There are many forex strategies in existence which are different in their levels of complexity. Some of these strategies rely on the use of technical charts, while others rely on the fundamental understanding of the market in relation to current events. However, we shall look at five most famous forex strategies.
- SUPPORT AND RESISTANCE FOREX STRATEGY
Just as the name implies, Support and Resistance, as a strategy, they act as barriers within forex markets, and are easily spotted on price charts, as they keep the price from moving either higher or lower. They can be seen on any forex chart and across all time frames.
One of the most effective ways to predict successfully the future price movements is by trading the forex market using support and resistance strategy. The areas of support and resistance show traders the sentiment of the market as a whole, and also highlight where not to enter a trade. Therefore, support and resistance creates a map of the price chart, showing where price previously reversed or bounced.
- TREND TRADING STRATEGY
This famous trading strategy has its strength on the fact that price historically tends to move on a trend, and the idea behind it is picking a top or bottom. A typical trend trading strategy entails identifying pairs that are trending either up or down so that the trader would know which direction he should be looking to trade.
The next step will be finding entries using trending indicators of which there are huge number to choose from. The most popular one is the Relative Strength Index (RSI) that moves up and down between a scale of 0 and 100, tracking the strength of a currency pair's movement. If the RSI reaches above 70 or falls below 30, it may be set for a price reversal. The exit plan for this famous forex strategy is to set stop and limit with support and resistance. This is one of the most lucrative of all the strategies.
- FIBONACCI TRADING STRATEGY
Fibonacci remains one of the most famous forex trading strategies. It is named after the famous Italian mathematician. It is considered as a medium to long term strategy. It is used to follow repeating support and resistance levels. As the markets historically move in trend, Fibonacci tool works best when the market is trending. The rationale is to buy a retracement at a Fibonacci support level when the market trends up and to sell a retracement at a Fibonacci resistance when the market trends down. In fibonacci patterns, price movement is usually supported by two different key levels, and this is where they can take their trades waiting reversal. However, mastering this strategy needs some practice.
- SCALPING TRADING STRATEGY
This is a low-risk strategy and it is a very good strategy for new traders. Scalping takes profit on small price changes soon after a trade has been entered into and becomes profitable. Scalping achieves result by increasing the number of winning trades but by sacrificing the size of the wins. This strategy requires patience and concentration, but it can be very effective.
- CANDLESTICK TRADING STRATEGY
Another really common chart types used by forex traders are the candlestick charts. Even though there are other kinds of charts, candlesticks reveal much more about past price action than any other. Again when trading is based on technical analysis, the decisions for future price action are made based on how the price has reacted in the past. Candlesticks are the price movement/action for a certain period of time. Candlesticks work best during times of volatility but are still effective in times of less volatility if they are used in combination with one or more other indicators.
In conclusion, there many forex trading strategies traders can use, but the five discussed above remain the most famous forex strategies.
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