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With its plentiful opportunities, the forex market attracts a lot of beginners and experts as well. To thrive in this arena, traders must have effective strategies to trade. How do I choose it? And which one will fit me most? To find the answers you should get acquainted with some trading strategies first.
In this article, we will delve into 6 proven forex trading strategies that enhance your chances of success. So let’s begin with the list now.
One of the most popular strategies in forex is trend trading. This method relies on technical indicators to sport market momentum and make buy or sell decisions. The main goal behind it is that historical trends can give insights into future market movements. It is important to use a risk management plan because past currency pair performance doesn’t guarantee future price changes. Some of the most widely used indicators to identify trends in forex trading are the Moving Averages (MAs) and Strength Index (RSI).
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2. Breakout trading strategy
A breakout strategy is a preferred one among many traders due to its ability to capitalize on the beginning of a volatile market phase. Very often traders appreciate high volatility as it presents more trading chances. A ‘’breakout’’ occurs when a currency pair’s price escapes from a previously tight trading range and crosses support and resistance levels. This trading strategy involves initiating your forex position early in the emerging trend and setting a stop-loss order at the breakout point.
3. Range trading strategy
One more popular option is range trading. This is effective especially for beginners as it’s straightforward to grasp. When a market bounces between 2 price levels, this is what we call a ‘’range’’. Inside this ‘’range’’, you can spot upward or downward trends. With this strategy, you’ll make long trades when prices are rising and short ones when they are falling. You can manually enter trades within the range or set stop-loss and limit orders.
4. Carry trade strategy
The main goal of this strategy is to capitalize on the interest rate difference between 2 currencies. There are 2 types of currency carry trading strategies: positive and negative. The first one involves borrowing a currency with a low interest rate and purchasing a currency with a high-interest rate. Conversely, the negative one operates the opposite way.
In a negative carry trade, you'll pay interest until the base currency's rate exceeds the quote currency's rate. Positive carry trades start with profits but may end with losses, while negative carry trades begin with losses but can eventually turn profitable if the base currency's rate surpasses the quoted currency's rate.
5. Momentum trading strategy
Momentum trading assesses a trend's strength, not just its existence. The strategy relies on strong trends continuing in their current direction, be it up or down. To use this approach, you should enter a trade as the trend gains momentum and exit when it slows down. Also, this strategy is gauged by factors like volume, volatility, and timeframes.
6. News trading strategy
The last one on our list is the news trading strategy. In this method, traders make predictions about market movements after news is released. It demands high awareness, with traders promptly evaluating the accuracy of newly released information and making fast decisions, often through digital media platforms.
Starting in forex trading can seem complicated sometimes, but with the right trading strategy, you can achieve success faster. Prioritize caution by employing stop-losses and refraining from trading more than you can lose. And don’t forget about a reputable broker that can provide an effective strategy. Check the comparison XM vs Pepperstone to have a clear idea of how to choose the one that fits you most.