Trading currency pairs is one of the most effective ways to enjoy short-term profits. However, the liquid nature of the Forex sector also signifies that a fair amount of risk is involved.
This is why it is always important to implement the latest strategies into your overall approach.
Let us quickly examine five methods which can be used to supplement your existing techniques and provide you with a broader understanding of the FX markets in general.
1. Monitoring Non-Farm Payroll Statistics
Although some readers may already be aware of the United States non-farm payroll figures, their relationship to currency trading is rather interesting.
The meaning of NFP in Forex is associated with the strength of the United States dollar. Bearish non-farm payroll information may signal an economic contraction.
On the contrary, positive NFP statistics will often signal a bullish outlook. Both of these can have a direct impact on the value of the dollar.
2. Trend Trading
This next approach is arguably the simplest and often suited for those with a limited amount of expertise. As the term suggests, investors will follow the medium-term movements of a specific currency pair (such as USD/GBP).
The primary benefit is that it tends to be relatively easy to identify overbought and/or oversold positions. Furthermore, trend trading is typically not plagued by the levels of volatility frequently associated with short-term positions (which we will discuss later).
Momentum indicators, such as stochastic oscillators and the Relative Strength Index, are two standard technical tools commonly used in trend-based trading.
3. Retracements
What goes up can (and will) come back down. This is perhaps the easiest way to describe retracement trading. The price of a specific asset (in this case, a currency pair) will occasionally reverse before continuing along the same trend.
Many believe that these temporary movements offer excellent opportunities for involvement in a short- to medium-term position. Note that retracements can be used during bullish and bearish conditions.
However, it is essential to know the difference between a retracement and a reversal. A retracement involves a relatively rapid short-term departure from the prevailing trend, followed by a return to the previous direction.
A reversal signifies that market sentiment has shifted, signalling the end of a trend and a movement in the opposite direction.
4. Scalping
Some individuals are drawn to the Forex market due to its fast-paced nature. Unlike many other asset classes, it is possible to execute trades within an extremely short timeframe. This is when scalping comes into play.
Scalping involves taking advantage of rapid price movements with the intention of turning a quick profit. Day traders may include scalping within their existing array of investment strategies. Let us examine an example of a 1-minute scalping strategy.
A trader may compare the price fluctuations of a currency pair in relation to existing Bollinger bands and the Relative Strength Index. The goal is to identify and capitalise on any short-term trend reversals in the market.
Please note that scalping carries a significant risk. This type of Forex trade should only be considered after having gained real-world experience. It is also crucial to partner with a reputable investment platform that offers a diverse range of technical indicators.
5. Candlestick Analysis
This strategy represents one of the fundamental principles of any successful long-term trading approach.
Candlestick charts are used to analyse the latest price movements, spot trends, identify support and resistance levels, and determine potential entry points.
Recognising various patterns is likewise essential to “read” the information being displayed. Some common candlestick patterns include:
- Bullish engulfing
- Doji
- Hanging man
- Morning star
- Three white soldiers
Each of these will provide the insight required to make sound judgment calls, mainly when used in conjunction with other technical analyses. Furthermore, the approaches discussed in prior sections of this article can be employed in synergy with candlestick charts.
Time and Patience
Becoming a successful trader involves developing a sense of realism, especially considering the time frame required to learn the finer points. It is also wise to focus your efforts on a single strategy, rather than becoming overwhelmed by too much information at any given time.
Whether you are new to the Forex marketplace or you are hoping to hone your skills further, the team at Exness is always here to help. Please get in touch with us to learn more about our client-centred services.
