Have you ever heard of Forex Trading? Forex trading is basically how individuals, banks, and businesses exchange one currency into another. Sounds more familiar, right? Trillions of dollars worth of forex transactions take place every day, making it the largest financial market in the world.
In opposite to stocks or commodities, there’s no central exchange for trading forex. Currencies are traded via a global network of banks, dealers, and brokers, about which information you can easily find on the internet, for example, on Engineforex. It also means that you can trade forex no matter the hour, Monday to Friday.
How does it work? Well, for starters, you always get the prices in pairs (GBP / USD, EUR / USD, etc.). The reason for that is that you are buying one currency, at the same time selling another. For example, if the price of euro-dollar is 1.36, it means that 1 euro is worth 1 dollar thirty-six cents.
Forex prices can be influenced by several factors, such as inflation, interest rates, employment figures, government policy, and demand for imports and exports. Because the number of traders (which is already high) is continuously increasing, prices can change very quickly, which makes foreign exchange not only the largest market in the world but also the most volatile.
Getting into forex is not that difficult, but you need to know how to exchange and not lose. So which are the best forex trading strategies? Keep reading to find out.
Support and Resistance Trading Strategy
No matter what you are trading, it’s essential to know how to spot support and resistance levels on the charts. What are those? Well, they act as barriers, so that the price has greater difficulty in moving higher or lower – they can be seen on almost every Forex chart and are a very good way to predict the future price movements.
They create something similar to a map on the price chart, that shows in which places the places had a drop or arise. If you want to master this strategy, just use any Forex chart – having the ability to predict the movement of the prices in the future is a very useful skill.
Trend Trading Strategy
Learning this strategy is essential for every trader as it is one of the most financially beneficial of all strategies. The basis of this strategy is that prices are predictable, which means that by analyzing the history of price movements, the trader can forecast the future situation.
This strategy is considered as a mid to long-term; however, technically, it can cover any period of time, everything depends on how long the trend lasts.
Fibonacci Trading Strategy
This strategy is named after one of the most famous Italian mathematicians – Leonardo Pisano, better known as Fibonacci. Just as the trend trading strategy, this one is also considered to be mid to long-term. In this case, the traders observe the retracement that is taking place with a trend, trying to make low-risk entries towards the initial trend using Fibonacci levels.
Many traders use this strategy, however, keep in mind that mastering it can take a lot of practice.
Scalping Trading Strategy
This is the best strategy for beginners, but many experienced traders also use it – mainly because it’s a low-risk technique. How does it work? Well, the idea behind it is that you take profits on small price changes soon after you enter the trade and it becomes profitable. It increases the number of winning trades by sacrificing the size of the wins.
It’s not uncommon to achieve positive results, even if you win only half or less of your trades – your wins are still bigger than losses. Successful scalpers need to have patience and awareness. They also need to have a strict exit strategy as one significant loss can eliminate the small gains they have achieved.
Candlestick Trading Strategy
Candlestick charts are probably the most used ones in trading – that’s because the other charts don’t offer as much information as the candlestick charts do, especially about the price movements from the past. They are excellent indicators of possible entries and exits, and they work effectively both in volatile times and less volatile times if used with one or more indicators.
‘One man’s meat is another man’s poison’ – that’s an accurate summary of choosing the best Forex strategy. Remember that what works for one trader might not work for another. Choosing the best one for you will require making mistakes. You might have to test every possible strategy before you find one that works for you. And it’s fine.
But remember that just knowing the theory of various strategies is not enough. Especially if you are planning on using more than only one – you need to know when to use them, or when the best strategy is not to trade at all.