Chances are, you may have learned about the theories of many forex trading strategies and their variants from various forex trading gurus, for different economic situations. These strategies may have worked for them and many other people, but do remember to take any trading strategy with a grain of salt.
However, there are reliable, low-risk and safe forex trading strategies that form the foundation for all the different types of strategies you’ve heard of, so it’s important to get to know them well. Let’s get started!
1. Trend trading strategy
In principle, low-risk trading happens in low volatility markets. It’s no accident that the major currencies are the USD, GBP, EUR, AUD, CAD and CHF. These are currently the world’s most stable currencies, and daily fluctuations between them are not so great.
Low volatility is great for predicting trends. Without so much noise, you can confidently use technical analysis to make predictions and create a target pip earning over a period of several weeks to months.
Fundamental analysis can also be used to make predictions in trends, particularly during global economic shocks such as the one happening at the time of this article.
2. Reversal trading strategy
A more specific version of trend trading is reversal trading. With trend trading, you are focusing on only the appreciation of your purchased currency, and will hold that position until you are ready to convert it back to your base currency.
However, it is rare for a currency pair to continue to move in one trend, even for over several months. For example, since early 2017, EUR/USD has appreciated from 1.05 EUR to 1.23 EUR per 1 USD by the end of 2017.
Since then, the EUR depreciates at a steady rate for 2 years to 1.08 EUR per USD in April 2020. If a trader had only relied on the EUR/USD trend, they wouldn’t be able to make any profit off of the euro for 2 years. However, with reversal trading, the trader can switch to trade euros for US dollars when the reversal happens. Regardless of the currency, you will still make a profit.
3. Swing trading strategy
A more short-term variant of trend trading and reversal trading combo is swing trading. This can take place within a week, and it’s a common practice for most advanced traders.
Swing trading requires heavily on technical analysis rather than fundamental analysis, because it takes note of the short-term market behavior rather than the long-term consequences of trading news and reports.
If you are still a beginner, it is not a recommended strategy as you may be overwhelmed by volatility and risk panic buying/selling.
Trade with FBS
Trend trading, reversal trading, and swing trading are common practices in forex trading and they apply to other financial instruments as well. Whether you are doing online forex trading or trading in the stock market, these three strategies are reliable. FBS is an online forex trading company that lowers the entry cost of beginners and helps advanced traders make more profit.
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