Different Trading Strategies

Fundamental Analysis

In Fundamental Analysis, traders will look at the fundamental indicators of an economy to try to understand whether a currency is undervalued or overvalued, and how its value is likely to move relative to another currency. Fundamental analysis can be highly complex, involving the many elements of a country's economic data that can indicate future trade and investment trends.

A good place for traders to start, however, is in analyzing currency inflows and outflows of an economy, which are often published by the nation's central bank

. Additionally, they may rely on news and data releases from a country to get a notion of future currency trends.

Technical Analysis

Technical analysis is another main category of currency trading strategies that is highly favored among traders. Most often it involves reviewing the past and recent behavior of currency price trends on charts to determine where they may move going forward. The rationale behind using technical analysis is that many traders believe that market movements are ultimately determined by supply, demand and mass market psychology, which establishes limits and ranges for currency prices to move upward and downward.

Technical analysis encompasses a long list of individual methods used to detect likely currency trends. Many traders appreciate technical analysis because they feel it gives them an objective, visual and scientific basis for determining when to buy and sell currencies.

Trend Trading

Day Trading Trends is one of the most popular and common Forex Trading Strategies. It involves identifying an upward or downward trend in a currency price movement and choosing trade entry and exit points based on the positioning of the currency's price within the trend and the trend's relative strength.

Traders will often cite the phrase, "The trend is your friend," as a reminder that recent trends can be reliable indicators of where prices are likely to go moving forward and where to best set up trade entry and exit points. Trend traders use a variety of tools to evaluate trends, such as moving averages, relative strength indicators, volume measurements, directional indices and stochastic's.

Range Trading

Range Trading is a simple and popular strategy based on the idea that prices can often hold within a steady and predictable range for a given period of time. That's particularly evident in markets involving stable and predictable economies, and currencies that aren't often subject to surprise news events.

Range traders rely on being able to frequently buy and sell at predictable highs and lows of resistance and support, sometimes repeatedly over one or more trading sessions. Range traders may use some of the same tools as trend traders to identify opportune trade entry and exit levels, including the relative strength index, the commodity channel index and stochastic's.

Momentum Trading

Momentum Trading and momentum indicators are based on the notion that strong price movements in a particular direction are a likely indication that a price trend will continue in that direction. Similarly, weakening movements indicate that a trend has lost strength and could be headed for a reversal. Momentum strategies may take into consideration both price and volume, and often use analysis of graphic aides like oscillators and candlestick charts.

Swing Trading

Typically, swing trading involves holding a position either long or short for more than one trading session, but usually not longer than several weeks or a couple months. This is a general time frame, as some trades may last longer than a couple of months, yet the trader may still consider them swing trades. Swing trades can also occur during a trading session, though this is a fairy rare outcome that is brought about by extremely volatile conditions.

The goal of swing trading is to capture a chunk of a potential price move. While some traders seek out volatile stocks with lots of movement, others may prefer more sedate stocks. In either case, swing trading is the process of identifying where an asset's price is likely to move next, entering a position, and then capturing a chunk of the profit if that move materializes.

Successful swing traders are only looking to capture a chunk of the expected price move, and then move on to the next opportunity.

Forex Day Trading Strategy

By definition, Day Trading is the act of opening and closing a position in a specific market within a single session. Although it is sometimes referenced in a negative connotation, day trading is a legal and permitted means of engaging the capital markets. In fact, it benefits practitioners in several ways:

Limited Risk: Day trading is a short-term strategy that does not require the trader to hold an open position in the market for an extended period. Subsequently, exposure to systemic and market risks are greatly reduced.
Decreased Opportunity Cost: The trading account's liquidity is ensured due to the intraday duration's of trade execution. Risk capital is not committed to a single trade for a long period of time; this element frees up the trader to pursue other opportunities.
Regular Cash Flow: Day trading allows for a regular cash flow to be generated. While profits are not guaranteed, a daily P&L is calculated. As a result, gains are realized much faster in comparison to more traditional investment strategies.

A Forex day trading strategy may be rooted in either technical or fundamental analysis. Some of the most common types are designed to capitalize upon breakouts, trending and range-bound currency pairs.

Compared to other markets, the availability of leverage and diverse options make the Forex a target-rich environment for day traders. In addition, one has the flexibility to benefit from being either long or short a currency pair. When taken together, these three factors effectively open the door to myriad unique Forex day trading strategies.

Position Trading

Position Trading is a long-term strategy that may play out over periods of weeks, months or even years. Position traders often base their strategies on long-term macroeconomic trends of different economies. They also typically operate with low levels of leverage and smaller trade sizes with the expectation of possibly profiting on large price movements over a long period of time.

These traders are more likely to rely on fundamental analysis together with technical indicators to choose their entry and exit levels. This type of trading may require greater levels of patience and stamina from traders, and may not be desirable for those seeking to turn a fast profit in a day-trading situation