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Is forex trading an art? Some believe so. Others consider it to be a science. Either way, to make a trade, forex traders employ certain techniques to determine whether to make a trade or not. Most traders’ strategies are technical in nature.
Other approaches are based on fundamental aspects like news or economic reports. A forex trader should choose a strategy that works best for them. These tactics involve risk tolerance, lifestyle or personality. Below are the most common trading strategies based on the amount of time a trader holds a trade.
1. Scalping
This approach can be equated to watching a high action thriller! It will keep you at the edge of your seat! The strategy involves targeting profits as a result of small price movements. To be a specialist in this approach, you need to spend lots of time glued to your computer.
This tactic focuses on smaller time frames like 1-5 minutes. It can last a few seconds at most! Due to its intensity and fast pace, to be a successful scalper, you need to be focused and have quick thinking. If this is for you, then focus on high volatility currency pairs and all the best to you!
2. Day Trading
This is another form of short term trading. Unlike scalping, you can take a few trades and then close by the end of the day. Day traders don’t carry trades overnight. After picking a bias before a trade, these traders, know whether they have a profit or loss by the end of the day.
This kind of strategy is most suited to traders with enough time to analyze and monitor trades. If scalping is too much, then day trading may suit you. The most common timeframe for this approach is 5-30minutes. With this approach, a trader only benefits from a currency’s intraday moves.
3. News Trading
This strategy involves trading around news or key economic events. Traders benefit from a currencies’ volatility. A trader can place a position prior to the news event taking place using stop orders. Alternatively, a trader can place a position after the news.
4. Swing Trading
This approach is suited for traders with lots of patience. A trade can last several days. If you are the person that is in a full-time job, then, this is the strategy for you. A trader only needs a couple of hours to analyze the market and determine bias. Time frames can range from 1 hour to daily chart.
Traders can identify momentum on medium trends and establish high probability trades using this strategy.
5. Trend Trading
In this approach, trades can last weeks or even months. This is a long term trading strategy. A trader establishes a long term trend on higher time frames, and looks for opportunities to “enter and ride the trend.” Easier said than done.
Common time frames for this strategy are the daily and weekly charts. On a winning trade, traders use trailing stops to protect profits. Due to holding trades overnight for weeks or months, trend traders don’t worry about swaps.
What Now!
Always go for the strategy that works best for you. If you only have a few hours to spare per day, then go for swing or trend trading. Similarly, if you are a heartthrob, exciting and have all the time, then pick scalping. The choice is yours!
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