Every day, the foreign exchange sees volumes reaching 6 trillion US dollars. Thanks to modern technologies, anyone can access the market online. Forex brokers in South Africa provide cutting-edge solutions for trading from home. But how should you choose the right strategy?
Basics of Forex Strategies
Strategic thinking is important for any trader. The currency market never stands still. Rates are always in flux. Hence, it is not easy to predict the best entry or exit point.
Traders have multiple price charts at their fingertips. However, you need to think beyond each trade. Look at the bigger picture, so you are not distracted by momentary shifts.
Humans are irrational by nature. Strong emotions (such as panic or excitement) may cause us to stray away from the initial plan. However, planning in Forex is crucial. Do not just react to current changes. Think strategically.
Elements of Successful Strategies
It does not matter which currency pair you choose. Determine the following parameters for each trade. These are fundamental characteristics of Forex operations.
Analyze volumes to see how much interest there is. When volumes increase, this is a sign of growing appeal. Shrinking means that market participants are losing interest. This is a universal rule for all tradable instruments. So, how can you use it?
Volumes and prices are interconnected. As demand grows, you can expect the currency to appreciate. The instrument will change hands more frequently, and it will be perceived as more valuable. Day traders focus on the ‘average daily trading volume.’
Liquid instruments are easy to buy and sell. This is because parties do not have difficulty connecting in this over-the-counter marketplace. Majors and Minors offer the most liquidity, as they include the world’s most popular currencies. Exotic pairs are the least liquid. They represent emerging economies which are often unstable.
The term applies to any tradable instrument beyond Forex strategies. For example, commodities like crude oil or precious metals are traditionally seen as a liquid. There is always a demand for these resources, and supply is adequate.
The more volatile the currency — the more dramatic the changes. Such instruments lose or gain value quickly, and traders may capitalize on short-term swings. Thus, volatile currencies offer wider ranges of profit. However, they are also riskier.
For instance, consider Bitcoin. This cryptocurrency has gone through extreme ups and downs over the past few years. Since March 2020, it has been in free fall.
How to Choose
No single strategy is guaranteed to bring returns. Everything relies on the market and your ability to analyse it. Use the demo mode of your trading terminal to try these Forex strategies in practice. Choose the one you feel comfortable pursuing.
Forex is not only about knowledge. Success requires a special mindset. Traders need to be resilient and persistent. They should also be willing to learn, as learning will be incessant. Do not expect spectacular profit from the start.
Key Trading Styles
The term ‘style’ is broader than ‘strategy’. Styles determine the acceptable length and frequency of trades. Thus, there are two questions to ask yourself. First, how many trades per day do you need? Secondly, how long are you planning to keep each position open? Here are the most common styles according to the ForexTime broker.
1. Day Style
Here, trades are opened and closed within the same day. Thus, each position remains open for up to a few hours. The approach works for markets with considerable volatility, as they see ups and downs throughout the day.
2. Scalping Style
This style is the most hurried. Traders dip in and out of the market several times per day. The more experienced the trader is — the higher the frequency. Profits are steady but moderate.
3. Swing Style
Swing trades can last several days. Risk is generally higher, as positions remain open overnight. This means that shocking news arriving in the late hours may cause a turnaround.
4. Position Style
This style requires you to take a long view. It is not necessary to monitor the market all the time. Traders ignore momentary drops, as they look out for strong trends.
Example: Breakout Strategy
Support and resistance are the two pillars of this strategy. A trader waits for the price to break out of its current range. If it goes up, surpassing resistance, it is expected to keep on growing. If it falls below support, it is predicted to continue falling. Therefore, as soon as a breakout happens, the trader opens a long or short position.
No Single Strategy
Your results depend on your own skills, tools, and mindset. It is important to think strategically and avoid emotional impulses. There is no universal style for success. Choose the system that suits your goals and available resources. Manage risks, diversify, and review performance regularly.