Trading of any form has the inherent feature of being risky. However, with the use of some known and popular strategies, traders aim to minimize the risk and be successful in their trades. The same applies to forex trading. Though there are many strategies, traders use only the ones, with which they are comfortable. It is important to note that not all strategies work for every one. This is because of the difference in the trading style and preference of traders, as no traders trade the same way. Therefore, to be successful, a trader should know which strategy to use and should be proficient at using it.

Forex arbitrage: under this strategy, the profits are made when there are price inefficiencies in multiple currencies. For e.g. 1 USD, buys 1.4 SGD and 1.4 SGD can buy 1.6 EUR. However, 1 USD is trading at 1.4 EUR. An arbitrage trader would buy the SGD, and then with the SGD buy the EUR. After this, he would sell to the USD, the EUR for a profit of .2 EUR.

Forex managed account: this strategy works well for those that are interested in currency trading but do not want to day trade. The strategy is akin to mutual funds, where funds are collected and put in buying positions in the forex market. The advantage with this strategy is that the trader gets the expertise of an expert money manager.

Range Trading: the resistance and support levels of a currency pair are the basis of range trading. When these levels are identified, a trader buys at the support level and sells at the resistance level. For those that are new it is important to understand what does support and resistance levels mean. When the price of the currency pair does not seem to go below a certain level, the price is stated to be the support level. On the contrary, the resistance level is the price, which is the highest price of a currency pair and it seems difficult that the pair would break through this level.

Trend Trading: Somewhat similar to the range trading is the trend trading. Here the trader should be able to identify a trend or range. Under this strategy, a trader continues buying as the price is going up. After a while, he puts trailing stops and gains when the prices are still rising. A complex strategy, trend trading requires experience of the market and an ability to spot the ranges and trends.

All these strategies are for advanced traders as they involve a lot of effort and time. New traders should use them only when they are completely conversant with them.

Leave a Reply

Risk Warning
Forex and CFDs are leveraged products that involve a high level of risk and may not be suitable for all investors. Please ensure you understand the risks you may incur and take into account your level of experience before entering this market. The best advice we can offer you is: you should not risk more than you can afford to lose.
Did you know that …
... the first thing that needs to be decided in binary options trading is what position needs to be taken, i.e. whether one should take a call or a put position? If the investor believes that the underlying asset’s value is going to decrease in the future, then it would be advisable to take a put binary option. And in case, the value is predicted to go up then a call option needs to be taken.