The foreign exchange market, or Forex for short, is the largest and most liquid derivatives market globally. It consists of a financial transaction where one currency is traded for another, with the rates depending on the supply and demand of each currency.
The trader’s goal is to predict whether a given currency will go up or down about another and profit from that. While it may seem easy at first glance, there are thousands of factors that must be considered when deciding which direction a currency pair will move in next.
Classic strategies have been used by Forex traders for decades now with varying degrees of success. This article will cover some of the best ways to trade currencies moving forward these next few years.
The trend is your friend
A trader’s dream is to pick a currency pair and stay with it until the end of time. While this may seem like simple wishful thinking, it is possible for some investors who understand how trends work in the market.
After all, currencies do not always move up or down. There are times when prices will remain level through multiple transactions before moving again. A helpful strategy would be to identify a significant long-term downtrend and avoid entering trades at all.
On the other hand, if you look at an hourly chart and notice that a specific pair has been going up consistently since its last low point, then chances are you’re looking at a significant uptrend. Since you can expect this trend to continue, it would be a good idea to start trading in the direction of the movement and ride the wave until its culmination.
One of the essential factors in applying any of these strategies is having a solid understanding of technical analysis. By using tools such as Fibonacci retracements, support and resistance levels, or candlestick charts, an investor can vastly improve their chances for success.
A famous saying among Forex traders goes, “the trend is your friend until it ends.” It means that even though clear trends occur within currency pairs, no one knows when they’ll stop. It’s a good idea to ride a wave of momentum until it becomes clear that the price will not go up anymore or that an immediate reversal is about to occur. You are being too stubborn, and sticking with your strategy when wrong can result in significant losses if left for too long.
Don’t be greedy
Many traders make mistakes by entering a trade without considering all information at their disposal. A quick way to know whether you should stop trading altogether is knowing when the market has reacted to your plan several times without any significant changes in price movement.
If you notice that the price has remained in a low or high area for extended periods without making any significant adjustments, it would be wise to stop trading and take the next few days/weeks off.
What’s your strategy?
All Forex traders know the difficulty of predicting the market. Even though we’ve covered several successful strategies in this article, we can’t stress enough how unpredictable currency markets genuinely are.
There are countless factors affecting movement within a currency pair, so getting an edge over other investors is essential if you want to succeed in this business. While no strategy will guarantee results, trading in the direction of significant trends is a great way to get started.
These are just some of the best strategies you should consider when investing in Forex. Remember that there’s no surefire way to predict where prices will go next, so make sure to use all information sources at your disposal before deciding which strategy is right for you.