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Understanding forex trading strategies and its analysis is essential to succeed in foreign currency trading. These strategies help you to understand when the market is volatile and opportune to buy and sell currency. Below you can find certain basic concepts explained lucidly.
Fundamental trading or Fundamental Analysis is a kind of method used to predict the market future by professional analysts. The strategies are based on current political, environmental, economic and other factors that determine the basic demand and supply of foreign currencies. If you are willing to try Fundamental Trading, you need to have basic finance knowledge, both global and country-specific knowledge. For instance, if the USA employment report is strong, it implies that the general health of America’s economy is good and thus the US dollar will be stronger that other currencies. Like this instance, you need to have knowledge about the diplomatic, cultural, economic, cultural and military changes happening within your country.
Popularly known as a ‘risk free strategy’, there are three kinds of arbitrage strategies – Triangle Arbitrage, Hedging Arbitrage and Netting Arbitrage. In Triangle Arbitrage, two fast progressing currency pairs is selected and used to derive the price of a not-so-fast moving currency pair by multiplying or dividing it. In Hedging Arbitrage, there are minimal risks and it is one of the safest Forex techniques. Here the arbitrage of rollover interest rates between two brokers is taken into consideration. This technique opens a position of currency between brokers. In Netting Arbitrage, the difference between cross rates of each currency pair is used in Forex dealing.
Martingale and Anti-Martingale
Originally, Martingale denotes a popular betting strategy in existent since 18th century France. As a Forex strategy, Martingale refers to a process where the trader is able to double currency lots after every loss. By doing so, the trader recovers the loss and also manages a substantial profit equaling the original investment. However, not every Forex trader uses Martingale strategy because it needs strict money management and profits are less in the beginning. To counter Martingale, there is the anti-Martingale forex strategy where the trader increases currency lots value after making profit and reduces the lots after losing them.
Forex scalping is a profitable and less risky strategy where small price gaps are created and exploited. You need to understand that the trading market functions in a consolidation pattern, implying the most of the time the trading market does not make any significant moves. In scalping strategy, liquidity is established in a matter of seconds and once the trader gains several pips, cash it and leave. The scalping strategy has lower exposure period and functions in smaller moves. However, every Forex broker does not welcome Forex scalping because of the profits you gain.
Forex trading strategies are complex if you are not taking an initiative to study and understand the currency trading market and its changing patterns. Knowing these strategies is paramount for success in the Forex market, especially if you desire to create an attractive and profitable trading portfolio.