Forex or foreign exchange markets refer to currency markets. The forex market is completely decentralized as there is no such thing as a central exchange that deals with all transactions. Instead, it is made up of hundreds of different banks worldwide that deal with each other over-the-counter (OTC). Apart from being decentralized, it is also highly liquid, which means you have an opportunity to enter into positions at any time during the day. You can also use brokers for forex trading, which will make your trading easier.
Long-term Trend Trading
Traders who prefer long-term trading use candlestick charts to predict macd divergence, which helps them figure out if a currency will go up or down over time. Traders who follow this strategy have an average win rate of 43%. This strategy works well because markets typically trend upwards or downwards over an extended period.
Scalping
For scalpers, market volatility is vital – they aim to take advantage of movements that last no longer than 10 minutes. These traders only hold their trades for minutes or hours, and they expect to make dozens of trades a day. Scalpers typically have an average win rate of 45%, and here’s how it works: scalpers open and close their positions at the beginning and end of a trading session, respectively, to profit from smaller price movements experienced during these periods.
Swing Trading
Another short-term trading strategy is swing trading, where traders aim to capture trends that last anywhere between five minutes and one month. These traders take advantage of trends such as macd crossovers or support/resistance levels by entering into long or short positions upon breakouts. It has been found that swing traders who use Bollinger bands can predict breakout with 65% accuracy. They have an average win rate of 56% while working on a short-term trading timeframe.
Momentum Trading
This strategy requires traders to seek opportunities where the price is moving at an increasing rate of speed. Although riskier than other strategies, this approach typically provides the most significant returns if it pans out. When used with one or more technical indicators, momentum trading can be very effective. These traders aim to hold their position for several days up to several weeks, and they have an average win rate of 68%.
Arbitrage Trading
This strategy involves the simultaneous purchase and sale of currencies on different exchanges to capture profits from time differences in bid/ask prices. This approach works best when the difference between the bid and ask is low and predictable. Various arbitrage opportunities exist in forex, including intraday, inter-currency, and cross-exchange. These traders have an average win rate of 74% because it requires little to no knowledge about the market to make a profit.
Long/Short Trading
Also referred to as ‘market neutral’ trading, this strategy is achieved by opening two offsetting positions simultaneously – one long and one short. For example: if an X trader opens a position with a target price of $100 and a stop loss of $99, they would also open a second position at $101 and $99, respectively. This approach works well for traders who take long and short positions since it reduces the risk involved when using other strategies. The average win rate for this strategy is 77%.
Forex Arbitrage
This strategy seeks to capture the difference between the bid price and ask price on different currencies. When these differences are significant, arbitrageurs can buy at the lower market price on one market and sell at a higher market price in another, profiting from the resulting spread without doing any work. There are three types of forex arbitrage: inter-market, intra-market and cross-currency. Here’s an example of how it works: suppose that EUR/USD is trading at 1.30 while GBP/USD is trading at 1.50 – an arbitrageur would place simultaneous trades so they could profit from this disparity. The win rate of this strategy is 73%.