Traders who are new to the world of forex trading have to do quite a lot of research about the market. While initially, they have to understand currency pairs and how to manage their risk, they need to choose a trading strategy if they want to move ahead with Forex trading. Having an appropriate trading strategy is one of the primary requirements of forex trading if one is serious about making profits. For beginners, we present some of the best trading strategies that they can apply while trading forex.
News trading strategy
Trading the news is one of the oldest strategies that exist in financial markets and can be applied to forex positions. Depending on the types of news events, anything can cause a currency pair’s value to hike or take a nose dive. Traders interested in this strategy must follow the calendar events related to the currency pair of their choice. Some of the most important events that affect forex prices include elections, monetary policy changes, interest rate announcements, and more.
Momentum trading focuses not on the trend itself but rather on the strength of the trend. It is based on the concept that if a trend is strong enough, it will continue in the same direction. To take advantage of this strategy, traders should open their position when the trend first gains momentum and close it when the trend slows down. They need to consider timeframes, volume, and volatility to determine momentum.
Breakout trading strategy
Breakout trading is preferred by many traders as it allows them to take a position at the start of a volatile period. Heightened volatility provides more trading opportunities. In this context, a breakout refers to the instance when a currency pair’s price suddenly moves out of a consolidated range. To take advantage of this strategy, traders must open their FX position very early when the new trend forms and place their stop-loss at the point the market broke out.
Carry trading strategy
The main aim of a carry trading strategy is to take advantage of the interest rate differential between two currencies in a forex pair. Both positive and negative carry trading strategies exist. A positive carry trading strategy involves borrowing a currency with a low-interest rate and purchasing a currency with a high-interest rate. A negative carry trade does the exact opposite. A positive carry trade results in an initial net gain with a potential net loss.
MACD trading strategy
MACD stands for moving average convergence divergence and helps traders find the end of one trend and the start of another. It is ideal for novices who have basic information about forex indicators. The MACD is made out of three components – MACD line, signal line, and histogram. The MACD line can be found by subtracting the 26-period moving average from the 12-period moving average. In case the MACD line crosses above the signal line, it’s considered a buy signal and vice versa.
Range trading strategy
The range trading strategy is one of the most popular and easy-to-use strategies that exist. A range is set to be formed when a market moves consistently between two price levels. Traders can identify certain upward or downward trends within that range.
Following a particular trading strategy helps novice traders to stay on the right path toward profitability. It also fixes a particular trading path that lets traders leave it to tried and tested trading rules rather than just going by feelings and emotions in the market.
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