5 Popular Forex Strategies To Help You Get Started

The foreign exchange (Forex) market is one of the world’s largest and most liquid markets. Forex trading, put simply, is the exchange of one national currency against another, with the intent to make a profit on the rate on which you exchange. This comparison of one currency against another is referred to as a currency pairing. If you are looking to become an international business investor, it is fundamental to learn about the latest trading approaches.

Though the market is highly popular, trading on the Forex market comes with considerable risk. It is directly influenced by political and macroeconomic events, as well as various other factors, making it highly volatile. Because of this, successful trading of Forex requires extensive research, detailed planning and most importantly, a strategy. Once you have employed a strategy, you can trade Forex and various other commodities on a forex trading platform like plus500.co.uk for example.

This article will help you to learn more about Forex trading and how to make smarter decisions on the Forex market by employing a developed strategy. There is no ‘one size fits all’ strategy as success is completely dependent on its suitability to the individual. If you need help deciding which strategy is best suited to you and your trading style, then keep reading.

Day Trading

Trading currencies in one trading day is known as day trading. This strategy requires you to open and close your trades all within one day. This means a trader must monitor trading activity over the course of a day, managing their open trades within that timeframe. Day traders will often base their decision making on scheduled events within the economic calendar, such as political elections and the meetings of global Central Banks, which could alter interest rates and have a significant impact upon the market.

Day traders will set a limit on each position that they hold and often set a daily risk limit in addition to this. The majority of traders who do this will set a risk limit of 3%, to safeguard their capital. Indeed, the day trading strategy is a great way to exchange Forex.

Swing Trading

This strategy offers the trader a medium-term trading style, whereby they will try to manipulate price swings in the market to profit from them. This style of trading involves holding a position for a minimum of two days, but can extend to several weeks, meaning that it requires a lot of patience.

The swing trading strategy would benefit those who don’t have time to analyse the market throughout the day, as it means that you could spend just a few hours each night monitoring charts. However, swing trading can put the trader at risk of gapping and the effects of a change in the market overnight.

Position Trading

Those who have a particularly patient disposition may want to apply position trading to the Forex market. In fact, some investors even use this approach for investing in penny stocks. This style is concerned with the long-term changes in the market, meaning that traders will maintain their position in the market for weeks, months or even years. Those who adopt position trading intend to wait for the currency pair’s value to increase over an extended period, in order to profit.

This strategy suits individuals who have an astute awareness of the market and don’t have time to spend hours analysing charts each day.

Scalping Strategy

Scalping in the Forex market is the process of opening a large number of trades within a short period of time, in the hope to gain small profits from each. This strategy is a balancing act of making small, frequent profits whilst trying to limit any losses by entering and exiting trades quickly. Alternative strategies would usually consist of holding a position for hours, days, or even weeks. In contrast, the trader implementing a scalping strategy, will hold their position for a matter of minutes.

This tactic can result in large gains being made by accumulating smaller profits over a prolonged period. This approach can prove effective in the Forex market and is popular because it suits the liquidity and volatility of the market, allowing traders to take advantage of price movements by acting swiftly.

However, some aspects of the scalping strategy are not quite so attractive. Because of the nature of the strategy, it requires constant analysis of data and charts to take full advantage of short-term fluctuations. This makes it a time-consuming strategy and, combined with high leverage, can still pose the risk of significant losses.

Price Action Trading

Of course, price action trading is another popular Forex trading strategy to adopt in 2021. Principally, price action trading involves studying historical prices of popular Forex instruments. Utilizing this information, investors can formulate technical investing strategies and trading actions. By leveraging real-world economic factors, this approach is known to be more sustainable and low risk. Following this method, you can focus on all market variables, clearly define entries, and profitably use time frames. Certainly, price action trading is a perfect strategy to adopt for Forex trading.

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