Forex Trading Strategy
What strategy did you use?
Hedging Position
Hedging is one of the strategies that traders often use to mitigate or reduce the risk of loss by balancing open positions. Generally, traders will open two positions that are negatively correlated, or the direction of price movement is opposite to each other. So if it turns out that there is one unprofitable position, there is still a second position as a reserve to seize profit opportunities. In forex trading, there are two kinds of hedging strategies that are commonly used, namely hedging with one currency pair and hedging with two currency pairs.
Hedging with one currency pair. For beginners who are still focused on learning one type of currency pair, this strategy can be learned. Let's see an example of using a hedging strategy with this one currency pair. For example, when you are trading the EURUSD (euro/US dollar) pair, you predict that the price will continue to rise so you open a long position. However, the price has fallen. To get around this, you immediately open the opposite position just in case, namely short EURUSD positions. If the true price continues to fall, then you will close long positions with a small amount of loss and leave short positions open until you reach the desired profit target. On the other hand, if the EURUSD price changes direction again and is getting higher, then you will close short positions and leave long positions open.
Hedging with two currency pairs. Before doing this strategy, first identify the correlation between currency pairs, whether positive or negative. A positive correlation means that the price movements of the two currency pairs are in the same direction, while a negative correlation means that the price movements of the two currency pairs are in the opposite direction.
Here are some major pairs that have a positive correlation:
- EURUSD and GBPUSD (euro/US dollar and pound sterling/US dollar)
- USDCHF and USDJPY (US dollar/Swiss franc and US dollar/Japanese yen)
- EURUSD and AUDUSD (euro/US dollar and Australian dollar/US dollar)
- EURUSD and NZDUSD (euro/US dollar and New Zealand dollar/US dollar)
- AUDUSD and NZDUSD (Australian dollar/US dollar and New Zealand dollar/US dollar)
And here are examples of negatively correlated major pairs:
- EURUSD and USDCHF (euro/US dollar and US dollar/Swiss franc)
- USDCAD and AUDUSD (US dollar/Canadian dollar) and Australian dollar/US dollar)
Pay attention to the position of the base and quote currency in the two lists above. In a positively correlated pair, USD is always in the same base or quote currency position. On the other hand, in a negatively correlated pair, the USD position will be opposite.
When hedging with two positively correlated pairs, you need to open opposite positions in the market. For example, the EURUSD and GBPUSD pairs. If you open long positions for EURUSD, then you need to balance positions by opening short positions for GBPUSD.
On the other hand, you can hedge by opening the same position in the market for a negatively correlated pair. For example, you can open long positions for the EURUSD and USDCHF pairs at the same time. So if the USD price strengthens against the major currencies, then you can close long EURUSD positions and maintain USDCHF long positions until you reach your desired profit target.
Other strategies that can be used are:
News Trading (Fundamentals)
News Trading is a technique for buying and selling forex in financial markets based on trading opportunities that arise from news releases.
scalping
Scalping is a trading strategy on a small time or time frame with the aim of getting a quick profit. This type of trading strategy is also known as the Hit and Run type.
Day Trading
A day trader takes advantage of volatility to make several transactions in one day. The duration of each of these transactions is very short, ranging from a few minutes to hours. In addition, day traders also do not like to let their open positions stay until tomorrow. The purpose of these short transactions is to collect a bit of profit, which over time becomes a hill.
Swing Trading
Swing trading is a medium term trading strategy. Trading positions are often held for more than a day to a week. Traders will look for trading opportunities at “swing high” or “swing low” over a period of time. This strategy is able to filter out some of the noise in price movements, as seen in day trading. This makes the swing trading strategy an excellent choice for newbie traders who have just started trading.
Trading Positions
Position trading is a long-term or long-term trading strategy. Traders who use this strategy usually use Fundamental Analysis with Technical Analysis. This type of trading may require more patience and time.
Trading Range
Range trading is a popular trading strategy based on the idea that prices can often stay within a predictable range over a period of time. This strategy works well in a sideways market. Traders rely on the ability to frequently buy and sell at predictable highs and lows of resistance and support, which can sometimes be repeated over the course of one or more trading sessions.
Breakout Trading
The Breakout/Breakdown strategy is a method in which the trader will try to identify the entry point at the breakout of a certain price level. If the price breaks higher than the previously defined resistance level, traders can buy with the expectation that the price will continue to move higher. Similarly, if the price breaks the support level downwards, the trader can sell with the aim of closing the position at a lower price.
Reversal Trading
In reversal trading, the trader tries to anticipate a reversal in the price trend. This strategy is considered more difficult and risky. A true price reversal can be difficult to spot, but traders will benefit greatly if they can predict the correct price reversal.
Price Action
Price action is often used as a basis for technical analysis, where traders perform analysis by monitoring product price movements on charts. However, price action is not an indicator that can be installed on a chart, but a price movement pattern that can give an indication of where the price will go next.
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