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The 3 Most Popular Forex Trading Strategies Revealed

Popular Forex Trading Strategies Revealed

The foreign exchange market is a popular choice among investors. Its volatile nature can provide attractive opportunities to profit. Of course, with volatility comes the risk of making losses. The key to averting or minimizing these losses is to do your research and have a well-developed plan. To help you to stay on track, you should implement a forex trading strategy. There is no ‘one size fits all’ approach to trading. So, prior to choosing a strategy, it’s vital that you have a good understanding of your trading style and habits.

To help you to decide which forex trading strategy is the right fit for you, you could open a free demo account when forex trading on platforms like Plus500. This allows you to practice trading without investing your capital. To help you get started, this article reveals some of the most popular strategical approaches.

1. Scalping

If you have plenty of time to commit to your trade, then you might want to consider scalping. This consists of opening multiple trades over a brief period of time. Thus, aiming to make a collection of small profits. Traders who adopt a scalping strategy make frequent trades. They have to open and close them quickly in order to limit losses. This means that you’ll have to have to monitor the market closely. This means you typically only hold a position for a matter of minutes.

As we previously mentioned, the forex market is extremely volatile. Thus, short-term price fluctuations can occur regularly. Scalping is tailored to help you to take advantage of these brief market changes. Simply, entering and exiting the market quickly to capitalize on price movements.

This strategy will require you to constantly analyze data and oversee charts, to assess when a short-term change is likely to occur and how you will act upon it. However, if effectively conceived, it could result in a collection of small profits. These can accumulate over time to provide you with healthy returns on your investment.

2. Swing trading

On the other hand, if you’re not wanting to dedicate so much time analyzing data and opening and closing positions, you might want to opt for a medium-term trading strategy. Swing trading will require you to have a patient disposition. You’ll have to hold a position for a minimum of two days, or you could leave it open for several weeks.

This strategy suits those individuals who don’t have time to dedicate hours doing fundamental and technical analysis. Using a swing trading strategy, you could monitor the charts for just a few hours per night. However, it’s important to note that this approach could put you at risk of overnight market changes and gapping.

3. Day Trading

As you’ve probably already guessed, day trading is an approach that will require you to open and close all trades in one day. On the day of the trade, you’ll have to analyze the market activity. However, much of the success of a day trader can be attributed to their planning ahead of the trading day.

This includes using an economic calendar to identify political and financial events which could cause interest rates to change. This subsequently drive prices in the market. Day trading also involves setting a risk limit. This will cap your losses when they reach a certain level, safeguarding your capital.

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You should choose a strategy that not only works around your lifestyle but will help you to best achieve your financial goals. Depending on the time that you have to dedicate to fundamental and technical analysis, opening positions, and speculating on price movements, some strategies will work far better for you than others.

If you’re a complete beginner when it comes to forex trading, it may be worth opening a demo account on an online trading platform before you invest your own capital. This will allow you to deduce your trading style and get to grips with the market without the risk.

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