The Major Strategies of trading the Forex market
According to my findings, and thanks to FXCm.com, there are 12 different types of trading strategies out there being utilized by traders. Some more than others, some in combination with others, and some solely on their own. Fundamental analysis, technical analysis, trend and range trading, momentum trading, swing trading, breakout trading, retracement trading, reversal trading, position trading, carry trading, and pivot point trading. Many of these strategies require extensive research and chart work, and require the use of several other techniques to fully understand the market.
Fundamental analysis involves the use of understanding the value of currency to another, in hopes to make an on-point decision as to where the market could be heading. Using fundamentals alone though is not recommended in that the market is unpredictable. Using just a counties data will only give you a part of the picture. Using in hand with technical analysis, will provide insights as to where the market has been, with recent economic releases.
Trend and range trading are just about the same. Understanding the current market situation, and being able to accurately determine if the market is ranging or trending is key to successfully using this strategy. It is also good to know the economic data along with know which market you’re in, before entering any position. As just with any market situation, the trend can change depending on the type and effect of the data release.
Momentum trading is the action of pin pointing the direction, or change in direction of the market. In hopes to enter a trade as the momentum is changing, or to catch a trade at the momentum continuation point. Like momentum trading, swing trading is noticing the different price swings of the market. Also, a type of trading, swing trades are generally held from 1-7 days or more. The given swing can be within the given momentum of the market, or a swing the opposite direction, before its continued path.
Trading on breakouts is a popular form of trading. Identifying the trend or range of a market, then waiting to enter the market at the point of change or breakout from the current trend. Identifying previous support and resistance areas is an integral part of trading breakouts, and usually identify take profit and stop loss regions.
Trading of retracements requires a market understanding, and an understanding of the use of Fibonacci ratios. Monitoring the price action of the market for pullbacks to certain areas, allows for the trader to enter the market in the direction of the trend, in hopes to gain a profit on the already trending market. There is also reversal trading, where the trader waits for acknowledgement via indicator, or price action patterns, to determine a trend reversal. If the reversal is properly spotted, the trade can take place in the direction of the trend, or is usually closed once the reversal is completed, and the previous trend is continued.
Carry trading is a unique form of trading whereas the trader takes hold of a currency of low interest rates, then exchanges to another with higher interest rates. In hopes to profit off the difference. Not something I am very familiar with; however, profits are made more off the exchange, rather than the trade. Pivot point trading is about the same as trend or range trading. It is the art of identifying the turning or pivot points of the market, and entering based on a projected reversal of that pivot point. Pivot point trading is an excellent determining factor of knowing where the highs and lows of the market are, allowing a trader to possible enter at an excellent price point.
Although there are many strategies that can potentially earn a trader great returns, there is no one solid money-making winner. With any one of these, education, dedication, and patentee will be the ultimate deciding factor as to whether you succeed as a trader or not.