Strategies Forex Trading
Long and short trades are the basic forms of forex trading. In a long position, the trader is betting that the price of the currency will rise in the future and he can profit from it. A short position consists of a bet that the price of a currency pair will decrease in the future. Traders can also use trading strategies based on technical analysis, such as breakout and moving average, to fine-tune their approach to trading.
Depending on the duration and numbers of trading, trading strategies can be categorized into four other types:
- A scalp trade consists of positions that are held for seconds or minutes at the most, and profit amounts are restricted in terms of the number of pips. Trades like this are supposed to be cumulative, meaning that the small profits made on each individual trade add up to a regulated amount at the end of the day or time period. They depend on the predictability of price fluctuations and cannot handle a lot of fluctuations. Therefore, traders tend to restrict such trades to the most liquid pairs and at the busiest trading times of the day.
- Day trades are short-term deals in which positions are held and liquidated on the same day. The duration of daily trading can be hours or minutes. Day traders need technical analysis skills and knowledge of important technical indicators to maximize their profit gains. Just like scalp trading, day trading is based on incremental gains throughout the day to trade.
- In a swing trade, the trader holds the position for longer than one day; For example, they may hold the position for days or weeks. Swing trading can be useful during major announcements by governments or during times of economic turmoil. Since they have a longer time line, swing trades do not require constant monitoring of the markets throughout the day. In addition to technical analysis, swing traders should be able to gauge economic and political developments and their impact on the movement of a currency.
- In a trade, the trader holds the currency for an extended period of time, lasting months or even years. This type of trading requires more basic analysis skills as it provides a logical basis for the trade.
Forex Trading: Charts Used
Three types of charts are used in forex trading. They are:
Line charts are used to identify trends in the big picture of a coin. They are the basic and most common type of chart used by forex traders. Displays the closing trading price of the currency for the time periods specified by the user. The trendlines identified in the line chart can be used to devise trading strategies. For example, you can use the information from the trend line to identify breakouts or a change in trend for prices to rise or fall.
While it can be useful, a line chart is generally used as a starting point for further trading analysis.
Much like the other cases in which it is used, bar graphs are used to represent specific time periods of trading. They provide more price information than line charts. Each bar chart represents one trading day and contains the opening price, high, low and closing price (OHLC) of the trade. The dash on the left is the opening price of the day, and a similar dash on the right represents the closing price. Colors are sometimes used to indicate price action, with green or white being used for periods of high prices and red or black for a period during which prices have fallen.
Currency trading bar charts help traders determine whether the market is a buyer or a seller.