The forex market may be a tad overwhelming for those who haven’t tried investing in financial markets yet. However, one must appreciate that it’s the largest, most liquid financial market. So, forex investing is definitely a must-try venture.
If you’re not sure, however, where to start, here are some of the most common strategies that you can use when investing in the forex market.
Short-Term Trend-Following Strategy
One of the simplest strategies you can use when dealing with the forex market is the short-term trend-following strategy.
All you have to do is review the daily and weekly charts. Your goal is to find a trend (uptrend or downtrend) that is easy to get in and follow.
The downside to this type of strategy is that the moves look small on the charts, but they can actually span 100 pips at a time. The safe way to do this is to trade small.
You can prioritize conservative allocation when you enter and let the trade move forward a bit. Set a stop order and plan your target.
This strategy is pretty popular for beginners since they aren’t required to watch the market constantly. They can simply trade on their free time.
Carry trading refers to the strategy where you buy and hold a currency that pays high interest rate against a currency that sports low interest rates.
Each day, you receive rollover payments for the interest difference between the two currencies. The good thing about this strategy is that even when the trade isn’t moving, you can some money in your account on a daily basis.
And because forex trading is highly leveraged, the payments you receive are based on the size of your trade and not the capital.
The disadvantage of carry trading is that the interest rate differentials aren’t really much when you compare them to the risks that the trader is taking.
At the same time, the currencies are good for carry trading are often sensitive to news that poses great risks to the global markets.
To put it another way, when the market is good, your carry trade will reward you steady and nice profits. But if the market stumbles, your trade may plunge very hard and very fast.
The forex market is a 24-hour market. That’s true even though the most active trading times aren’t 24 hours. Depending on the pair that you like to trade, you can pick and choose your own trading time.
Day trading makes use of this time flexibility with the help of technical analysis. In this strategy, you analyze price history using technical tools and open and close a trade in the same trading day.
Considered to be the polar opposite of technical trading, fundamental trading makes use of the news in several countries, keeping an eye for economic trends.
They consider the macroeconomic factors that affect the currencies in a pair. They then trade the currency with the strong economic trend against a currency with a relatively weak economic trend.