The 5 Best Forex Trading Strategies
Buying and selling currencies has never been easier, as you can create an account on a reputable online platform within minutes.
All you must do is add money to your account, learn about how the platform works, and you can begin to Trade forex to your heart’s content. Most places where you can buy and sell on the forex market allow you to use margin, which is extremely helpful in making big trades.
Before you go all out with your forex trading, you should think about what strategies you will employ. Having a solid understanding of the market, along with the world’s economic situation, is helpful. Even with knowledge, you need a plan to achieve your desired outcome.
Below are the five best forex trading strategies that you should consider using in 2022.
If you are interested in using a short-term strategy to make some money on the forex market, then you may want to learn more about scalping. The concept behind this strategy is to use your reaction time to enter and exit trades within a few minutes.
The idea is to monitor price charts to see if there are any patterns emerging. For instance, you may notice the USD/EUR pair is going up by a specific amount every few hours or coming down in price at a precise moment during each day.
A good aspect of scalping is that you do not have to put in significant trades in terms of value, but you can still make a decent profit.
2. Day Trading
Another short-term strategy that beginners find appealing is day trading. With such a strategy, you enter and exit a trade within the same day. You do not want your positions to remain open beyond the close of trading.
Day traders use technical analysis that helps them understand any short-term patterns that may be emerging within specific currency pairs. Knowing about the economic situation in specific countries is also helpful for day trading, as breaking news on the economic or political side may result in predictable shifts in currency pair values. One of the best ways to compare prices of currency pairs is to look for patterns using candlestick charts. These charts are extremely helpful in allowing you to understand price fluctuations over a given hour or day.
3. News Trading
We already spoke about keeping an eye out for economic and political events with respect to day trading. There is also the option, however, of basing your entire forex strategy solely on news stories.
If you are someone who enjoys keeping up with breaking news on television or using social media, you may want to add forex trading into the mix. Each time there is a story about a country’s economy, you can predict how the price of their currency may fluctuate in the coming hours.
Many major events, especially on the economic side, happen on specific days. For instance, the United States government will announce several days in advance that a jobs report is coming out on a given Friday.
4. Trend Trading
A very popular strategy for trading forex in the medium term is trend trading. Even if you are not too familiar with political or economic stories from around the world, you can use charts to understand specific trends that emerge each year involving currency pairs.
There is a historical analysis of nearly every major currency pair available online. You can use these databases to assess how one currency performs against another at a given time of the year. For instance, does the US Dollar always lose some value to the Euro in August or September?
When you find out more information about such trends, you are in a position to enter and exit trades at the ideal moment. The only issue with using the trend trading strategy is that no trend is absolute, which means you will not always make a profit on your trades.
5. Momentum Trading
Another medium-term strategy that you may find appealing is to engage in momentum trading. The idea is to see how a currency pair is being analyzed by various momentum indicators and then buying or selling accordingly.
Popular indicators to use are the Moving Average Convergence Divergence, or MACD, and the Relative Strength Index, or RSI. You can assess daily candlestick charts that include these indicators, allowing you to assess the momentum direction of a particular currency pair.