3 strategies for how to trade forex
How to combine strategy, analysis, and indicators
A successful Forex trader stands out from the crowd with the types of trading strategies they choose to deploy to and how to utilize different strategies in different circumstances.
More experienced traders know that a single strategy will not do when trying to become a success in the world of Forex. A trader must show flexibility and use the right strategies in the right market conditions if the aim is to become profitable.
The same can be said for the types of analysis a trader uses and how contrasting forms of analysis tie in well with certain strategies.
There are many types of trading strategies with varying degrees of complexity. Some strategies are better suited to fundamental analysis as certain strategies may marry up better with technical analysis all underpinned by a general understanding of economics.
What is important is harnessing all knowledge and strategies and attaching them to the right analysis to capitalize on market movements.
Scalping is a strategy adopted mostly by people who are new to the trading world as it requires less knowledge of trading as a whole as well as platforms such as MT4 - which in itself can take some time to master and always seems to have an undiscovered feature.
The purpose of scalping is to get in and out of a trade quickly and profitably. Traders using this strategy hold on to their position for a very short time. A trader will submit a 'buy' trade for example in a time of market volatility.
They will rely on the market moving in their favored direction, in this case - up and then close out the trade manually when the trade goes into the trader's desired profit zone.
This can be especially useful when trading with brokers who offer high leverage and allow scalping as a strategy. New broker on the market EagleFX offers both high leverage of up to 1:500 on Forex and allows scalping - all of which backs into the MT4 platform.
Scalping and high leverage is a delicious cocktail for traders who do not like to hold on to positions for too long and want to see a quick return of profit. Scalping is favored by traders of all abilities but more commonly used by beginners who may be new to the world of economics.
Long/short hedging strategy
Any advantage a trader can use to gain an advantage on the rest of the market is known as edge. Traders are always looking for ways in which to gain an edge and they commonly do this by using certain strategies to suit them with a blend of analysis for good measure.
There is no guaranteed strategy that is absolutely foolproof however, long/short hedging is commonly known in the Forex space as being one of the safest strategies to adopt if used effectively.
When executing a trade, there are 2 actions traders can perform - ''Buy'' or ''Sell'' often referred to as 'going long' or 'going short'. Long being buy and short being sell.
So how do we put the long/short hedging strategy into practice?
When traders are looking to hedge, they will select 2 different instruments and go 'long' as well as 'short' with a view to minimizing risk. In terms of forex trading, traders need to select two pairs which positively correspond with one another.
For example: EUR/USD & GBP/USD
First of all, a trader must make use of some analysis to determine the performance of the US Dollar in terms of appreciation or depreciation.
Fundamental analysis is a method of reading the market by analyzing social, economic and political trends and how that may affect the performance of a certain currency. Brexit would be a good example to use in this case.
One way or another, the result of the referendum would affect the GBP and or EUR - when faced against the USD.
This form of analysis may be best suited to the long/short hedge strategy due to the amount of variables to consider when predicting the performance of the USD.
Should your analysis tell you that the USD will appreciate, traders should buy one pair and sell the other to keep risk levels low.
Eagle FX offers over 55 Forex currency pairs and over 30 cryptocurrency pairs for its users to enjoy fast execution and a range of commonly known pairs as well as more exotic Forex pairs as well as a diverse range of cryptocurrencies.
Divergence and Indicators
Indicators are used to show traders where they will find areas of divergence. Divergence is when the price of an asset is moving in the opposite direction of a technical indicator, such as an oscillator, or is moving contrary to other data.
Divergence signal momentum with a possible trend or signal a reversal when a trend is almost over. A visual discrepancy between price and indicator is known as divergence.
Benefits for users is that they do not have to learn about all the concepts of trading.
If a trader can master the divergences with basic price action and support and resistance levels, Forex trading can be simplified and become easier to digest.
A trading strategy can be developed based on what a trading indicator shows. Traders can put in a stop loss based on a candlestick or based on resistance lines.
Traders can also put in a 'take profit' after a certain number of bars which can also be based on a resistance line. All of these functionalities and more are available on the MT4 trading platform.
So, what have we learned? We know that in order to trade successfully we must combine a healthy mix of strategy, analysis, and indicators in order to be profitable.
It is important to identify, as a trader, what exactly you would like to gain from Forex trading.
Are you a scalper and would like to get into a trade and get out early with a small profit? If so it may be an idea to consider commission charged by your broker.
Are you more of a fence sitter and would prefer to hedge bet? If so, it would be advisable to look at how tight the spreads are when selecting a broker.
Are you more into indicators as a tool to help you trade? Then it may be of benefit to look at a platform that backs into the MT4 platform.
New on the market EagleFX offers all the benefits of unrivaled tight spreads, low commission as well as a brand new 'Daily Analysis' section where traders can view within the site, how certain currency pairs are performing. This is supported by informative news and charts, all conveniently wrapped in one place and updated daily.
Develop your own strategy and start trading with EagleFX for free today!
This article was submitted by EagleFX.