Forex Trading Strategies

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Forex Trading Strategies

The huge, always-moving global forex is analyzed countless various ways by an incredible number of investors that participate daily. Currencies could be exchanged using strategies like those used with any other asset, technical and Fundamental analysis strategies. However, there is absolutely no single best trading technique or strategy for forex, so the most suitable choice for most investors is to discover an angle that fits their trading style and expertise.

Like anything this is partly trial and error in the beginning and some testing and research.  one of the reasons MonoInvest offers their demo account as it lets you test you trading strategy on a live feed without risking anything.

We believe that traders should educate themselves thoroughly before attempting to trade Forex and even after attaining basic knowledge, they should first test their strategy in the mentioned demo account. One of the first things you have to decide is how long you’d like to hold an investing position open.

What are your strengths?

Are you good at identifying short-term trends, or broader movements over medium to long-term timeframes?

  1. Short-Term Trading Horizon: Day trading and scalping are trading strategies where a trader is typically holding a position, whether short or long, for less than a day.
  2. Medium-Term Trading Horizon: Swing trading is the term used to describe the strategy where traders hold trades for multiple days, and sometimes up to a week or two.
  3. Long-Term Trading Horizon: Traders who plan on holding a position for a long time are rarer, because this is considered investing more than trading. For long-term trades, technical analysis typically matters less than the fundamental features of the asset in question.

Technical Analysis in CFDs/Forex

Traders using the technical analysis methods see price action as non-random, meaning that some force or catalyst can be identified as the reason behind the movement up or down. With a focus on what’s happened in the past, technical analysis seeks to predict future price action, and it does so implement tools and other means to help traders visualize the relevant trends. Some of the most common technical analysis techniques are:

  1. Trend Lines: Traders commonly use straight lines, drawn on the chart, to connect historically significant prices. The bottom of dips and the top of peaks are typically connected by a trend line, to show where the ‘range’ is. This is the area where the asset is likely to remain in the short term.
  2. Moving Averages: The average price of a currency pair is calculated over a specific number of days, like 30, 50, or 200, and then illustrated on the pair’s chart. Traders usually add several different moving averages to their chart to see how trends are moving from the short to the long term, and how the lines intersect or rebound off one another, which indicates a change.
  3. Relative Strength Index: The RSI is a momentum oscillator that shows the momentum behind price action up or down. It ranges between 0 and 100, which indicate oversold and overbought conditions, respectively.

Fundamental Analysis in CFDs/Forex

Forex is the most suitable markets for fundamental analysis. While other CFD trading commonly concerns analysis of companies and specific industries, forex is more about currencies and therefore seeks to uncover trends in macroeconomics. The changing relationships between major government powers around the globe are also studied closely, to hint at how these countries’ currencies will perform over a specific time frame in the future.

Tips for Traders

  1. Have a Game Plan and know how you want to trade
    The most successful traders always come prepared to trade, and that starts with having a reason to get involved. A catalyst, technical pattern, or other feature may provide the rationale for getting involved with trading a forex pair and taking a position should always have a reason. Afterwards, it is essential determine how much investment capital will be risked for the potential upside of a trade. Reward should always outweigh risk. Next, determining the entry point and exit strategy should also incorporate the risk and reward determined earlier. Finally, a trader should always be disciplined and stick to the game plan when trading to avoid any deviations.
  2. Stick to Your Goals
    It’s crucial to set realistic trading goals and maintain the discipline to keep to them intact. Avoid being the trader that holds a losing position with the belief that it will reverse. Equally bad is the trader who has a good position and refuses to close his or her trade due to the desire for more. If you’ve met your goal, whether short or long-term, realizing your gains and readjusting your strategy help to form a sensible approach.
  3. Mix Technical and Fundamental Analysis
    Without a fundamental understanding of the health of an asset and its market, technical analysis can be powerless. The same goes for fundamental analysis without understanding price and chart trends and their impact. Incorporate both into your strategy and you might become a savvier trader.
  4. Use Risk Management Tools and Set AlertsMonitoring the foreign exchange market around the clock is very challenging. With a market that moves 24 hours a day, watching every move tick by tick is in every forex pair is near impossible. Thankfully, trading platforms are accompanied by helpful features like risk management tools and alerts. With stop-loss and take-profit functionality, traders can preprogram their exit strategies when entering a trading order (although a stop-loss order may not always limit losses to the stipulated amount), helping automatically trigger an exit from a position once certain conditions are met. In addition, alerts can be set once an asset reaches certain price and time conditions, helping notify traders in the case that conditions are met.
  5. Stay Up-to-Date
    Foreign exchange markets fluctuate around the clock, and oftentimes there is a specific stimulus that sparks a move in one direction or another. To ensure you don’t miss out on the latest opportunities, consult daily with the economic calendar for an up-to-date look at when economic announcements are set to be delivered. In addition, stay informed about current geopolitical events that could sway the market’s direction by regularly following business and financial news media coverage.
  6. Filter out the news from the Noise
    At the end of the day, markets are sensitive to sentiment. Those trying to influence the collective sentiment of markets, such as news outlets, financial pundits, and other traders all have a stake in themselves. Ignore most of them and focus on the facts, and your own expertise exclusively.

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