Forex Market reflects the trading as the largest financial market in the world. Since this market is open 24 hours a day, five days a week and is operational on holidays to a trader has a pool of opportunities and also threat if not traded properly. Just as every coin has two sides, Forex trading can get as disadvantageous as it can prove beneficial. Now to remain always on the profitable side of any trading, a trader must be known to the tactics. The tricks to achieve the goal of profit or limiting the loss in Forex.
Every successful trader chooses techniques that match his personality and preferences, which further helps him/her to develop the strategy. Any strategies in Forex trading demand consideration from the trader of the three criteria before adopting it.
Let’s understand the three criteria:
- Time devotion: Forex Trading’s very first rule is to define your objectives. Now depending upon a trader’s aim, the trader chooses his trading style. Each trading style or strategy requires a certain amount of time contributed to the market. Trader’s time devotion to a screen plays a huge role in executing a plan successfully.
- Trading recurrence or Frequency: Once a trader decides his objectives, he/she needs to define what will be the timeframe or intervals at which he wants to fulfil them or how many times. Like, does a trader wants to make small profits by recurring trading or letting profits run at a longer period at a monthly/yearly frequency. This setting up of timeframe for trading helps a trader to choose his strategies wisely and make profits accordingly
Goal achievement distance: Similarly, like setting up frequencies, a trader needs to identify what goal distance he wishes to achieve. Either to prepare and make short entries and exits or aspirations to make entries during low trends and continue until an achievable upward trend. These clarifications of a trader help him to realise his targets more clearly and smoothly.
Every trader has his/her suitable strategies to determine the best entry and exit points, timelines to trade. There are few identified effective tactics and techniques of trading in Forex Markets highly employed in the strategies.
Below mentioned are the few effective strategies used by traders to achieve their goals and every approach has its characteristics and reactive measures to the market and operates on various pillars that are none other than the techniques used in those strategies in Forex Trading:
Day Trading: Day trading’s name itself implies that this type is involved in intraday profits. Day trading is the active trading form rather Day trading considered as the pseudonym of Active trading. The technique used in this type of selling focuses on the short term movements. Day traders use the following methods in their analysis:
- Small prices, Small profit: Trader deals in just a day’s profit. Low prices are picked at smaller or bulky volumes and sold off at a very short movement to make a small but numerous profit.
- Price point predictions: Uses support and resistance level ranges to make decisions of selling/buying.
- News events: Helps in identifying opportunities through good news broadcasts or a short sell when there’s bad news.
- Complex algorithms: Exploits the holdings with the help of high-frequency trading
Trend Trading: Trend trading is the type of trading strategy which uses the momentum of an asset in a particular direction. A trend’s description helps to identify in trading based on the ‘value’ of the asset in monetary terms going in an upward or downward way. Trend’s direction determines the actual status of the asset in the market, and traders use this determination to make a profit if it is an uptrend or stop the loss if it is a downtrend. Trend traders use the following methods in their analysis:
- Price action: Usage of various indicators like technical, economic, fundamental to take predict price points.
- Averages: Identifying upward and downward trends based upon the moving average calculations.
- Trend pattern: Understanding the trend line representation based on lows, uptrends and downtrends.
- Indicators: Usage of universal indicators like Relative Strength Index, Money FIow index to determine the trends based upon the momentum.
Swing Trading: This type of trading is usually known as an income-building technique which falls between day and trend trading timelines. This approach demands time dedication every day to study the asset prices, make decisions and keep looking over the choice over a period ranging between days or weeks. This strategy helps to eradicate the limitation of just one-day market movement. The primary tool of Swing trading is technical analysis. Also, it utilises fundamental analysis to some extent to choose the right markets and assets/securities to trade-in by focusing on qualitative and quantitative factors. Swing traders use the following methods in their analysis:
- Price movements: Comparison of high, lows, opening and closing values and over some time to find the correct time to sell/buy
- Trendlines and Historical data: Trends based on a timeline of assets history in terms of figures and other fundamental factors
- Economic background: Consideration of revenues, earnings, future growth, return on equity, governance etc. to choose a correct time and stocks
- Business position and competitive intel: Analysis of market value, market share, Business status, profits, liabilities etc
Scalp Trading: Scalping technique in Forex trading is itself considered a strategy in Forex to make small profits frequently. This strategy’s target is to achieve gains by entering and exiting multiple points throughout the day. Most of the trained traders do it manually or through algorithms which can dedicate full time to trading and stick to screens. Scalping is focused on making profits at the very moment and doesn’t give time to let the benefit ‘run’. Scalping is considered advantageous as it exposes limited risk, smaller profit portions are easier to achieve, and shorter entry-exit points are more frequent in trading. Scalp traders use the following methods in their analysis:
- Historical trading data: Assets history in terms of monetary trends in shorter time intervals
- Choosing correct brokers: Overlooking trading costs and operationalising percentages of commission to maintain the margins
- Mastering sequence execution: Expertising right time of Release, pullback and orders of stocks buying/selling
- Strength and money indicators: Usage of universal indicators like Relative Strength Index, Money FIow index to determine the trends based upon the momentum
Candlestick trading: Candlestick trading is trading based on analysis of candlestick charts. Candlestick charts are a representation of the price movements shown via four points, i.e. open, close, high and low. Those four points are nothing but the values of an asset’s opening price, closing price, highest price and lowest price of a day, week, month or year/s. This chart helps a trader to forecast the directions and patterns of the cost. Candlestick traders use the following methods in their analysis:
- Direction pattern: Identifying trend patterns of the charts to understand the high, low, open, close relation together to make a decision
- Technical analysis: Usage of technical indicators that involves mathematical calculations of price, volume and public interest of asset
Traders can execute various strategies as per their suitability. There is no such strategy that is effective enough to guarantee your success. What matters is the correct implementation of techniques based upon the goal of a trader. There might be a combination of various tactics form a different strategy that might give rise to a new approach that would work for one trader and may not for the other. Trading is a game of challenging the prediction by believing in the trial and error method. Ultimately, every trader has to decide for himself.
It is very important in Forex Trading to first understand the principles of trading and then working upon a strategy that best suits a trader’s style. An approach won’t work unless and until a trader understands the techniques behind the execution. Forex trading is a complex combination of choosing a suitable strategy, managing monetary flow, limiting exposure of power that is in hand, and last but not the least always keeping oneself open to exploration and improvisation. This approach will help any trader to choose his/her strategies wisely and open gates to successful Forex trading.