Top Forex Trading Strategies
Forex trading, also known as foreign exchange, pertains to the act of trading currencies on the foreign exchange market with the aim to make a profit.
It is also known as FX, and it is the largest and most liquid financial market in the world, with an average daily trading volume of over $6 trillion.
Mastering the rudiments of forex trading is essential for anyone who dreams of venturing into the foreign exchange market.
For anyone following forex trading jargon, currency pairs – quotations of one currency’s value compared with another – are trading targets.
For instance, in the currency pair EUR/USD, the Euro is the base currency – the amount of this currency one unit of the quote currency, USD, will buy.
Forex Trading Fundamentals You Must Know
The first thing you’ll learn is how to identify and remember these basic currency pairings, and then how to read forex trading charts, which show how the price of any currency pair moves over days, weeks, months, or years. These charts are the bread and butter of forex trading.
Getting started with forex trading can be thrilling as well as risky. With advancements in tools, it is essential to learn the nitty-gritty of forex trading, evolve your strategies, leverage tools for your benefit, as well as limit the risks to the utmost. It is also important to understand the factors that influence the market and to learn and adapt continually to survive and thrive in this fast-evolving world of forex trading.
You will be a forex trader; you can begin your forex trading now, but it will come only through effort, constancy, and the readiness to learn.
Forex Trading and Market Influences
Economic data, geopolitical developments, and market sentiment are a few of the factors that can impact the forex trading market. The volume of trading in forex is immense, and its power to influence financial markets is immense too. Understanding these factors offers insight and helps traders stay ahead of the curve.
For instance, the dollar posted gains on Tuesday after a stronger-than-forecast retail sales report, with the uptick in consumer spending (a gain of 1.2% in June, rather than the estimated drop of 0.3%) having no real impact on Federal Reserve fed funds rate expectations.
US retail spending was steady in June, not the 0.3% decrease estimated by economists. Resilient consumer spending reflects an underlying strength in the economy that could potentially boost growth in the second quarter of the year.
‘It’s not the overall number but it’s the ex-autos number, which was up considerably more than expected,’ said Joseph Trevisani, senior analyst at FX Street in New York.
‘It looks like the consumer’s still doing pretty well, and we all know that’s the base of the US economy. Aside from that, you know, interest rates are depressing auto sales, so aside from that and, of course, the housing market, it shows the consumer’s still doing pretty well.
Other data showed that US import prices were unchanged in June, as higher food prices were offset by lower energy prices, giving the Federal Reserve some flexibility to lower interest rates this year.
The dollar index – which gauges the greenback against a basket of currencies – rose 0.17% to 104.42. The Japanese yen fell 0.41% against the US dollar to 158.64 per dollar.
Markets are still fully pricing in a 25 basis point cut at the Federal Reserve’s September meeting, according to the CME’s FedWatch Tool.
Sterling weakened 0.12% to $1.2951 before British inflation data was due on Wednesday, and the euro pulled back 0.14% to $1.0879 ahead of a European Central Bank (ECB) meeting on Thursday.
The ECB is widely expected to keep rates on hold here, with markets looking to the comments of the president, Christine Lagarde, for hints on the timing of the next rate cut, with 25 basis point reduction in June.
It’s critical to stay up-to-date on these developments, and on their possible influence on the forex trading market so that you can make the right decisions about trades.
This means being aware of economic data releases, announcements from the world’s central banks, and geopolitical events that can affect such things.
For example, if the US’s National Bureau of Economic Research announces that the country has entered a recession, it could send the market into a state of panic and drive up or down the value of certain currencies.
Forex Trading Strategies
How to devise the best forex trading strategies, is an interesting question that every forex trader should thoroughly consider. Several forex trading strategies are used by traders aiming to achieve success in forex trading.
These strategies include their own guidelines and tactics.
One of the most prevalent forex strategies among technical analysts is the use of historical price data as a predictor of future price movements.
Traders who follow this strategy analyze price charts and extract soon-to-be repeating patterns that they entrust to guide them when making trading decisions. Their guides and rulers include but are not limited to, moving averages, Bollinger Bands, and the Relative Strength Index (RSI).
Fundamental analysis is the exchequer’s second most popular game, and it involves interpreting economic indicators, geopolitical events, and other factors that affect currency prices.
This approach often involves studying central bank interest-rate decisions, employment reports, and GDP growth to figure out the ‘fundamental value’ of a currency.
By combining technical and fundamental analysis you will gain a better view of the FX market.
However, we do suggest that you practice on a dummy account until you are comfortable with your trading strategies before committing real money, as this will allow you to get a feel for your approach.
Forex Trading Tools and Platforms
Forex trading will be much easier when you have tools and platforms that excel in providing the necessary details in real-time.
Many trading platforms in the forex market offer functions such as real-time quotes, charting, automated trading and more. Furthermore, specific software such as MetaTrader 4 (MT4) and MetaTrader 5 (MT5) are widely used by forex traders for the convenience of their user-friendly interface, broad functionality, and diverse range of tools and indicators.
There is, in fact, an abundance of tools, apps, calculators, and various services beyond the trading platforms: there are economic calendars for information about the upcoming economic event (from the week’s policy meeting to the day’s unemployment statistics), there are news feeds and analysis reports to keep you updated about the latest developments, as well as keep you from being caught by surprise, grabbing your finger in the bull-bear mechanism as it turns.
It can help you maximize your forex trading comfort zone, provided you know how to use these tools.
As with all areas of study, if you are new to trading, take the time to explore the tools and platforms available and determine which ones suit your trading style and needs.
Forex Trading Risks and Management
As much as forex trading is a way to generate income, there will always be some level of risk associated with it. This is why it is vital to understand these risks and to implement an adequate risk management strategy to save your capital in the forex trading lane.
A core risk-management practice is to book a trade with a stop-loss order: a trigger that shuts off a trade when it loses an amount equal to the order.
For example, if you book a stop-loss at -50 pips from your entry price, you want to limit your risk to -50 pips from your price of entry so, should the markets move against you, your trade will close automatically as soon as the price hits -50 pips.
Another critical risk-management technique is position sizing—deciding how many dollars to put into each of your trades against your available capital (ie, risk tolerance and account size).
This is the most common risk-management technique utilized by most large hedge funds – they’ll place 2% or maybe 4% at most into any one trade. Doing this ensures that losing trades do not hurt you too much.
A further risk management strategy is to spread your trades. Do not put all your capital into a single trade, or a single currency pair.
Put it into several trades and pairs. In this way, if there is a catastrophic movement against you on one trade, it will be counterbalanced by positive movements on your other trades.
Moreover, you need to brush up on the market conditions from time to time and be ready to adjust your strategies on the fly.
The Forex trading market is a dynamic one that constantly changes, therefore, being very flexible in terms of how you will use the new information to manage risk will be important if you want to stay ahead of the game.
Forex Trading: Continuous Learning and Adaptation
You should update yourself with market news and subscribe to the webinars of forex trading. This will help you to put yourself in the live market environment.
The more you stay on top of market trends and developments, the better you become at tracking whether your strategies can take advantage of changes, or if they put your capital at heightened risk.
If you find it helpful, there are plenty of online courses, webinars, tutorials, and books that can help you build market knowledge or skills for forex trading.
Furthermore, joining forex trading forums and communities might help you meet others who share your interests. It allows you to share your experiences with others, and get some feedback. Thus, participating in a trading community can also serve to motivate you, and help you stay inspired.
But also, the best traders are those who never stop learning and evolving their strategy. If you want to become a good forex trader, you need to commit to lifelong learning.
Disclaimer:
The information presented herein have been prepared by VPTrade and does not intend to constitute Investment Advice. The Information herein is provided as a general marketing communication for information purposes only.
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