There are four primary types of forex trading strategies; scalping, day trading, Swing trading and position trading. Each of these different trading strategies vary widely in the time frame that they are open for and the amount of time they are open for. Of course, the risk associated with any of these strategies is higher when the time frame is shorter. For example, if a trader is building a long term position in the forex market, it would take more time for them to generate a return on that capital. Therefore, the amount of time and money put into the capital could be significantly greater than it would be with a scalper or day trader strategy.
One of the oldest and most reliable trading strategies is price action analysis. This method requires no technical or analytical skills whatsoever. Simply put, all that is required is that you have an indicator that is either moving in the correct direction (up) or moving against (down). You then take advantage of the fact that prices follow a predictable pattern called a momentum curve. When a trading strategy is performing well, there will be a steady increase in the momentum of the underlying asset. This will cause the price of that asset to rise above a support zone (the resistance line) which will provide the trader with a signal to enter the market.
Another of the widely used trading strategies is technical analysis using various charts. The most popular charts being utilized by many traders are the candlestick charts and the bar charts. These two charts provide the traders with a clear picture of the movement of underlying assets within real-time. The advantage of using technical indicators is that the patterns that are revealed on the charts can be used to make trading decisions.
Most day traders focus their attention on certain time frames which correspond to certain time periods. For example, traders who invest in stocks during the morning hours usually know that the best time for purchasing stocks would be from around the mid-afternoon because this is when the stock prices are fluctuating according to the demand and supply rules of the market. Day traders typically focus on a specific period of time such as the over the counter period (OTC), the daily period, the weekly period, the daily swing trading period or the trading weeks.
Another of the widely used trading strategies is scalping. Scalping involves opening and closing a position very quickly, usually within the span of a few seconds. The profit of scalping can be limited, but when it comes to winning trades, it offers large profits. Most scalping strategies are based on short term movements of the price and are therefore suitable for scalping.
Another of the widely used trading strategies is breakout trading. Breakout trading is based on buying the breakouts and selling them at the same time in order to move on to the next best opportunity. Many day traders also use this strategy to make quick profits from small movements in the price during the trading day. Although breakout trading is less reliable compared to swing trading strategies, it offers much higher swing trade profit rates and is suitable for scalping and timing. It is also less costly compared to other trading strategies.
Some people choose to trade using the support and resistance indicators of the charts. Support indicators show the direction of a particular currency, while resistance indicators act as protection for the buyers. Support indicators often act as breakouts while resistance indicators prevent sellers from pushing the prices higher, which effectively results in making trades on longer term frames.
Day traders need to know how to interpret the signals and charts so that they can avoid bad trading day trading decisions. This is why they have to become highly familiar with the charts before they begin trading. Once they know how to interpret the charts, they can make good trading decisions and can successfully make money day trading. They also need to be aware of the dangers that may come from using their trading strategies so that they can minimize the risks and maximize the returns from their trading activities.