Core FX Strategies

Once you fully understand how to place and order and buy or sell your assets of choice, you will be ready to make use of FX strategies to guide your trade decisions. In theory, making a profit is relatively simple—all you have to do is pick the right direction in which your asset price will move. This, however, begs the following question: How do you pick the right direction?

Here is where FX strategies come in. FX strategies are a systematic and planned series of actions you can take based on the analysis of existing information relevant to your market of choice. In FX trading, there are countless different strategies, each their own strengths and weaknesses. It is not uncommon for professional and recreational traders alike to rely strongly on one trading strategy they believe in, and in those cases they will attribute their success to their loyal following of that one strategy. In this section, we will focus on a few core FX strategies which you may one day hold close to your heart and accredit your success to.

Trend Study

A trend study is one in which the trader watches the market closely in the direction that it is heading towards over an extended period of time. In FX trading, currency pairs will take on either a Bullish (upward) or Bearish (downward) trend. In keeping a close eye on the trend of a particular currency pair, you are relying on the fact that the currency will continue moving in its existing direct, upon which you will be able to take in profits by following that same direction. This is one of the more widely-used FX strategies for its pure simplicity.

The chart demonstrates what a possible trend may look like. In the case above, if you had held a Buy position over the period of a few months, then you would have reaped substantial rewards. It is important in all cases to pay attention to the timeframe across which the prices move, for that is what will reveal the trend of the asset, be it in the short term (across a few minutes as with FX Derivatives trading) or in the long term (across weeks and months as with conventional FX trading).

Range Study

A range study refers to when a currency is being traded between a set upper and lower limit, and appears to consistently be moving back and forth the higher and lower limits. Traders will capitalize on the opportunity to buy when the asset price is at the lower limit and sell when it is at the higher limit. The chart below demonstrates one such trend which allows for a ranging strategy.

The relative difference between the High and Low points in the chart above represent the range at which a trader can study and base his trading strategy on. As with the trending strategy, it is important to pay attention to all the parameters of the chart such as the timeframe and the relative difference between the high prices and low prices.

Breakout Study

The breakout study is the monitoring of the price of a certain asset breaking out of a sideways trend. In most cases, the price moves with the greatest momentum when it reaches what is known as the Breakout Point, the level at which the price crosses either the lower or upper threshold of a predetermined range.

Following the simple rule of Buy Low, Sell High, a breakout strategy allows you to make increase your profits by providing you with a systematic and reliable way through which you can monitor the price movements of the asset you are trading on. All three strategies—the breakout study, the trend study and the range study—help increase the trader’s chances of success by allowing them to read price movements in a calculated and purposeful manner.