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Forex Strategies that Work

Forex Strategies that Work

A beginner can benefit a lot if he is aware of some effective strategies related to forex trading. Here is some help...
Aastha Dogra
A person who is new to forex trading may find it very difficult to understand the various technical jargon or even to analyze the statistics which are used by seasoned traders, investment companies, banks or hedge funds to arrive at their investment decisions. But it's not just the statistics which form the basis of their investments. There are a number of well-tested foreign exchange strategies too which are used by all these parties to make sound and profitable investment decisions. Any new trader who is still learning the ropes of the foreign exchange market can make immediate profits by using these strategies.

Before that, there is one thing that a new trader should understand.
  • Appropriate time to enter the market
  • Appropriate time to exit the market
  • Use the stop loss tool effectively and determine where to set the stop loss
  • Make profits
Given here are forex strategies which effectively make use of all these four criteria.

Scalping Strategy
While following the scalping trading strategy, a trader makes numerous trades in a single day, sometimes even hundreds. But, he does not hold on to them for long, instead, he exits from them if he feels that the market is not responding favorably. In order to make profits by using this strategy, a trader has to make sure that he buys a currency pair at the bid price, and later sells it off for a profit when it gains a bit. The most important thing that the trader should keep in mind is to exit at the right time. A forex scalper has to assess the market situation constantly by studying and making use of the one-minute, five-minute, as well as the hourly charts.

Margin Account
An effective strategy that any trader, especially, a beginner should learn is to use his money cautiously. One of the ways to protect the money available from getting wasted in bad investments is to maintain a margin account. A margin account is an account in which the broker lends money to the trader in return for an interest amount. By maintaining this account, a new trader who may not have enough cash initially will get some additional dollars to invest and make profits with.

Invest in Currency Pairs
Invest in such currency pairs which almost always move in two different directions, as far as trading is concerned. For this, the trader will have to study various data, including charts that are available for the previous year. He will have to identify two currency pairs which move in opposite directions, so that if one pair goes down and makes losses, it can be covered up by the other pair that will be going up and making profits. This helps in minimizing risks to a great extent.

Another effective strategy is swing trading, in which a trade is held for up to three days. In swing trading, the currency options are sold or bought when they are at the end or near the upward or the downward swing in the market. Thus, to make profits from this, or for that matter any other strategy, a trader should follow an appropriate entry and exit policy.