If you want to start trading in the big Forex market without any strategies, it’s like going on a trip without a map and knowing the destination. In the Forex market, not having a strategy will also mislead you; You may make a lot of money or you may lose a lot of money but you don’t know which one is more likely. In this article, we intend to talk about the trading strategy and its different types to draw a clear road map for anyone who wants to walk on this path.
Why do we need a strategy in Forex trading?
One of the most important advantages of having a Forex trading strategy is that you can use it to take some of the guesswork out of Forex trading. It is possible that when you are trading, different emotions such as fear and greed may interfere with your trading decisions, or many times when traders profit in trading, they lock in their profits because of the fear that the market may reverse.
Having a certain strategy comes to the aid of the traders precisely in such situations. Following the rules of a trading strategy removes these destructive emotions from your trading.
Different trading strategies in Forex
To be sure of your profitability as a trader, the first thing you need to do is to choose one of the Forex trading strategies. After getting to know the types of strategies, you can choose the one that is the most compatible with your lifestyle and personality type. In the following, we will further introduce these strategies.
Price action strategy
Price action trading strategy is one of the most common methods in today’s financial markets.
It doesn’t matter whether you are a short-term or long-term trader; In any case, the analysis of transaction prices is one of the simplest yet most powerful methods to excel in the market. Traders can use price action both alone or as an indicator.
As we said, the price action strategy can work in both short-term and long-term transactions. For this reason, many traders are interested in using this method. Price patterns in price action strategy follow two concepts support and resistance.
Support: If a factor in the price chart prevents the price from falling, it is called a support. A support level is the point where the maximum demand has entered the market.
Resistance: Unlike support, resistance prevents the price from rising and when on the price chart the traders expect the maximum asset supply, the resistance level has occurred.
It should be noted that the support level and the resistance level are higher than the current market price. The level of support and resistance is a natural event caused by traders’ behavior.
Trading in range areas strategy
Traders who use range trading strategies, look for trading tools that are fixed in a certain range. Depending on the time frame you are trading, this range can be between 20 pips to a few hundred pips. In this method, the trader is looking for steady support and resistance ranges that are kept in the same state; Meaning that the price rises in the support area and is rejected in the resistance area.
Traders who use the strategy of trading in range zones should work with trading tools that are not trends; To do this, you can just look at the price performance of that tool or use indicators such as moving averages and the Average Directional Index (ADX). The lower the ADX value, the weaker the trend. The advantage of using this strategy is that there are many opportunities to trade and the amount of risk and reward is favorable. But to invest with this method, you need a long time and you must have high skills in technical analysis.
Trend-oriented Trading Strategy
A trend trading strategy is a long-term Forex strategy that follows a common and directional movement or trend in the market for a particular currency pair. Trend-based strategy has a lot of popularity; Because it can help the trader use it to identify the momentum of the market and get profit from it. This process involves the use of technical indicators to identify market movements; Because the elements in the market are predictable and it is possible to predict the future movement by analyzing historical trends and price movements.
A trend-based strategy is usually considered a medium to long-term trading strategy, but in theory, depending on how long the trend would last, it can cover any time frame. The risk-to-reward ratio in this type of strategy is high and creates many trading opportunities for traders. But on the other hand, you should make your investments on a long-term basis and master technical analysis.
Position trading strategy or position trading
The purpose of the position trading strategy is to profit from long-term trend movements. Traders who use this type of trading strategy may keep their positions open for weeks, months, and in rare cases even years. The key to this strategy is to take the position in a currency pair, index, or commodity that is expected to be in the main trend. Traders who use this method don’t pay attention to minor things like pullbacks or price fluctuations and aim to make profits over a long period.
Unlike the previous two strategies which require more technical analysis, this strategy requires mastery of fundamental analysis. However, technical methods can also be used to check this method. Position trading is different from day trading and traders do not need to spend a lot of time watching the market.
Daily trading strategy
Some professional traders believe that daily charts are more profitable than short-term charts. Because daily strategy signals have more potential for profit and are more reliable than short-term ones. This strategy can be used in any market, but it is mostly used in Forex, stock, and index markets.
A Forex day trader takes advantage of small price changes during the day. There is no certain formula for success as a Forex trader in this strategy. Having the required knowledge of the market and having a trading plan are both essential, But they do not guarantee success.
Scalp strategy (short-term swing)
In the scalping strategy, traders use small price movements during the day, and some of them target only 5 pips per trade. The duration of these transactions can vary from a few seconds to a few minutes. Scalpers must be good with numbers and be able to make quick decisions even under pressure. These people usually spend more time watching the market and prefer to focus on one or a few specific markets.
Swing trading strategy
A swing trading strategy is used by traders who tend to keep their positions open for several days. Patience and discipline are the main characteristics of traders who prefer this style of trading; Because it might take days for a suitable opportunity to show up. Some traders don’t have the patience to wait and close their trades very quickly.
You might think that swing strategy is similar to day trading strategy, but there are significant differences between the two. For example, these two methods are different in terms of periods. Traders who use the day method are in and out of the market within minutes or hours but swing trades may take days or weeks to be done.
Transition trading strategy
A trader who uses a transition trading strategy tries to profit from the difference in interest between two different currencies that make up a currency pair. For example, a trader uses this strategy to buy a currency pair at a low price and invests in it and when that currency reaches a higher price, the trader can profit on the purchased price of that currency. By doing this, the trader will receive an interest rate based on the size of his position.
The advantage of using this strategy is that you can make a very high profit by having only one position. Of course, you should also keep in mind that you need a suitable space in the market to do such a transaction, and maybe not every condition is suitable for doing this type of transaction. Most traders use this strategy to invest in currencies that always have a good upward trend and are less risky.
Final word
In this article, we discussed different common types of trading strategies in Forex how to use them, and the benefits of each one. As we said before, there are many strategies to operate in this big financial market, but each of them requires certain characteristics and skills. The best strategy for you is the one that matches your personality type and behavioral characteristics the most.