To decide whether to buy or sell a particular currency, a trader is advised to use various trading strategies.
Day trading is one of the most popular forex trading strategies. It implies that a trader keeps a position or several positions open for several minutes or hours during one day, but closes them before the trading day is over. Using this strategy, traders profit from asset price changes during the same day and they often do so by applying the leverage mechanism.
One of the variations of day trading is scalping. This method is based on the idea of generating many small profits by keeping several positions open over short time frames, usually seconds or minutes, during the same day. In scalping, traders buy and sell currencies many times during the day. To make considerable profits via this strategy, they need to accurately spot exit points.
Another popular day trading strategy is trading the news. News has a great power as it can change the market situation in a moment. The idea behind this strategy is to understand what news may influence a particular currency positively or negatively and adjust your trading strategy based on this information. For example, when the most recent deal of the Organization of the Petroleum Exporting Countries (OPEC) failed in March 2020, the Russian ruble reached a 4-year low losing more than 7% to the U.S. dollar. This happened because the Russian currency is tightly correlated with the price of oil. If your trading portfolio includes currencies that are correlated with oil, monitoring oil prices and news from the oil markets may be very useful.
Some traders prefer long-term strategies to short-term ones. For example, in swing trading, a trader keeps a position open for several days or weeks and benefits from price movements, also known as "swings".
You should keep in mind that all long-term strategies, including swing trading, involve overnight fees, as traders do not close positions on the same day and transfer them to the next delivery day or hold them open over weekends.
Another long-term trading strategy is called position trading. The idea behind position trading is quite simple: you should keep a position open for an extended period of time such as weeks, months, or even years. Position traders make profit on asset price changes over long time spans. They take into account trends, rely both on fundamental and technical analysis data, follow the news, and use various risk management tools. This strategy is similar to investing.
Momentum trading is based on information about the trend strength. When the trend is getting stronger and the asset price is moving up, traders open new positions. When the trend weakens, they close their positions. To identify the momentum, traders resort to technical analysis tools, especially the group of momentum indicators.