With trillions of trades conducted every day, Forex
trading offers ways to leverage the market to make substantial profits. As a
range of factors influences the Forex market, it is important you understand
how specific strategies work, and what are the pros and cons of each one.
Depending on your personal circumstances, some strategies
will suit you more than others. You can find more strategy ideas at DailyFX, and
the more strategies you know, the
better your trading profits will be.
Position Trading
This strategy is very similar to Trend Following but adds fundamentals to the technical approach.
Position Trading is a longer-term trading strategy, where you take into account
the fundamentals such as GDP, NFPs, etc to give your trend analysis a bias.
Using this strategy, you will trade on a daily or weekly
basis. This allows you to time your
entries to trade at the position you want. If your analysis is solid, you
could enter a new trend earlier on and reap the benefits from it.
Pros
Position Trading does not require much trading time.
This makes it a good option as a hobby or second income stream.
- Given its nature, you do not have to worry too
much about short term price fluctuations. - Risk to reward tends to be favorable.
Cons
- To gain, you need a good understanding of fundamentals and how they impact the market.
- Stop-loss tends to be wide, so you need extra
capital to compensate. - It is a long term thing, and you may not make a
profit for some time.
Swing Trading
Swing Trading involves you monitoring the market
looking to capture a single move or swing.
To master swing trading, you’ll need to understand the
following:
- Support
– An area of potential buying pressure on your chart. - Resistance
– An area of potential selling pressure on your chart. - Moving
Average – A technical indicator to help determine trends and a support and
resistance indicator.
Many swing traders often use the 1 hour or 4 hour timeframe to trade. Often, they will:
- Buy Support
- Sell Resistance
- Trade breakouts
- Trade pullbacks
- Trade the bounce of the moving average
Pros
- As this is a medium-term strategy, you can trade
and still hold down a full-time job. - Plenty of trading opportunities so you can see a
profit every year.
Cons
- You have overnight risk.
- Impossible to ride big trends.
Day Trading
Similar to Swing Trading but at a faster pace, you tend
to trade on 5 and 15 minute time trades. The aim is to capture intraday volatility. To make high profits, you trade in the
most volatile session of your instrument.
Aspects that concern a Position Trader is no use to you as
a Forex Day Trader. Instead, you’ll
identify a long or short bias and
trade that position.
Pros
- If you get good at day trading, you’ll turn a
profit most of the time. - No overnight risk.
Cons
- Constantly watching the market is stressful.
- Black Swan events can cause high losses.
- Demands full-time attention.
Forex Trading can be very profitable, providing you
have mastered the right strategy.
