A Forex trading strategy can be regarded as somewhat of a map that is used to guide one’s decisions, in an effort to best capitalise on market activity.
WHY STRATEGIES ARE IMPORTANT
As in any undertaking, especially in business and money-making efforts, planning and strategizing is very important. This is also the case when it comes to Forex trading, as strategizing will better guide your activity and improve your chances of capitalising on market activity. Simply put, a Forex trading strategy is a planned process or system that you use to inform your trading decisions and identify the most lucrative entry and exit points.
There are several strategies to choose from, and the decision on which one to choose is based on factors such as your risk tolerance, trading frequency and your target or overall objective. Moreover, your resources are also to be considered when it comes to choosing a strategy, which is why there is no one-size-fits-all trading strategy. Upon deciding on a strategy, some experts suggest using the demo accounts that are made available by credible online brokers, as a way to test your strategy.
TOP STRATEGIES FO 2021
While every strategy carries with it a certain level of uncertainty, for 2021, some people are championing News Trading. Although this strategy is not necessarily advised for novice traders, it is suitable for those with a relatively higher risk tolerance. A higher risk appetite also puts the trader in a position to potentially enjoy high returns. This strategy requires you to closely monitor economic data and global conditions which may affect your trading. Someone who has been trading Forex on the US market, for example, was impacted by the release of the country’s unemployment data earlier in the year, following the tumultuous conditions of 2020, which ultimately put pressure on the dollar versus other currencies.
A strategy that is recommended for short-term traders is Day Trading. As the name suggests, this strategy is particularly concerned with intraday movement and decreases the chances of being affected by extreme market movements over a long period of time. A candlestick chart is a popular analysis tool for the Day Trading strategy, as it provides indicators of when the exchange rate moves beyond a certain level on it.
Based on historic data and trends, one could also opt for the Trends Trading strategy. The ultimate goal of this strategy is to capitalise on market trends that have been prevailing. Therefore, the idea is to hold on to a position for as long as the trend appears to be on an upward or positive trajectory, and then being pre-emptive of the most opportune time to let go of the position once the trend starts reversing.
CURRENCY PAIRS TO KEEP AN EYE ON
Currency pairs are a measure of the strength of one currency against the other, with the top six most traded pairs reportedly being the EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CAD and the USD/CNY. As evidenced by the list, the USD remains a currency of interest across the globe, in fact, it has been reported that it is involved in approximately 75% of all trading activity, which is further proof of the role of the US economy in the world.
The EUR/USD pairing is one that traders consistently monitor. Of late, the USD has been strengthening against the Euro for several reasons, one of which is the faster growth and recovery that the American economy has been experiencing, relative to Europe’s. These currencies are generally perceived as having the most worldwide volume of trade and economic power or activity, making them the most volatile.
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