2 Main Types of Forex trading methods
Experienced Forex traders use a variety of techniques and strategies according to the current situation of the market, timing, entry and exit points and currencies.
As a new trader, one might get lost trying to figure out which forex strategy to use.
There are four basic types of forex trading strategies in the forex market:
It is a short-term strategy with one day time period of trade.
In general Day traders work with the price action characteristics to buy, sell or hold trade position instead of in-depth analysis. Forex day traders focus on events and economic news releases that might cause the movement in the forex market and generate profit for a trader.
Benefits of day trading strategy:
With the experience and knowledge, this strategy can bring profit in most months
Limited risk as this short-term strategy doesn’t require to hold an open position for a period longer than a day.
When choosing this strategy trader should consider the possible loss that could be intended by a massive slippage. Also, short-term strategy means that trader should constantly be watching the markets and daily economic news.
This is the shortest form of trading, where the time traders only hold positions open for minutes or even only for seconds. The purpose of this strategy to make small profits frequently to produce a healthy bottom line. Traders using this strategy usually buy and sell securities many times in a day with the mindset of making a small percentage of consistent profits out of the market.
Benefits of this trading strategy:
Multiple trading opportunities during a short period of time
However, traders should consider the risk being slower than machines as well as the execution of a high volume of trades daily.
This strategy belongs to the medium-term timeframe, where traders can hold positions several days or weeks. This strategy is a good fit for a forex trader who might have other commitments and doesn’t want to stay Infront of the screen constantly monitoring the charts and trades throughout the day.
To use this strategy successfully, a trader needs to learn technical concepts like candlestick patterns, moving average, support and resistance etc.
Benefits of this forex strategy are:
Doesn’t involve watching charts daily
Filter erratic price movements
Level of risk is lower than in other forex trading strategies
One of the risks that Swing trader has is an overnight risk as well as not being able to ride big trends.
This long-term strategy focuses more on long-term price movement and looking for an optimal profit from the main shifts in prices. There is why this strategy may play out over weeks and even months. By choosing this strategy, forex traders base their strategies on long-term macroeconomic trends of different economies. As a result, traders are not concerned with minor price fluctuations or pullbacks and mostly keep an eye on the primary trend.
Benefits of Forex position trading strategy are:
Doesn’t include constant monitoring of market
Less stress from short-term changes
This strategy requires a deep understanding of fundamentals driving the market as well as a larger capital base because a stop loss is wide.
There is a variety of strategies that may match the trader knowledge and trading style. Some traders employ a hybrid version of strategies. There is why it is important to get with a number of strategies to build an arsenal of tools for market conditions.