Forex trading is a rapidly growing trading platform. Each day thousands of people start Forex trading. If you are new to Forex trading or want to learn some effective Forex exchange strategies, this article is for you.
Before explaining the strategies, it is vital to understand how trade happens on the Forex exchange. A trader has to estimate the price of a currency pair relative to each other such as USD/EUR. If the trader makes the correct investment, he/she profits from the trade.
Importance of strategies
Just like everything in life, a plan is important for success. You might get lucky once, but a well-thought-out plan is necessary to earn long-term success. Especially when discussing the Forex market, strategies make all the difference between a good trader and a bad trader.
Three effective strategies
Here are three popular strategies that prevail Forex exchange market.
- Day Trading
- Position Trading
Scalping is one of the commonly used Forex strategies. In scalping, the trader aims to earn large amounts of profit from smaller gains. Scalping is based on smaller market movements. Traders who follow this strategy are focused on the small and instantaneous changes in the market, and they invest large capital in these changes to make a profit from the small gains.
Scalping is a successful strategy in Forex trading because the market is very volatile. Prices can shift massively within seconds, and scalpers capitalize on these shifts.
Scalping is not very beneficial for traders who want to hold for longer periods. The trader has to be active since the trades shift in seconds. Hence, the risk factor is also very high, and if the prices go in the opposite direction, the trader can lose a significant amount of money.
2. Day Trading
Day trading is a common term often used by the folks in the stock exchange market. Day trading means holding the investment no longer than a day. Hence, there is no long-term investment or waiting. If the trade is profitable, the trader will buy out at the end of the day. Even if initially the trade is going down, the trader can hold out until the end of the day and wait for the tides to shift in his/her favor.
To minimize risk, do not leave your position open overnight. Unlike scalpers who want to stay on the market for only a few minutes, day traders are usually active all day to monitor and manage open trades. Day traders primarily use 30-minute and 1-hour time frames to generate trading ideas.
Many day traders tend to develop trading strategies based on the news. Scheduled events such as economic statistics, interest rates, GDP, and elections strongly impact the market.
3. Position trading
Position trading is a long-term strategy. Unlike scalping and day trading, this trading strategy focuses primarily on the basic factors. Small market volatility is not considered significant in this strategy as it does not affect wider market conditions.
Each Forex trading strategy has its pros and cons. Hence the trader needs to realize which strategy suits his/her mindset and goals. If you want to read our article about xm mt4, follow the link.