Top Forex Strategies requires different skills, ranging from analytical to soft skills. As a forex trader, you’re likely to spend most of your time analyzing charts on TradingView or other platforms and finding good entries. But one other crucial thing you need is a working strategy adapted to your trading style.
A wide range of forex strategies, though similar, often have different approaches based on the uniqueness of traders. Some strategies work better in certain conditions but may not suit other conditions. All traders also have their preferences when choosing strategies. In this article, you’ll learn the top strategies for trading forex in 2022/2023.
Swing trading is a strategy traders consider a patience-testing method in FX. It lies between day trading and position trading and typically lasts for days. Swing trading involves entering prices at ‘swings’ – regions where price undergoes a reversal. Swing traders take advantage of price reversals, retracements, and breakouts and hold trades for a minimum of one or two days and a maximum of many weeks (possibly a month or more). The target price is farther from the entry and is calculated to give maximum returns. Swing trading is excellent for patient traders who don’t have enough time to monitor charts regularly and those who want the perfect trading setup for long trades. Swing trading may not suit traders that love quick but small profits.
In range trading, traders enter and exit trades between two defined prices; a high and a low price. A range price is a difference between high and low prices. The key is to trade within a range, never moving out of the low or high price. To do this, traders usually draw a flat line over the highest and lowest prices to get the range. A ranging market has no clear direction but instead moves within the range. Traders also use the range of an asset to determine the volatility; a higher range indicates increased volatility, while a lower range indicates otherwise. Sometimes, the range stays constant within a price range, but sometimes, the price maintains the same range over different price ranges. Range traders use technical indicators to confirm positions before they enter trades.
For traders who prefer small but constant profits, scalp trading offers the best way to explore forex trading. The idea is simple: either go long or short and close the trade after a few pips in profit. Although scalping involves quick trading, trades sometimes hold trades for a few hours within a day. Scalping is best for ranging markets with no clear direction and is sometimes called short-range trading. Scalp traders also use indicators such as the exponential moving average (EMA) that react faster to recent price changes than other indicators. Scalping requires speed, attention, and low greed. Although volatility is generally good for making profits, scalpers prefer low and stable volatility as it helps money management while trading.
Price Action Trading
Price action studies the history of price movement to predict future prices. The strategy is based on the concept that all prices move in cycles; future prices repeat previous prices. Price action uses various tools to analyze previous prices, finding similar zones and levels to map out price movement. Price action traders ignore fundamental data, believing that the price of an asset is the only thing that matters and that price reflects all fundamental data and variables. In price action, traders typically use the so-called naked chart, which means charts without indicators. The key is to watch out for repeating price patterns and enter trades. For confirmation, price action traders use trend and support, and resistance lines to determine the best price level to enter and exit.
In a two-way strategy, traders buy and sell two currency pairs that correlate in price. Currency correlation describes how two currencies relate in value and move in the same price direction. If two currencies move in the same direction, upward or downward, they have a positive correlation. But if either currency moves in a different direction, they have a negative correlation. The key is to buy and sell to correlate currency pairs that move upward and downward, respectively, taking profits just before they reach a zero correlation. Although two-way trading is quite profitable, special care is needed to avoid having a drawdown. The strategy uses indicators such as the EMA and Bollinger bands. The top correlating currency pairs are AUD/USD and NZD/USD, EUR/USD and GBP/USD, EUR/USD and USD/CHF, GBP/USD and USD/CAD, and GBP/USD and USD/CHF.
It is easier to trade the forex market when there is a clear trend. In trend trading, traders go long or short just before a trend begins, positioning for profits. The idea is to get on a trend just before it starts and close the trade in profits before the trend reverses or weakens. Trend traders sometimes wait for retracements to confirm the strength of a movement and use indicators that show trading volume and intensity to determine the strength of a trend.
Fundamental News Trading
Trading fundamental news is not exclusive to fundamental traders. Some price action traders also incorporate fundamental data into their analysis. The major advantage of fundamental news is the short-term volatility that the market experiences when the news breaks. For example, an increase in the US lending rates could increase the demand for the USD, causing fundamental traders to go long on the USD for a short period. Negative news may have the opposite effect, causing traders to go short on the asset.
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