beginner and experienced traders, both. Also, this strategy doesn’t work best in the short term intra-day trades as prices fluctuate too much that time.
Remember, trends are often sensitive to the outer environment and happenings, news and events.
3. Range Strategy
The range strategy is one of the safest currency trading strategies we have on the list. It is a plan for currencies of economies which are somehow predictable, stable and steady. As the name suggests, the trader needs to identify a range in the price level, also called support (lowest level) & resistance (highest level) points.
This strategy can work for any duration trade and the tools used to identify the entry points are same as trend following strategy. These support and resistance point levels are determined by supply and demand of the currency. Thus, a trader must not use this strategy on the economy which fluctuates easily by news, events, and surprises.
4. Position Strategy
The best long term strategy we could suggest is this one. Position trading strategy doesn’t work in a day or two. Instead, you must be very patient and have a large pool of funds to invest. Also, this strategy wouldn’t leave you with daily stress due to short term fluctuations and has proven to be very rewarding and less risky.
Talking about how it works! The trader looks at the aggregate trend chart of the currency he wants to trade, and if he speculates it to be profitable (as much as he wants as most currencies rise in the long term), then he would invest in it. Using fundamental analysis tools to determine the trend and then waiting for the favourable price is the game here!
This is a short-term strategy in which the trader makes several opening and closing positions in a single day. The profits are generally minute in this strategy, and currency trading can be done by the trader manually or using computer algorithms. The computer follows a specific guideline on when to enter and exit the market.
One should execute this strategy only if he’s serious about getting into forex trading because it demands a person to trade all day. However, the profits are quite good if you get it right.
6. Reverse Trend Trading
Reverse Trend Trading is a long and medium-term forex strategy. As the name suggests, the trader speculates when the trend will reverse its direction. Understand this with the help of an example.
Suppose, you select a currency to trade and you notice that it has been going down for quite some time and this price is at its lowest. So, you invest in that currency because it is at an extremely low level (according to you) now, and is meant to rise.
The challenge here is to predict the extremes, whether low or high. For a beginner, it could act as a motivator and demotivator both, as the correct prediction would give unexpectedly higher returns, while the wrong anticipation could discourage him too.
This is also a short-term forex trading strategy which lasts for a single day. The trader following this strategy makes the market entry and exit on the same day. It is a popular strategy among beginners as it doesn’t block their cash and has a low level of risk. It also prevents losses due to overnight market moves.
With so many options and high leverage available to the day traders in the forex market, this strategy works best as compared to any other market. And yes, you also do not need to worry about any events or news happening around the world.
8. Carry Trade Strategy
Carry Trade is a strange, forex trading strategy. It emphasizes on profiting from the difference between interest rates of different currencies. This gain cal also applied in addition to other currency trading strategies to maximize the gains. When a trader holds the currency of a country, the bank of that country pays the interest to the currency holder. Thus, in order to earn money, the forex traders sell the low-interest currencies and buy high-interest currencies.
But there are some drawbacks too. These kinds of trading opportunities are not frequent and are also not as beneficial as many other trading strategies.
Pro Tip: Combination of the carry trade and trend trading is very famous among traders.
9. Swing Trading
Our last strategy for the day- Swing Trading. It emphasizes on holding currency or asset over some weeks or months and profiting from the price fluctuations during this period. The trader analyzes and anticipates the price fluctuations and then trades accordingly.
This is a popular strategy among day traders, and they benefit by predicting tops and bottoms and then go short or long as per requirement. This strategy provides many opportunities to profit and is usually medium-term in nature. But despite being so profitable, we would not recommend this to a beginner as it is more often exposed to risks and also doesn’t give opportunities to take advantage of big fluctuations.
Don’t worry! We are not letting you leave confused just with the strategies. Below is a proper short analysis of every strategy we discussed! This analysis would help you choose wisely among all the plans as per your needs and requirements. Let’s move forward now!
While every trader has different aspirations and goals, broadly everybody could be divided into two categories, i.e. according to time and income.
Time: There are two kinds of currency traders in the market, first whose full-time job is to trade, and second ones who can only devote a limited time. However, the latter can also hire a financial adviser who can build their portfolio.
Anyways, the people who cannot devote much time, swing, range, and position currency trading strategies are for them. In contrast, full-time traders can use day-trading and scalping.
Income: This category is also sub-categorized into two sections, i.e. people who want to create their wealth with forex and others who wish to earn a steady income from them. For the income purpose, you should rely on short term strategies; while long-term strategies could help you create wealth.
The Bottom Line
The one thing which we probably tell every beginner trader is, “remember, knowing and understanding the basics and pros & cons of currency trading is easy.” However, if you want to win this game and be a successful trader, you must have a proper plan or strategy. A broker will encourage you to trade or at best would provide you with a virtual account for free, but without a proper plan in the forex market, no one has nor can succeed. Also, with a strategy we do not at all mean the above-mentioned ones, it could be from anywhere. It could also be a combination of two-three plans, but developing the strategy which works for you, is the weapon.