How to Choose the Best Currency Trading Strategy

Written By: Ehsan Jahandarpour

There are many winning strategies that can be used to trade the foreign exchange market, but one of the most popular is position trading. This strategy involves opening only one trade per day and holding it for several days or weeks. Profits and losses will depend on intraday price changes. The strategy is ideal for patient traders who are willing to hold on to a position. This method is also a good way to profit from swing highs and lows.

best currency trading strategy

Inside bars

Inside bars are the narrowest part of the price range within a given currency pair. Traders who want to find these inside bars should follow a specific process that involves applying a filter to the current reduction of range. Traders should select the bar with the tightest spread within the last four trading sessions. They should then place two buy and sell orders to enter the trade above or below the bar’s maximum and minimum. They should also place a stop order on the opposite side of the inside bar. Traders should then open and close the positions against their initial positions.

Trading inside bars can be difficult, especially if the price moves against you when it breaks out. The price may bounce back and reverse the direction of the breakout, so it’s important to set a stop loss. The stop loss should be located at the bottom of the range, preferably 1% below.

Trend Following

A trend following strategy differs from other market analysis models in that it focuses only on price trends and not the direction of a market. However, price volatility may play a role in determining entry and exit decisions. Using trend following methodology, you can recognize tradable opportunities that arise in the market.

This strategy uses simple price charts and moving averages to determine trend direction. However, other charts may be equally useful. The main goal of trend following is to preserve your capital and reduce your risks. In addition, you must be patient and wait for the trend to develop. For example, if USD/SGD is trading below its 200-day SMA, it will establish a medium-term upward trend.

To use trend following, you must set a low risk entry and stop loss order close to the trend line. You should also use a wide trailing stop so that you will have plenty of time to exit the trade. This is necessary since the price trend may be volatile, making a tight stop a bad idea.

On Balance Volume

On Balance Volume (OBV) is a volume indicator used in trading. It measures the cumulative flow of positive and negative volume. Usually, if the volume is increasing, the price would move higher, while if it is decreasing, the price would go down. If the volume is not rising, the price is likely to stay steady and the trend will continue until it has a lower high or low.

On Balance Volume can also be used to scan for divergences. These are situations where the price moves in a direction that is not supported by OBV. This can be a signal that the trend is about to change. However, these are not exceptional signals and should be used in conjunction with other indicators.

Swing trading

Swing trading involves trading currencies in pairs. A currency pair is traded by identifying its support and resistance levels. Then, traders can either buy the pair when it hits resistance or sell it when it hits support. The key to swing trading is to be aware of the trend in the market and enter and exit when the price is at a favorable risk-reward ratio.

This trading style requires a lot of patience, as the market will not move in the direction you want it to right away. It may take several days or even weeks to confirm your analysis. The use of a trailing stop loss helps ease this pressure, but it is crucial to understand that the market may not move in your favor immediately. A drawdown is normal for every trader. However, swing trading strategies can cause you to hold your position longer, resulting in longer negative positions.

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