Anyone entering forex trading without a clear strategy of how they are going to make money in the long run will end up losing a lot of money for no good reason. This is due to the fact that you will be instantly taken in by the trees in the forest of the forex market, and this will prevent you from seeing the whole forest at once. You need to have a big picture in your mind, which will guide you to know what to do so as to make a lot of money in the forex market. The following are some of the best strategies that you can use when trading in the forex market:
1) Price Action trading strategy
This is usually the first strategy that new traders in forex like focusing on. This is mainly due to the fact that your profits and losses in the forex market are directly influenced by the prices of the currencies that you are trading in. The main assumption of the price action trading strategy is that pricing patterns tend to repeat themselves. This is based on the fact that pricing is in itself a human behavior, and all human behaviors tend to repeat themselves after some time.
The traders who focus on the price action trading strategy will not use anything that will be detrimental to the pricing of their currencies. Any model that will interfere or do away with the ability of the trader to use pricing to determine how the market should move should not be regarded.
2) Trend trading strategy
This strategy is a slight improvement on the price action trading strategy. It is largely based on the fact that there are only three basic movements in the forex market: uptrend, downtrend and sideways. Forex traders who utilize the trend trading strategy only make money when the market is trending upwards, but they usually tend to lose money when the market suffers a downward trend. Traders who focus on the trending strategy usually only want to know the general movement of prices in the market. They are not overly concerned with the actual prices at a specific period of time in the market.
3 Breakout/Support and resistance/Supply, Demand and Volume trading
This forex trading strategy is based on the fact that at a certain point in time (or certain price level) in the market, the price will either break out of a consolidation period, or it will bounce out of certain levels. The traders who rely on this strategy usually have a very deep understanding of supply, demand and volume indicators that usually tend to affect the price of different currencies in the market. These traders usually hedge their positions and wait for the price to either breakout or bounce so that they can make a lot of profit to compensate for the time they spent waiting.
4) Divergence trading
This strategy is based on the fact that the indicators of the market usually tend to move in a different direction when compared to the prices of currency in the market. This divergence between the indicators of the status of the market and the prices of different currencies offer a very good environment for some forex traders to make a lot of money.
5) Combo trading
Instead of only using one forex strategy, some traders have developed the ability to use a wide variety of trading strategies when it suits them. As such, you could find a forex trader trading using price action trading strategy at one point and then reverting to divergence trading at another point in time when it is profitable to do so.
