In foreign exchange, trading strategies are a pre-set plan which is developed to attain a predictable, high-value return over a certain period of time. The advantages of a well-researched trading strategy are its consistency, quantitative reliability, verifiability, and objectivity. It works on the principle of supply and demand and can be used for both long-term and short-term trading. The fundamental factors that affect the trading strategies are interest rates, economic data, inflation, and political developments.
Every trader has a particular style and fashion in which he/she chooses to trade. A common feature among all successful traders is their ability to understand market conditions and apply the best trading strategies accordingly. It is important for a trader to understand that there are five (5) most critical trading factors which determine the overall results of a particular trade. They are the historical support, resistance, support, and trend line. These aspects of a strategy are so vital that they are the cornerstones of any good currency trade. Learn more about the best ninjatrader 8 indicators here.
Historical support: This is the tendency of the specific currency pair to survive or recover from a sustained decline or bull market position when applied with adequate patience and discipline. It is very important to note that trading strategies that are based on this criterion are called bearish trading strategies. On the contrary, traders who trade on stocks, bonds, or mutual funds need to be highly disciplined to sustain the losses.
News Trading Strategy: News trading strategies are the tactics of a day trader who derives his/her profit by anticipating market expectations from the release of major news stories. For example, if the chief executive of a company is asked to resign, news trading strategies will be focused on his removal. If a new chemical weapon is created which is capable of destroying large numbers of cars, news trading strategies will be centered on its introduction. In both cases, the news release has to contain very reliable information which can be interpreted as positive for the market in the short or long run. However, since no one can anticipate the future, most news trading strategies are either extremely bullish (bullish stock moves) or very bearish (bearish stock moves). Bearish trading strategies are employed by short-term traders and are not recommended for long-term trading.
Technical Trading Strategies: On the other hand, technical trading strategies are strategies based on the use of technical indicators and signals. The use of indicators like oscillators, support indicators, moving average convergence divergence (MACD), etc. can help traders make decisions about trading positions. These technical trading strategies are widely used by day traders and are also considered an excellent entry signal for day trading. The drawback of these trading strategies is that they have a very small chance of being successful.
Price Action Strategy: A price action strategy is probably the simplest and the least reliable of all the trading strategies. This strategy uses support and resistance levels in the market as its support and resistance levels. Since this strategy only relies on price action, it has a very small chance of being successful. The best strategy to use if you are new to the markets is the breakout strategy. This is the best strategy to use if you want to make money from short-term trends.
Time Horizon Trade Plan: On the other hand, time horizon trading strategies are designed to take advantage of longer time horizons and are considered medium-term trading strategies. Traders usually follow a two-week trading plan. With this type of strategy, you have to enter and exit your positions within two weeks. This type of strategy maximizes your profit potential since the volatility of prices goes down as time goes by. It does not allow you to take risks regarding market reversals because you will know when to exit your positions.
One of the most popular and yet the least successful trading strategies is the discretionary trading plan. Its popularity is due to its ease of use. You can use this strategy without having to worry about losing money. This is the type of strategy that most new traders are using in order to be able to free up some time for themselves. discretionary trading strategies are also good options for traders who do not want to spend too much time analyzing data. In fact, these types of strategies will allow traders to save a lot of money on trading costs.