Forex Trading Strategies

Various techniques can be employed by traders to help accomplish their trading objectives. Each method involves research, analysis and planning, rather than making decisions based on hunches. Below we describe some of the most popular strategies used by traders.

  • 01

    Support and resistance

    Support and resistance trading is a form of technical analysis, where traders predict future trends of a security by analyzing previous chart data.

    Traders analyze the peaks and troughs in charts, which show levels of “support” and “resistance”. Support is the level at which the price of a security has rarely fallen beneath, whereas resistance is the level at which the price of a security has not often exceeded. In most cases, a security has levels of support and resistance, and will trade in this range as it moves between these points.

    Being aware of support and resistance points can be useful in aiding investors when making decisions on when to open or close a trade. The analysis can identify potential points of support and resistance in future. For example, if a trader spots a level where a point of resistance has been hit several times, they may decide to close their trade and sell as the security moves towards this level, as they may decide that it is unlikely that it will surpass this point.

    If a stock price is moving between support and resistance levels, a commonly used strategy is to purchase stock at support and to sell at resistance.

  • 02

    Events-based trading

    Also known as fundamental analysis, events-based trading is the study of economic news to try and anticipate future market conditions. Traders follow news announcements and data releases that are typically likely to influence a particular market.

    For example, if a GDP report of a country has strong results, it is indicative of a healthy economy, suggesting that country’s currency may increase in value compared to those with weaker economies. News of this kind may instigate a trader to go long on that currency, in the hope that it will strengthen in the future.

    Employment rates also have the ability to influence the currency market. For example, if reports show that employment is in decline, the economy may weaken. This is because, as a result, less people have money available to spend on non-essential goods. On the other hand, if employment is increasing, it is likely that people will spend more, and the resulting stronger economy will often lead to a stronger currency.

  • 03

    Keeping a trading diary

    Investors often fail to learn from their previous trading mistakes, leaving them open to repeating the error. A trading journal is an effective way of evaluating what is working for you and where you keep falling short. Done consistently, it can really help to boost your trading activities.

    Make sure to note:
    - The date and time in which you took your position
    - The currency exchange rate when you took this position
    - Your reasons for holding this position
    - Your strategy
    - The date and time you exit the position
    - The currency exchange rate at which you closed the position
    - Your profit or loss on this trade
    - Why you exited

    Then ask yourself: did I follow my strategy?

    Through recognising your most successful trading patterns, you will be able to utilise and refine them when building strategies and taking future positions.

  • 04

    Don't let your emotions trade for you

    When the markets don't move in the way we expect, it's easy to let bad results affect rational thought processes. Trading when you've just suffered a significant hit can be dangerous, as you might be tempted to take much larger risks in order to try and regain lost funds.

    Sometimes the best course of action is to shut things down and take a break, allowing you to come back refreshed, revitalised and fully ready to trade.

  • 05

    Keep an eye on the big picture

    This relates to some of the other points, but is significant enough to be mentioned in its own right. Keeping track of your funds and bearing in mind how much you're looking to make can help you pace your trading and avoid making rash decisions.

    It can also help you to focus on wider market movements and general long-term market direction, rather than shorter-term fluctuation.

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