Forex strategies help investors to stick to a particular plan when trading currencies. The discipline has proven to be elemental in increasing profits generated from Forex markets. Forex strategies can be based on technical analysis or vital, time-based events.
Nonetheless, investors need to find the most profitable Forex strategies that will maximize their chances of amassing massive profits. An effective strategy should be simple and have customization features.
Position Trading Strategy
With the rising trends in the Forex market, several traders keep wondering why they are not making enough money from the market while winners running trades for weeks and months reap thousand of pips in profits. The position trading strategy is so far the most profitable Forex strategy. Top traders have attested to the magic position trading has worked for their Forex profits, and its high time Forex investors adopted the approach.
However, short-term traders may find position trading challenging, but surprisingly, it’s the easiest and top profit earner for patient trade gurus. As a position trader, you will be interested in longer term price movements in the market. Nonetheless, this technique requires you to have an in-depth knowledge of the essential factors that can influence price changes in the long term. Additionally, comprehension of technical timing is crucial to enable you get in and out of particular positions at the most convenient time in the extended market cycle.
Pointers to a Position Trader
You are more likely to succeed in position trading if:
- You have a deep comprehension of Forex fundamentals and how they affect your currency pair.
- You are patient enough to wait for your grand rewards.
- You make educated and independent decisions that are not influenced by popular opinion about market movements.
Technical Tools That You Will Find Helpful in Position Trading
1. Support And Resistance
The aspect of support and resistance forms the basis of technical analysis in Forex trading. Conventionally, Forex investors buy at or near areas of significant levels of potential support in an uptrend. Contrarily, the traders sell near or at positions of substantial levels of possible resistance in a downtrend. Resistance refers to the areas where prices stop in an upward movement and turn around. Consequently, resistance stops further advancement of the price. The vice versa is true for support.
2. Trend Line Indicator
The trend line, though simple, is an indispensable trading tool in position trading. Undoubtedly, trends and price actions become evident when viewed over more extended time frame charts. Accordingly, apply a trend line analysis to capture invaluable insight into the market based on the general direction of the price action.
3. Moving Average Indicators
Moving average stands out as a practical, useful, and easy Forex indicator for position trading. The indicator accumulates past price points and averages them to provide you with a better view of the currency movement. A moving average indicator can be simple (SMA) or exponential (EMA). Additionally, you can utilize the averages to establish the trend of the prices. For instance, a currency pair could follow a period of rising value in a particular time frame. This forms an excellent opportunity for traders to harness profits. On the contrary, a downtrend over a period translates to losses to investors.
Furthermore, as a keen position trader, you will need to regularly analyze macroeconomic data of the major countries represented by their respective currency pairs. Some of the crucial economic factors to consider in position trading include;
- Inflation rates
- Economic and political stability
- Interest rates
- Trade balance
A Sample Position Trading
Whereas there may be variations in position trading strategy, the following steps will guide you on how to trade using the approach. You may consider customizing the strategy a bit to fit your preferences.
- Select your currency. You need to find currencies that have been gaining over the recent months and those that have been falling too. For measurement, set a 12 period and scan the weekly charts of the most prominent currency pairs. By looking at the currencies that have remained above or below 50 in their crosses or pairs, you can determine which pair to trade in the following week or session.
- Install charts on appropriate time frames. Proceed to install the 10-period RSI, 10 period SMA, and 5-period EMA. You should enter trades in the direction of the trend when all the indicators align in the same direction as the trend on all time frames during active hours.
- Determine the percentage of your account that you are going to risk in each of your trades. Determine the cash you intend to risk and divide it by the 20-day average true range (ATR) of the currency pair you are about to trade. This shows how much you should risk per pip.
- Enter the trade as per step 3. Place a hard stop loss on 20-day ATR away from your entry price. Exit manually if the trade moves against you rapidly by about 35 pips and shows no sign of returning. If this doesn’t happen, wait until the end of the day. Exit if the trade is showing a loss with no promising candlestick pattern.
- If the trade is in your favor by the end of the day, wait for it to return to your entry point. Additionally, when it fails to bounce back a few hours after hitting the entry point, exit the trade. This should continue until the trade reaches a level of profit twice your hard stop loss. Subsequently, move the stop to break even.
- As the trade grows in your favor, move your stop in the direction of your profit target. A good trade should make thousands or hundreds of pips in a superior trend.