By John Benjamin at Orbex

Forex traders often are in the hunt for the next best forex trading strategy. In this hunt for the next best trading strategy, traders tend to ignore the basics of what the strategy does but instead focus more on the amount of profits (and losses) the trading strategy would make. Unknown to most traders, the many different types of forex trading strategies are in fact the same with only some minor differences. The forex trading strategy that you are using, or you might come across can be broadly classified into any of the following types.

  • Trend trading forex strategy
  • Range trading forex strategy
  • Counter trend trading forex strategy

Trend trading forex strategy

The trend trading strategy often employs a moving average and an oscillator. The main premise behind this forex trading strategy is to ensure that trades are entered in a trend. For example buying dips in an uptrend or selling rallies in a downtrend. This kind of a forex trading strategy is one of the simplest and you can often find different variations to this trend following strategy

Range trading forex strategy

The range trading forex strategy makes use of one or more oscillators. Under this type of a forex trading strategy, you might find fixed stop loss and take profit levels. The range trading strategy can also be divided into two kinds.

  • Trading the range: In trading the range type of a forex trading strategy, the trader would typically make use of tight stops and fixed take profit levels in a bid to capture the small range moves in the markets. Such trading strategies are used on small intraday timeframes such as 5 minute – 15 minutes charts.
  • Trading the break outs: In this type of a forex trading strategy, traders will build their system in order to identify the range or sideways price action and then employ a trading system that will enable them to capture the next big move that often comes after a period of sideways trading. Regardless of the type of range trading strategy which is being used, the trading system often makes use of oscillators and some tools to identify the ranging price action.

Counter trend trading forex strategy

In this type of a trading strategy, traders will often encounter trading concepts such as divergences (or corrections). The counter trend trading strategy is often considered to be risky as positions are taken against the prevailing trend. With the counter trend trading strategy, traders need to have a good grasp on the concepts of support/resistance, price action and divergence which are common elements in counter trend trading. It is also one of the more difficult concepts to understand.

It is important that traders understand the difference between the above three types of forex trading strategies as it can help a trader to instantly understand if the forex strategy that they are using is either identical to the one they are already using or if the trading strategy is one that is based on a different trading strategy. The importance of understanding what type of a forex trading strategy is being used is beneficial for you as a trader. A good trader will often immediately be able to understand what type of a trading strategy is being used in a trading system and thus would be able to better evaluate if the trading system in question is indeed profitable or not.

Leave a Reply

You must be logged in to post a comment.