Six types of basic forex trading strategies

When you are new trader or an existing trader there are several strategies that you should use while trading so as to obtain great returns. Several forex trading strategies are available and you have to select the one which suits you. Depending on the total amount you intend to invest will eventually make you to choose certain strategies. If you are not a high risk taker then you will also limit yourself to some of the strategies available which are of high risk but they also reward great.

Therefore as a trader you should be able to select the best strategy that will help you trade effectively. In this article I have briefly outlined some of the trading strategies available. These strategies will also help you to protect your investment as well as yield profit. For beginners I would highly recommend you to first try out the basic forex trading strategies before you attempt to explore new strategies.

Simple Moving Average (SMA):

This is one of the best trading strategies that will eventually award you a high return. This strategy optimizes you risk with respect to your reward. This strategy has a disciplined method of limiting risk and at the same time making the most favorable market moves. With this strategy you definitely get good results if it is used properly.

Support and Resistance Levels:

This is a technical analysis where a trader will tend to trade below its resistance levels and trade above its support levels. If a resistance or support level is broken then the market will follow in that direction. The determination of these levels can be analyzed by charts and accessing at which point the market has encountered unbroken resistance or support.

Hedging:

This is the process by which traders will reduce their risks by holding a particular forex. Traders would sell their forex within a certain period of time so as to offset the risk of a decrease in forex prices. Once the price of the stock falls, there will be an increase in the put option. This strategy will become more expensive if put options are bought against individual stocks. Another way of hedging against market declines is by selling financial futures such as the S&P 500 futures.

Dogs of the Dow:

This is a strategy that gained popularity is the 90s. It involves the buying of stocks which are favorable to be the best in the Dow Industrial Average. Therefore this would be the stocks with the highest dividends yield and lowest P/E ratios.

Buying on Margin:

This is the buying of forex using borrowed money, the money would be from the broker and hence it is called buying on margin. In the event that the forex that you are trading on loses value the losses will eventually be big too. This would be the fact that you would have made two loses. You now have to return the money you had borrowed and also interest applies and again you lost it on the forex trade. When making use of this strategy you should definitely be tactile and aggressive. You should be able to limit your risks and also as to identify when you can enter and exit a trend. In order for this strategy to work effectively you should make sure that you have stop – loss orders so as to limit the losses in case of market reversal. This is one of the strategies with high risks but it also has a high reward basing on the fact that if you are successful you will be able to return the borrowed money and keep the rest of the profit to yourself.

Dollar Cost and Value Averaging:

This is a strategy which involves the investment of fixed dollar amounts on regular basis. A drop in price will result in investors receiving more dividend yield. Value averaging is an alternative to dollar cost averaging and this makes investors to determine the value that they wish to invest. This will also average the investor’s percentage return and this strategy minimizes risks but the rewards are not too great than compared to the other strategies.

As a forex trader you should be able to analyze several strategies so that you are able to profit more from your investment.