The currency markets continue to witness new trading strategies, most of these strategies depend on the use of numbers, charts and fundamental market knowledge with close reference to recent and upcoming events.
Currency trading strategies have different levels of complexity, however, the most successful forex strategies often take into account aspects such as trading objective, time of trading, funds management and logic of trading. The other important factors are learning from past mistakes and documenting and analyzing results to get a better market grasp and judgment. One common currency trading strategy is knowing when major currency markets open for business and picking the most active currency counters to trade at a given block of time. Below is a list of important forex trading strategies that will help you stay on the winning side:
1. Arbitrage
Arbitrage is an old speculative trading strategy where a trader profits from market inefficiencies and takes advantage of price variations on the same or different markets. The challenge of using this strategy is finding the right conditions to use it effectively because every other trader is also looking for loopholes to profit from market inefficiencies.
2. Trading on the Market Sentiments
Learning how to read the market sentiments is a crucial forex trading strategy because sentiments can easily provide the much needed market momentum. Market sentiments can be read through market trends and price action. Bullish and bearish sentiments come from all sorts of direction, including governments, corporations, traders and fundamental economic outlook of the nation.
3. Carry Trade
This a forex trading strategy that is totally different from other forex trading strategies, which mostly use the concept of buy low and sell high. The downside of these strategies is their limited application in stable markets that do not follow any specific market trends. Carry trade on its part, makes it easy for traders to profit, even when the market is stable because the strategy does not rely on price movement between paired currencies. The decisions are instead made based on the differences in the interest rates of two traded currencies.
4. Divergence Trading
Under the divergence trading strategy, the movement of oscillating indicators is not tied to the real price movement as it normally happens. This means indicators can make lower peaks, while prices make higher peaks. This differential is what signals a sound trading strategy. Traders who prefer this trading strategy often use multiple oscillating indicators to make entry and exit decisions.
5. Basket Trading
The basis of basket trading strategy follows the conviction that a strong trade-able correlation between currency pairs exists. Basket traders can trade both single and multiple currencies at the same time. However, the greatest challenge for basket strategy traders is understanding when related pairs are likely to move in a given direction. This forex trading also involves the use of lagging indicators to extricate trends and movements in multiple currency pairs.
6. Price Action Trading
Price action trading is a common strategy that uses price patterns to determine entry and exit positions. Since price is the ultimate indicator of trade and the only way to understand market movement, this strategy assumes that prices, just like human behaviors will often experience repetitions.
Forex Trading Experts
The forex exchange is a massive market with a daily turnover of over $5 trillion a day. The market trades on commodities, stocks and indices. In this AlfaTrade review it is shown how it is an elite currency and capital stock broker with a keen eye on the forex exchange. The firm accurately follows market leads using new technologies and expert market analysis to assist clients make right investment decisions and ensure favorable returns.
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