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A trader uses a forex trading strategy to determine when to place a buy or sell order for an asset. A sound trading strategy includes both entry and exit criteria. It should take the guesswork out of the process. Let’s start with a quick overview of forex trading.
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What is Forex Trading?
Exchanging currencies on the world currency market is known as forex trading. With massive daily trading volumes, this market is extremely dynamic and busy.
- In India, you can only engage in currency futures. There is no facility for spot or cash transactions.
- The Bombay Stock Exchange, National Stock Exchange, and Multi Commodity Exchange of India Ltd. (MCX) are three stock exchanges that permit currency trading.
- You must have a forex trading account to trade on the currency market.
- It is open from 9 a.m. to 5 p.m.
- Only four currency pairings are available for trading in currency futures: Indian Rupee (INR) Vs. Euro (EUR), INR Vs British Pound (GBP), INR Vs US Dollar (USD), and INR Vs Japanese Yen (JPY).
Forex trading is a bit risky. However, it may make your life a little easier if you know the appropriate trading strategies. So, let’s look at the top forex trading strategies you should use.
Useful Forex Trading Strategies
There are a number of currency trading strategies. The following are some of the top trading strategies for forex trading.
Position Trading Strategy
Position trading is a long-term forex trading technique that entails keeping positions open for long periods of time and adopting a long-term perspective on the market. This may be weeks, months, or even years. The objective is to ride the major market movements. Position traders, in general, are more concerned with the market’s broad direction than they are with the day-to-day price swings.
Several distinct methods of trading positions exist. Simply purchasing an asset and holding it for an extended length of time is one strategy. Purchasing an item and then selling it when the value reaches your target price is another option. Finally, you can short-sell an asset in the hope that its value will drop, allowing you to repurchase it at a discount and make a profit.
Focusing on the larger picture is one of the most important things to keep in mind while position trading. This entails focusing on longer-term charts and indications rather than allowing short-term market noise to divert you. You may also safeguard your investments by utilising risk management tools like stop-loss orders.
Position trading is something you first try out before you do. You should learn more about it and practice on a demo account. Reputed firms like Share India offer demo trading accounts where you can practice all types of trading strategies. This will enable you to determine whether this approach is suitable for you and how it functions.
Swing Trading Strategy
Swing trading is a short-term strategy that entails placing trades that are valid for a few days to a few weeks. Swing trading has several advantages over day trading. The key one is the ability to take advantage of greater price changes. Because you are holding your transactions for a longer period of time, you can ride out market ups and downs. Plus, unlike day trading, you won’t need to spend the entire day glued to your screen. Additionally, you can easily integrate swing trading into your hectic schedule. This is because you only need to spend a short amount of time on daily chart reading.
One of the key components of any effective swing trading strategy is risk control. In order to limit losses, this entails placing stop losses and reaping gains at specified levels. Never risk more than 2% of your capital on any trade. This will ensure that you have enough money to continue to swing trading even if the deal does not turn out well for you. You want equities that won’t fluctuate during the trading day but still have enough volume for you to enter and exit positions.
Nicolas Darvas Trading System
The Nicolas Darvas Trading System is a short-term trading method created for the 15-minute chart. Nicolas Darvas discovered that a trend will continue to move in “boxes” once a clearly defined bullish or bearish trend has emerged. A ‘box’ is the price fluctuating ‘fairly consistently between a low and a high point’.
The 20-day moving averages are a technical indicator that the Nicolas Darvas Trading System employs in addition to its primary focus on price action. Using the 20-day moving average, traders may identify the broad market trend and make sure that only transactions are open in the direction of the dominant trend. The technique is simple. You can only purchase the upside breakout of the Darvas box if it forms above the 20-day moving average, and you can only sell it if it does the opposite.
4-Hour RSI Bollinger Bands Strategy
If you don’t want to spend your entire day in front of a computer, the 4-Hour RSI Bollinger Bands Strategy is a solid forex trading method for you. This non-directional method produces buy and sell indications over the next four hours. The RSI indicator will predict the direction in which the market will go after it breaks out of the price range. Meanwhile, the Bollinger Bands indicator will predict when the price range will begin to narrow.
This strategy’s strength is in its attempt to predict the breakout direction. This means that you will often be in a trade before the break really occurs, which is advantageous since it raises your profit margins.
RSI Stochastic Divergence Strategy
A trend-following approach that makes use of many technical indicators to identify the greatest trading opportunities is the RSI Stochastic Divergence approach. The stochastic indicator is a more effective tool than the standard divergence. It can provide us with an advantage when looking for concealed divergence. The crossover system of the 20 and 50 moving averages is used to identify the trend direction. The RSI indicator is utilised for further confirmation. A trade is only entered when the RSI crosses above or below the 50 line. Anywhere from the 1 hour up to the daily time range can use this method.
Bollinger Bands and Stochastic Strategy
The Bollinger Bands and Stochastic Strategy is a reversion to the mean strategy. It can provide us with little risk and high potential reward opportunities. The stochastic indicator is intended to identify probable overbought and oversold price positions from which the market might reverse. Meanwhile, the Bollinger Bands are used to assess the standard deviation, which is a measure of volatility. The 5-minute chart is the optimum time frame for the Bollinger Bands and Stochastic strategy, which makes it an excellent scalping technique.
Price Action Trend Strategy
A trading technique that produces successful buy and sell signals with a high level of accuracy is the Price Action Trend indicator. Although the 5-minute chart is the optimal time period for this method, it can perform even better on longer time frames. It may produce both trend reversal and continuation indications. So, this method is incredibly flexible. This trading approach is really simple to use if you are just getting started. All you need to do is purchase when a green arrow appears on the chart and sell when a red arrow does.
Range Scalping Strategy
A simple method that will enable you to benefit from the market’s range is the range scaling strategy. You may draw trendlines within a trading range, and frequently, these trendlines serve as excellent entry points for range trades. The underlying idea behind this method is that once a breakthrough of these intra-range trendlines takes place, it signals a change in momentum and raises the chances of a reversal.
Bollinger Breakout Strategy
This method, based on the Bollinger Bands, aims to assist you in identifying the beginning of a new trend. Bollinger enters a squeeze before the trend begins. A break in either direction suggests the potential beginning of a trend. It would be profitable to enter a sell trade at the lower Bollinger’s breakout. It is a buy trade if the breakout takes place on the higher Bollinger band. Place the stop loss limit precisely above or below the candles in the squeeze region for a breakout entry. Use a fixed profit target or a trailing stop to protect your earnings.
Conclusion
To create the best forex trading strategy for trading in the forex market, you should consider important elements such as trading opportunities, the risk-to-reward ratio, and the time required for fundamental/technical research. There are several forex trading strategies. Position trading, scalp trading, and Bollinger Bands breakout strategy are a few of them. If you properly learn and practise these strategies, you can be successful in the forex market. In addition, remember to pick a trustworthy financial partner while creating your forex trading account for trading in India. A trading platform like Share India is one where you can implement your strategies and trade efficiently.