The foreign exchange market is the largest, with multiple strategies for trading in currencies. However, most traders only know about common strategies. Thus, they have limited options when starting their trading journey.
But what if I tell you about some uncommon, simple, yet profitable strategies to trade in the currency market? Yes, you heard it right. In this blog, we will discuss exceptional forex trading techniques for beginners as well as advanced traders. So let’s get started.
What are Forex Trading Techniques?
Forex trading techniques or strategies can be defined as the way you prefer to trade in currencies. The currency trading plan differs depending on experience, capital, currency pair, time frame, risk management, and trading volume.
Scalping, position trading, swing trading, trend trading, momentum trading, copy trading, price action and day trading strategy are popular ways to trade in currencies. These are the widely used strategies, but forex traders can surely explore more options for maximum returns.
6 Unique Forex Trading Techniques
Many traders in the market want to go for an uncommon trading style. However, due to a lack of knowledge, they are unable to do so. But not to worry, here is a list of some rare styles that can serve as the best forex trading strategies for you:
Grid Trading:
In the forex market, the currency market either falls or rises over time. The price change occurs due to market volatility. With other trading strategies, traders analyze the market and predict whether the price will go up or down.
However, under grid trading traders place multiple buy or sell orders at regular intervals. Whenever the price of an asset reaches a certain high or low level, the buy or sell order is automatically executed.
Let us understand grid trading with an example. Suppose a trader is trading in GBP/USD within a price range of 1.0300 and 1.0800. The trade criteria is to execute a trade at every 100 pip.
In this case, if the price reaches a certain level, the trader will execute a buy or sell order. The trader will buy at 1.0300, sell at 1.0400, buy at 1.0500, sell at 1.0600, buy at 1.0700 and sell at 1.0800. In this way, a grid is created, and traders will profit from currency pair price movements.
Grid trading may look complex, but it is actually not once you have understood the mechanism. A trader just needs to take care of false breakouts or sudden reversals.
A quick glance
SMC stands for smart money concepts in forex trading. It’s a strategy for buying or selling currencies in the forex market.
SMC trading involves monitoring the activities of prominent market players like banks, hedge funds, and big corporations to make informed retail trade decisions.
SMC is quite a complex strategy that involves in-depth knowledge of market structure, price actions,, and technical analysis. It can be suitable for beginners with a proper understanding of the market.
Price action trading involves watching chart patterns to make trade decisions based on historical price movements. Meanwhile, SMC involves watching charts to ascertain the impact of market makers’ activities and making trade decisions accordingly.
Order blocks, price breakouts, character CHOCH, mitigation blocks, liquidity Gaps, and fair value gaps are major components of implementing a smart money concepts trading strategy.
Order Block represents a scenario where large groups want to buy or sell a currency pair. When a big institution wants to make large transactions without affecting the market, it divides the order into blocks or chunks to do so.
Mean Reversion:
Mean reversion is a technical analysis-based strategy. It is based on the concept that the price of an asset will return to the mean price. In the financial market, history tends to repeat; thus, indicators are used to determine the historical price movements.
Under mean reversion, when the price moves above the mean, it is expected to return, and as a result, it signals traders to open a sell position. Meanwhile, when the price moves below the mean, it suggests oversold conditions; as a result, it signals traders to open a buy position.
Traders use different indicators such as moving averages, moving average convergence divergence, Bollinger bands, RSI, and others to execute the mean reversion strategy.
Let us take an example of EUR/USD. Suppose the price is currently trending at 1.1500, and the historical mean is 1.1200. Now, reversion traders can consider opening a sell position as the price is expected to return to 1.1200. In the same case, suppose the price falls to 1.1100; a trader can open a buy position expecting that the price again rises to 1.1200.
NFP Trading:
Non-farm payroll is the most important economic data for trading forex. Almost every trader considers it while making trade decisions. However, some traders’ entire trading depends on this data.
NFP data throws light on the economic health of the United States. It shows number of jobs created in the US non-agricultural market during the previous month. It releases on the first Friday of every month.
Positive data means growth potential for the USA; as a result, it gives strength to US Dollars, and traders consider opening a buy position. Meanwhile, negative data means weakness in the US economy; as a result, it negatively affects the US Dollar, and traders consider opening a selling position.
Arbitrage Trading:
Arbitrage trading is all about buying a currency from a platform and selling it to another simultaneously. Forex traders can spot minor differences between currency bids and ask prices on different platforms at the same time.
Arbitrage traders take advantage of these price differences by buying the currency from where the price is low and selling it on a platform where the price is high.
Let us take an example of JPY/USD. The pair exchange rate is 0.0067 on platform A and 0.0068 on platform B. Now, a trader can buy a pair of currency from A and sell it to B, and the difference will be the profit. As arbitrators place multiple and large trades, the profit is significant with the forex trading technique.
Counter Trading:
As the name suggests, the strategy deals with trading against the market. It is based on the concept that, eventually, a trend will reverse. Under this, traders look for weak market trends and place trade against them, expecting a price reversal.
Countertraders use technical analysis to identify potential trading opportunities. Traders use different indicators, chart patterns and tools to identify trend reversal.
Suppose a countertrader is watching a chart and spots two red candles during an uptrend. In this case, a counter trader can consider opening a short position, hoping that the trend will reverse.
Carry Trade Strategy
Carry trade can be the right option if you are looking for the best forex strategy for beginners. It allows traders to take advantage of interest rate differences between two currencies. Under this strategy, a trader buys a currency with a high interest rate, sells another currency with a low interest rate and makes money from interest rate fluctuations.
As the strategy deals with interest rate changes traders need to watch fundamental events to identify opportunities. Major news, announcements, and economic data releases can cause significant fluctuation in currency interest rates.
Carry traders can use this strategy to pair high-yielding currencies, such as the Australian Dollar and New Zealand Dollar, against low-yielding currencies, such as the Japanese Yen and Swiss Franc.
Bottom Line
We have discussed some of the most uncommon forex trading techniques. Traders can use any of the strategies, and they can give you more profit than the common ones.
However, remember, the reason why fewer traders opt for these trading styles is complexity. The above trading strategies require in-depth market knowledge, risk management, time dedication and speed.
In the financial markets, everyone wants to make money, but no one is willing to learn. However, making money is much easier when you know the right approach. The right approach comes with proper knowledge.
So first, develop your knowledge. You can even join Market Investopedia to have a practical understanding of different styles.
