Today, Forex is trendy. Millions of people now call themselves online traders and their community is growing. This year, when the global economy is reeling from lockdowns, such opportunities are vital. In South Africa, you can make money from home – all you need is a computer or a mobile device. Traders monetize knowledge, as they profit from market trends.
There is more than one way to approach Forex trading. Since the 1990s, retail traders have developed quite a few strategies. No single plan of action guarantees high profits. Learn about common systems and see which style suits you.
1. Trend Trading Strategy
Technical analysts use indicators and other tools to identify trends, and they always enter in their direction. This is not about being bullish or bearish. The trend is your friend, but you also need to be sharp to foresee turnarounds.
Looking at a trend, you need to predict if it is going to fade out or reverse. Different timeframes may be used. Often, trends accelerate towards the end as many traders cut their losses.
First, you need less time for analysis, and this strategy can be a hobby. Secondly, one trend can provide quite a few opportunities for entry and exit. You may also play both sides of the market, using long and short positions. The only drawback here is the overnight risk, as trades may last for days. Stop loss is obligatory.
2. Day Trading Strategy
As a day trader, you can be busy all day long. Every position is opened and finalized before the market closes. This strategy turns Forex into a full-time job. Before trading commences, you analyze the market to foresee reaction to last night’s news. Every trade will last between 1 and 4 hours.
On the one hand, there are no overnight risks, and you can trade in different markets. On the other hand, you may have flat trades that bring meager profit. Consistency and risk management are essential, so develop a solid plan. Day trading is an effective FXTM Forex strategy and you can learn more on the ForexTime site.
3. Scalping Trading Strategy
Of all the strategies, this one is the most hectic. Scalpers focus on a series of short-lived trades based on moderate price shifts. Each lasts seconds or minutes. They let profit grow slowly and steadily. A smooth exit plan is a must: one large loss can wipe out any preceding achievements. Be disciplined.
These traders prioritize quantity. They do not wait for big movements to collect their profit, and the risk/reward ratio could be 1/1. Instead of a few lucrative trades, they open plenty of small ones.
As all trades are transient, there is no risk of overnight changes. Secondly, this system is very flexible, so you can easily trade Forex in your spare time. Finally, the requirements for positions are laxer, so there is a wealth of opportunities.
On the downside, though, scalping is not always applicable. It works best in markets with noticeable volatility and high volumes: currencies, cryptocurrencies, market indexes, bonds, and some US stocks. Besides, you need unwavering discipline and stress-resistance. Scalping is very tense.
4. Swing Trading Strategy
Markets go through ups and downs all the time, allowing traders to buy low and sell high. This is the core of this approach. Traders use charts and indicators and examine swings in terms of duration and momentum to reveal support and resistance. If a trend looks strong, you can confirm this via Fibonacci retracement and ride it. Swing traders tend to buy at the first ‘pullback’ and sell at the first ‘dip.’
Positions remain open for days or weeks, which is convenient for traders with little time available. This risk/reward ratio is also quite high, and opportunities are abundant. Swing traders may go bullish or bearish across several assets. Still, overnight changes may eat at your profits, and you need to be skilled at interpreting oscillation patterns.
How Should I Choose?
No strategy is guaranteed to make you rich. Pick a style which is comfortable for you. If you can devote only a few hours per day, day trading is out of the question. If you prefer frenetic action, try scalping. Overall, your choice should be based on your personality, level of self-organization, risk tolerance, and available capital.
You can always try a new approach in the demo mode and see if it suits you. Use a trading journal to track profits and losses. Remember that losses are always possible, so do not discard a strategy too quickly.
Patience is crucial. Finally, you do not have to be tied to a single approach. Keep exploring your opportunities. Knowledge of different systems gives flexibility, so you can adapt to any situation.
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