Forex Trading Strategies
Forex Trading strategies are based on fundamental or technical analysis, or engage them both. Technical strategies can be broadly divided into the mean-reversion and momentum groups. There are also specific strategies, like “Sell in May and go away but remember to get back in September”. Forex Trading strategies are usually verified by backtesting, where the process should follow the scientific method, and by forward testing where they are tested in a simulated trading environment. Momentum signals have been shown to be successful in trading strategies and are used by financial analysts in their buy and sell recommendations.
Best Forex Trading Strategies
The term Forex trading strategy can in brief be used by any fixed plan of trading a financial instrument, but the general use of the term is within computer assisted trading, where a Forex trading strategy is implemented as computer program for automated trading.
- Long/short equity – A long short strategy consists of selecting a universe of equities and ranking them according to a combined alpha factor. Given the rankings we long the top percentile and short the bottom percentile of securities once every rebalancing period.
- Pairs trade – A pairs trading strategy consists of identifying similar pairs of stocks and taking a linear combination of their price so that the result is a stationary time-series. We can then compute z-scores for the stationary signal and trade on the spread assuming mean reversion: short the top asset and long the bottom asset.
- Swing trading strategy – Swing traders buy or sell as that price volatility sets in and trades are usually held for more than a day.
- Scalping trading – Scalping is a method to making dozens or hundreds of trades per day, to get a small profit from each trade by exploiting the bid/ask spread.
- Day Trading – The Day trading is done by professional traders; the day trading is the method of buying or selling within the same day. Positions are closed out within the same day they are taken, and no position is held overnight.
- Trading on the news – The news is an essential skill for astute portfolio management and long term performance is the technique of making a profit by trading financial instruments just in time and in accordance to the occurrence of events.
- Trading Signals; Trading signal is simply method to buy signals from signals provider, is a very effective strategy to determine the best time to buy or sell a stock or currency pair. Aggregate analysts forecasts are often used in momentum Forex trading strategies
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