Like all financial endeavours, doing something without a plan can be very inefficient – and even downright dangerous. While you’ll definitely develop a style based on your experiences in the forex market, there are some tried-and-tested strategies you can always consider.
Let’s look at three of them:
A short-term strategy that lends itself well to volatility-based trading, day trading, is where you’ll hold your positions for a short time. You’ll usually limit your open positions during major forex trading sessions, looking for the best time in the day to take advantage of the most volatility. As far as trading strategies go, this is a low-risk, fair-reward trading strategy. However, day trading requires you to consistently watch the market and it may be too slow if you’re looking to make a profit.
Swing trading works well for people that can put a little more time and effort in reading how the forex market moves, as it’s a fairly short-term trading strategy that relies on how the market reacts to pre-set conditions. What you’ll be looking for are “swings” or changes in moving averages that lend itself well to selling your currencies. Your positions will be open for days or weeks at a time, so you have more leeways in finally closing them. What you want to do is to identify a key point in the market movement where the price shifts in your favour, then sell. The biggest drawback to this is that you’re not going to be able to take advantage of big trends. You’ll also need to make sure that your predictions for the short-term movement of the market are accurate, or you may be holding on to your positions for longer than you’d like.
If you don’t mind settling in for the long haul, position trading is your best bet. This relies on understanding the macroeconomics of the countries that control and trade in your selected currency, using small trade sizes and growing them as the currency moves over time. And because you’re trading based on geopolitical factors that can affect the price of your currency, you need to have a lot of patience and persistence in studying the market, using fundamental analysis, and deposit a considerable capital base to avoid stop losses. However, the risk vs. reward ratio of this trading strategy is better compared to others, regardless of volatility or liquidity in the market. Once you’ve mastered the fundamentals of the forex market, position trading is a good choice.
Which trading style should I choose?
There is no “best” kind of trading style. It’s important to realise that each forex trader has their own attitudes and preferences in how they want to trade.
Markets are also a factor. If you find your currency pair performing well, you may want to change up your trade strategy to minimise risk. But if you’re looking for our recommendations, we’d say:
Day trading is a great strategy for beginners to try since you have a predetermined time where you can open and close positions. This helps you minimise risk and gives you more opportunities to study a close section of your market.
Swing trading can apply to both beginners or experienced traders who want to understand their chosen currencies a little more. Since it relies on a fair bit of fundamental analysis, you’ll be able to hone how you speculate market movement and make your trades accordingly.
Lastly, position trading works well with experienced traders who understand how the market moves in response to macroeconomics, but it can also work well for beginners that can afford to have the capital and time to invest in a slow trading method.
Keep in mind that these three aren’t the only trading styles out there, but these are certainly some you can use when you aren’t sure how the market will move or have less confidence in your usual strategies.