Forex Trading Strategies
In the foreign exchange market, there are several different forex trading strategies from which to choose. No forex trading strategy is perfect; different strategies work well for different traders. When it comes to choosing forex strategies, consider what type of trader you are. Once you identify and correlate your personality to a specific type of trading style, you can start investigating different trading strategies that fit you and your style of trading. A few strategies are outlined below.
Proprietary trading means using one’s own money in trading activity to make a profit. Proprietary traders are banks, corporations, even brokers, although they are mainly in the business of trading with client capital. Individual traders can relate to this, as they are also proprietary traders. All proprietary traders have the ability to trade on the same information from fundamental announcements that the banks do. Essentially, all individual traders – with few exceptions – are proprietary traders.
Fibonacci trading uses mathematical patterns to associate past market behavior with potential future market movement. Although trading the Fibonacci numbers in most cases can be very accurate, some traders use the Fibonacci trading in concert with other trading strategies to improve accuracy.
Trend trading is another strategy that tries to capitalize on long-term moves or trends in the market. A subset of the Fibonacci method called the ABCD pattern is a form of trend trading. In most cases, these methods can be very profitable; however, they can also represent a much greater risk.
Contract for Difference – or CFD Trading – is similar to what is also known as hedging in other markets. Contracts For Difference are traded between individual traders and CFD providers (brokers). The CFD is started by making an opening trade on a particular instrument with the CFD provider. This creates a ‘position’ in that instrument. There is no expiration date, so the position is closed when a second reverse trade is made. At that point, the difference between the opening trade and the closing trade is paid as profit or loss.
These are just a few of the several different trading strategies to choose from in the forex market. Committing a good amount of time deciding what kind of trader you are (or want to be) and identifying your goals is the key to finding the right strategy for you.