Forex Trading Strategies

When it comes to Forex trading, there are many different techniques used by traders to try and gain a measure of advantage during trading – though such techniques are by no means certain to succeed. Let’s have a look at a few of the most popular basic strategies used in connection with FX trading.

  • 01

    Support and Resistance

    This is a basic trading concept which can be used both when trading Forex and other types of financial products. Essentially, it means that often the market will expand and contract to a fairly similar extent; the price will go up until supply outweighs demand, at which point – the point of resistance – the price will fall. It will fall until the point where demand outweighs supply, at which point – the point of support – the price will rise. Previous chart data can be analysed for general indications as to resistance and support levels by looking at the peaks and troughs.

    However, this strategy is easier to implement in periods of low volatility; on the other hand, when markets are moving rapidly – for example, in the wake of a significant economic announcement – it becomes harder to calculate future peaks and troughs based on previous data.

  • 02

    Events-Based Trading

    Support and Resistance trading is a form of technical analysis, in which traders use the flow of the charts to calculate potentially profitable trades. By contrast, events-based trading is what’s known as fundamental analysis, where traders look at outside factors in order to try and calculate how the market will respond. For example, traders know that at a certain time, usually on the first Friday of every month, the US releases Nonfarm Payroll numbers related to job increases in non-agricultural businesses over the previous month. There’s usually a significant amount of volatility in the financial markets in the wake of this announcement, not least of which is in the Forex market, where the US Dollar may strengthen or weaken depending on the news. Traders can therefore use their knowledge of upcoming events to predict forthcoming market conditions. If they’re correct, they may make a profit; if they’re wrong, they may make a loss.

  • 03

    Keeping a Diary of your FX Trades

    This is a very straightforward point, but one that’s overlooked by many people entering the world of Forex trading. Keeping track of every aspect of one’s trades (including dates and times, strategies used and the profit or loss made on the trade) can help traders learn from possible mistakes as well as providing them with valuable experience of the FX markets.

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