Forex Strategies
Various strategies are employed in Forex trading. The trading time frames can also be very different. There are strategies that are specifically geared towards very short-term trades, some of which may take only a few seconds. There are, however, also traders who use primarily long-term strategies with positions that may remain open for several months. Long-term strategies are generally based on macroeconomic analyses. Short-term strategies are more likely to be based on technical analyses of the exchange rate movements, involving different indicators and models. However, none of these strategies are able to guarantee profits. The execution and timing of the chosen strategy are therefore critical.
To illustrate the diversity of strategies in the foreign exchange market, we will discuss a number of well-known and popular types of strategies below. Click here to read more about the strategy employed by Mulder FX.
Scalping
Scalping is quick momentum trading with the goal of only creaming of a profit of 1-5 pips within a single trading session. We speak of scalping if the trades last less than 2 minutes. If the trades last longer, we speak of intra-day trading. Scalping may result in a large number of small profits and/or a small number of large losses. In order to rule out the emotional element, various computer systems have been developed to facilitate this type of trading.
Event-driven trading
This involves anticipating exchange rate movements caused by special events. The date on which certain macroeconomic figures are going to be made public is usually known well in advance. For example, the non-farm payroll report, containing the American employment figures, is released every first Friday of the month at 14:30 CET. This is an important indicator of the American economy and has a large impact on the exchange rates, particularly if the figures do not meet the expectations. The larger the movement, the more chances there will be for traders.
Range trading
Range trading becomes interesting at times when exchange rates move calmly between certain levels. The first step is establishing the range, and determining the resistance and support levels. Subsequently, traders will buy when the rate is near the lowest level and sell at the highest level. Under calm market conditions, the rate will often go up and down a few times within the range. Some currency pairs are more suitable for this strategy than others. For example, the EUR/CHF is a suitable pair for this because the Swiss economy is strongly linked to the European economy and therefore the exchange rate movements will not often break through or fall below the range.
