Various trading statergies used in Forex trading

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When one enters a position whether long(buy) or short(sell) one can either make profit or suffer a loss in it. Market moves either up or down, and to make money we need to trade in the direction of the market. The important question is 'how do I pick the right direction?

Strategies are a systematic and planned course of action based on market's behavior, price patterns and trend. There are a multitude of strategies for Forex trading. 

Trading Market's trend

Trend is your friend. Be it life or in Forex. Trading trend means trading in the direction of the market which is going on over an extended period of time. Currency pairs often take either 'bullish' (up) or 'bearish' (down) trend.

So, when one trades in the direction of the market it means the person is hopeful that the market would continue to trend in that particular direction for some more time. So, trader places a trade in market's trend and books profit. This strategy is by far the most popular strategy for trading currency.

Trends can be short-term trends or long-term trends. Every chart has time frames from 1 minute till monthly time frame. So, if the market of a particular currency pair is down in the one hour time frame for last few days then its short term down trend. One can enter a sell deal and book profit in few hours to a day. But the same currency pair might show up trend in day chart for last one month. It means long term the pair has up trend. One can enter buy trade with a little wider stop-loss and bigger take profit to be closed in a week or so.

The Ranging Strategy

The Ranging Strategy occurs when a currency is trading between a set upper and lower limit and seems to constantly bounce up and down between the high and low limit. For example- we see EURO/US is bouncing down when its reaching price zone of 1.3200 and it's bouncing up when the price is about 1.2945 time and again in the last few days/week. It means EURO/US is trading in the range between 1.2945-1.3200. So, to trade Ranging market one would go for sell trade when price is around 1.3200 and one would go for buy trade when the price is around 1.2945.

The Breakout Strategy

The Breakout Strategy is the break out of a sideways trend. It means trading in the new direction of the market which is formed when the price of a pair breaches a particular price from which market was bouncing up or down many times in recent times. For example- EURO/US was trading in the range of 1.3200 and 1.2945. It means the market was getting down the moment price was around 1.3200 and market was getting up the moment price was around 1.2945. So, break out strategy traders wait and see if the market finally manages to breach the range/bouncing points. So, if the market breaches 1.3200 by 20-30 pips there is a greater chance of market keep on going up in that direction for another 100 or more pips. So, break out strategy traders would enter buy deal when market breaches the bouncing price of 1.3200 by  decent amount of pips. Likewise- if the market breaches the bouncing up rate of 1.2945 by 25-30 pips trader would go short(sell) in that direction. So, break out traders basically trade the breaking of cycle or range of a currency pair.

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Disclaimer- Like any other business Forex Trading too comes with certain risk. One might lose money if not done properly. Never invest money you can’t afford to lose. That’s the first rule for any business. Forex Trading is not suitable for everyone