Forex trading is one of the most popular platforms where you can purchase and sell foreign currencies. It is a raw definition. It creates a space with several questions in our minds. Some of the major questions asked by novices are- ‘how to purchase and sell?’, On what basis one should sell the currencies? Or how we can determine when to hold the currency?
We assure you that all your questions will be answered in this blog. As, we are going to share some innovative strategies to unleash forex trading in modern markets. Whenever we talk about trading the 3 Ms are essential i.e., mind, money and method. Today we are going to share some insights from the book 7 Winning Strategies for Trading Forex.
As mentioned about the 3 M’s, let’s understand why these three factors are important:
- If you have a mind and money, but no method – there is no use of it.
- If you have money and methods, but no mind – What will you do?
- If you have a method and mind, but no money – Will you be able to purchase currencies?
These three terms are correlated. Without one, the balance will be disturbed. In this blog, we will assume that our readers are mindful and wealthy. However, they need help with methodology. Finally, your wait is over!
Why Strategies are important in trading?
A strategy gives traders an outline of investor financial goals, risk tolerance level, long-term and short-term financial needs, tax implications and time horizon. A trader needs to understand the market and then make a decision. For a solid market research, a proper strategy is required. The most important point is, that a trading strategy should be based on technical and fundamental analysis. As it helps in enhancing profitability and reduces risk exposure.
Innovative Strategies for Modern Markets: 7 Winning Strategies for Trading Forex
Strategy 1: Market Sentiment
Market sentiment is the very first strategy to start with. What is the first thing that comes up to your mind when thinking about Market Sentiment? We observed some of the answers and concluded two aspects i.e., Emotions and Mathematics or calculation. On diving deep, we were amazed that the market is an emotionally driven sentiment.
Market sentiment is when the majority of the market thinks or feels about the market. It sums up as:
- Dominating Emotions
- Explains the current actions of the market
- Future course of the market
The trend adopted for the market reflects the current market sentiment followed by taking decisions of other traders. One can make their opinion based on these three levels:
- Bullish reflects buying
- Bearish reflects selling
- Confused- swinging between buying and selling, no stand taken.
Let’s understand with an example.
US$ equivalent to market sentiment or people’s emotion
Statement 1: A trader bullish or purchases US$ stating that it is one of the strongest currencies.
Statement 2: Now, the same trader bears or sells it because he or she has heard some fundamental news that shifts their emotions.
The news could be anything such as dollar prices are falling down soon. The understanding is it is all about emotionally shifting because of some distractions.
Strategy 2: Trend Riding
A trend is your friend until the end’, No one wants to steer the ship against the wind, right? We feel who doesn’t like trends similarly forex market captures any trend regardless of whether it is rising or falling in an attempt to generate trading profits. This trend is formed based on hourly, daily or weekly charts.
The three types of trends are:
- Primary or long-term survival between 8 months to two years. These traders are concerned about fundamental aspects of the currency pairs they are trading.
- Intermediate or medium-term, It is a counter-cyclical trend such as price movements. It lasts for 1 month to 8 months. It is beneficial for those who want to hold the position for several weeks.
- Short-term, is for several weeks or a maximum of 1 month.
If you are intrigued with trend riding, three types of trend directions are of much importance, which are, Uptrend, Downtrend, and Sideways.
Uptrend: In EUR/USD, EUR is uptrend. It can make higher highs and lower lows.
Downtrend: In EUR/USD, in this type of trend, EUR reflects a downtrend. It also makes lower highs or lower lows.
Sideways: It is a trend where the currency pair does not go much higher or much lower. Then, we can say it is going sideways.
Strategy 3: Breakout Fading
Then comes breakout fading which refers traders to steer the ship against the wind. It is a bit challenging because you have to have stubborn dedication and unmatching discipline. It says to take a position opposite to the current market situation after a significant price breakout.
Breakout: It refers to a condition where the currency pair moves above or below a significant level of support. It happens to ensure that the going trend will not get disturbed.
Fading: Fading means, one needs to do exactly the opposite of what is happening. In simple words, if the market rises, a trader should sell and expect the price to fall and vice versa.
Understanding Breakout Fading
The concept of this strategy is to take a contrarian position. Suppose, that forex currency experiences an upward breakout, the fader should take a short position. Whereas if the market experiences a downward breakout, then the trader should take a long position.
Strategy 4: Breakout Trading
Breakout trading is a stage where traders aim to take advantage of considerable price volatility. It means that when the currency price breaks through a key level of support or resistance. The basic idea is to capitalize or earn at any cost from the price momentum whether it is upside or downside.
Strategy 5: Decreased Volatility Breakout
In this strategy, a trader takes a position when there is a massive decrease in volatility that is followed by a breakout. Let’s understand about decreased volatility.
Decreased Volatility: Volatility refers to the fluctuation in the market. If the market is in decreased volatility mode, it simply means that the price movement has become less uncertain and more stable.
There are three conditions for the success of this strategy.
- Traders understand that the market is in a decreased volatility mode, which indicates a sense of stability in the market.
- Then they anticipate that this low volatile concern may herald a price movement.
- Once they identify the situation, traders willingly or unwillingly position them for a breakout without any disturbance to the current trend.
Strategy 6: Carry Trade
In a carry trade strategy investor borrows money in a currency with a lower interest rate and invests in the currency with a higher interest rate. The aim of a carry trade is to generate profit from the interest rate difference of the two currencies. Those who opt for this strategy are known as carry traders. This strategy is most popular among forex traders who trade with currency pairs. It is not just limited to the differential profit but also to the stability of exchange rates between the two currencies.
Strategy 7: News Straddling
News Straddling is also known as straddle trading. In this strategy, traders place two opposite currency pairs just before a fundamental news announcement or a successful event. Here, the traders can anticipate that the release of news will cause an eventual price movement. If you can relate it is a sign of market sentiment because the shift is based on the emotional attributes of traders.
Conclusion
The concluding highlight of this blog is the seven strategies that help forex traders survive in the forex market. We have given a brief and rough idea but a dedicated trader should know every inch of detail. We hope our fellow traders to learn more about it and earn a decent second income.
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