Different Forex Trading Strategies, Which Type Suits You Best? Learn More Here!
Traders use a wide range of FX trading strategies. Each strategy can be adapted or tailored to a trader’s individual needs and used in combination with other strategies. When considering which trading strategy is best for you, you should take into account your personal goals, risk appetite, experience and trading preferences.
Before exploring the different trading strategies, we will first outline two main trading methods: fundamental and technical analysis. Remember that you don’t always need to use all these strategies, especially when you are investing in Forex trading for example.
Fundamental analysis vs. technical analysis
Traders generally fall into one of two categories: fundamental or technical.
Fundamental traders will look for broader economic variables to determine whether a currency pair will rise or fall in value To give a basic example: if an economic report came out that was particularly strong, it could indicate that one currency could be revalued against another. However, if all traders expected the economic report to be strong (before the report is issued), the effect of the report would already be “priced” in the market.
On the other hand, technical analysis uses chart indicators and patterns to analyse past performance to determine whether a currency pair, such as the euro against the US dollar (EUR/USD), has been bought or oversold. By relying on statistical trends or patterns, such as volume and price movements (value increase/decrease), traders try to predict how a currency pair may fluctuate. Of course, traders can use a mix of technical and fundamental analysis to evaluate potential investment opportunities.
Newspaper with the headline ‘Trade Forex’ and a mobile phone with a Forex chart.
In light of the above trading methods, a number of approaches and indicators that can be used when trading Forex are outlined below.
Position trading is a strategy where traders hold positions for longer periods of time, usually weeks or months. Position traders will generally use fundamental analysis and economic data. However, when opening a new position, position traders may use technical analysis.
A position trader can wait until a currency pair reaches a (predetermined) support level before taking a long position and holding it for several weeks. There is likely to be less urgency associated with this type of trade, as traders do not necessarily engage in intraday pricing and generally open fewer positions (compared to other trading strategies).
However, as with any type of trade, traders need to have a good understanding of market fundamentals, and trading positions are largely based on fundamental analysis which you can easily find at the website Commoditytradealert.com