The difference between forex traders who make a profit, and those who do not, can often come down to a matter of having a strategy. Some new forex traders come into the market with no strategy, they enter in and out of positions without a clear reason, and they eventually lose their investments and become discouraged. I this article we will learn about the most popular strategies used by top forex traders, and how you can apply them.
- Reverse trading strategy
The reverse trading strategy is notoriously for being one of the most difficult strategies to follow. Nevertheless, as a strategy commonly used by top forex traders, it is an essential one to take a closer look at.
Reverse trading strategy starts with spotting a market trend. Trends are market indicators which show the direction a currency pair is heading at a particular time. This strategy involves looking for trends, both high and low, and betting against them.
Here is an example; A currency pair hits an all-time high during the day, using a reverse trading strategy means the forex trader will sell hoping that the trend will be reversed. This trading strategy involves high amounts of risk. This is why it takes practice and trend monitoring to get the reversal trading strategy right.
Once mastered, it can often be highly effective. Nevertheless, due to the significant risk involved, new forex traders are usually advised to avoid using this strategy.
- Trend-following strategy
As already mentioned earlier, trends are financial indicators that show the direction of a currency pair at a particular time. A trend can either be a long-term, short-term or intermediate strategy. Understanding this strategy requires us to understand the concept of trend lines.
Trend lines are straight lines used to represent the movement of a particular currency pair. Using trends for forecasting is an easy process and can be quickly mastered. Top traders study the movement of tread lines for hours to understand the likely movement of a currency pair.
Following trend lines for forecasting needs to be mastered by new traders if they ever want to be successful in forex trading, because it is one of the top valuable tools in forex trading.
- Observing financial and economic news
The daily economic news affects the movement of currency pairs. Top traders follow economic and financial news carefully. They always observe factors like changes in interest rate, large government sell-offs, and even political or economic scandals, all in order to determine if there would be an upward or a downward trend in the movement of a currency pair.
For a trader to use this strategy, they must keep abreast of all financial and government news. They must also fully understand the effects of these news stories on the financial market. The advantage of the news following strategy is that when it comes to forex trading there is no bad news. A trader has the ability to make money, as well as losses, when there is good news or if the news is bad.
- Fibonacci trading strategy
Most top traders are familiar with the Fibonacci trading strategy. Fibonacci numbers are series of numbers related by the fact that each number is the sum of the previous two numbers. In forex trading, Fibonacci retracements are done by taking high and low points chart and using key Fibonacci ratios 23.6%, 38.2% and 61.8% horizontally to produce a grid. The horizontal lines are used to identify possible price reversal points. This method can be powerful in the right hands, and is worth further study.
- Range trading
Range trading strategies can be highly effective when the market lacks a clear direction. Range trading strategy involves finding support and resistance zones and connecting short term highs and lows using horizontal lines. Resistance is where we look to sell a range while support is an indicator for a trader to buy.
In this article we have discovered five top strategies that successful traders use to predict the market. Mastering those skills are not difficult, but they do require time and focus to get the best out of them. It is not compulsory to master all the trading skills, but an experienced trader must have mastered at least one or two of them in order to take their trading to the next level.
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