Types of Trading Strategies
To excel in the Forex market, the traders need to have a solid trading strategy, otherwise it will become difficult for the traders to have an edge. Forex traders use a wide variety of trading strategies to determine the timing to buy and sell currencies. Traders are constantly innovating and improving upon strategies to devise new strategy to try interpreting market movements. In this article, you can find several types of trading strategies.
1. NEWS TRADING
Trading on the news. Traders make profits by anticipating or trade in accordance to the occurrence of economic events.
2. MACRO TRADING
This type of trading relies heavily on Fundamental Analysis. Traders will look at the fundamental indicators of an economy (macroeconomic data) to try to understand the strength of a currency relative to another currency.
3. CARRY TRADE
Carry trade seeks to make gains by taking advantage of interest rate differentials between the countries. Typically, currencies bought and held overnight will pay the trader the interbank interest rate of the country of which the currency was purchased. Carry traders may seek out a currency of a country with a low interest rate in order to buy a currency of a country paying a high interest rate, thus profiting from the difference.
In this trading strategy, trader open a lot of trading positions and try get a small profit from each trade. Scalping is one of the quickest trading strategies. Scalpers attempt to hold their positions for a short period, thus decreasing the risk associated with the strategy.
5. DAY TRADING
Day trading is perhaps the most well-known trading strategy. Day trading, as its name implies, is the method of buying and selling within the same day. Positions are closed out within the same day they are taken, and no position is held overnight.
6. SWING TRADING
Swing trading is a medium-term trading strategy. Trading position often held over a period from one day to a week. Traders will look to set up trades on “swing high” or "swing low" over a period of time. This strategy is able to filter out some of the “noise on price movements, seen in day trading. This makes swing trading strategies an excellent option for the new traders who have just started trading
7. POSITION TRADING
Position trading is a long term strategy. This type of trade may last for several days to several weeks and sometimes longer, months or even years. Traders using this strategy usually rely on Fundamental Analysis together with Technical Analysis. This type of trading may require greater levels of patience.
8. TREND TRADING or TREND FOLLOWING
Trend trading is one of the most popular and common forex trading strategies. This strategy tries to identify an upward or downward trend and choosing trade entry and exit points based on that trend. In Trend Following, traders will hold their trading positions until the trend ends.
9. RANGE TRADING
Range trading is a popular trading strategy based on the idea that prices can often hold within a predictable range for a given period of time. This strategy works well in sideways market. Range traders rely on being able to frequently buy and sell at predictable highs and lows of resistance and support, sometimes repeatedly over one or more trading sessions.
10. MOMENTUM TRADING
Momentum trading is a strategy to catch a strong price burst movements in a particular direction, which is a likely indication that a price will continue in that direction.
11. BREAKOUT / BREAKDOWN TRADING
A Breakout / Breakdown strategy is a method where traders will try to identify an entry point at a break from a certain price level. If the price breaks higher from a previously defined level of resistance, the trader may buy with the expectation that the currency will continue to move higher. Similarly, if the price breaks down a level of support, the trader may sell with an aim to close the currency at a more lower price.
12. PULLBACK / RETRACEMENT TRADING
Pullback / Retracement trading is based on the idea that prices never move in perfectly straight lines. Usually price make some sort of a pause and change of their direction in the middle of their larger trend. Traders will wait for a price to pull back, or “retrace,” before continuing its previous trend.
13. REVERSAL TRADING
In Reversal Trading, traders seek to anticipate a reversal in a price trend. This strategy is considered more difficult and risky. True reversals can be difficult to spot, but traders will get huge profit is they can correctly predict reversal.
14. CONTRARIAN TRADING
As the name suggests, Contrarian Trading tend to go against prevailing market trends. A contrarian trader is doing the opposite from most other traders and is, in fact, betting against the herd in order to profit from it. They buy when the prices are performing poorly, then wait until their performance improves. Or selling when the prices are goes way too high and reaps profits when there is a correction. Contrarian trading is considered a very high risk trading strategy.
15. PRICE ACTION
Price Action strategy relies heavily on reading the price data chart, without using any Technical Analysis indicator. Sometimes this strategy is called Naked Trading. Users of Price Action believe that the price is considered as the leading indicators of the activity in the market. Usually traders use Candlestick pattern or price pattern to determine when to enter or exit the market.
The Bottom Line
While none is guaranteed to work all of the time, traders may find it useful to choose one trading strategy that suits your needs and personality. You can also combine or use variant or hybrid versions of the strategies described above. Use your chosen trading strategy to create your own complete Trading System.
Hope this article inspires