Choosing an effective trading strategy is an important part of becoming a successful trader. Having a proper trading strategy helps you navigate financial markets, make correct decisions, and improve your trading performance over time. Most of the time when people talk about trading strategies, they mean a specific trading method that is usually just one small part of the complete trading plan.
There are lots of trading strategies, some of them are better than others, some of them are for long-term success and some are for short. It’s up to a trader itself to decide which strategy is the most optional in a given situation. But if you want to maintain your discipline while trading, you have to choose a high-quality trading strategy and follow its rules.
There is lots of information on the internet about how to choose the correct trading strategy or how to check online trading strategies today. Tendencies in the trading industry and the popularity of the strategies are rapidly changing, but for now, the top 3 most popular trading strategies are: Bollinger Bands, Forex News Trading, and 200-day moving average.
Bollinger Bands
Bollinger Bands is one of the most popular trading strategies for successful forex traders which was used from the 1980s back to when John Bollinger first introduced it. In this strategy, a statistical measure known as standard deviation is used to establish where the levels of support or resistance of a band might lie. This is a part of the concept of volatility channel. There are three most commonly used trading methods in Bollinger Bands.
The first bollinger band strategy in FX is Trend Trading. It is focused on estimating the advantages of the latest trends, particularly in currency pairs near upper or lower bands which is a sign of a strong trend. It’s important to note that during strong trends, the price is usually closer to outer bands. Traders who use this method analyze charts of several currency pairs and choose securities where price movements are close to lower or upper bands.
Another method of the Bollinger band is the Breakout strategy which is focused on identifying possible swings or trend continuations when the price is outside two bands. As you can see from its name, it helps traders to overcome breakouts in the process of trading. And the last one is the squeeze strategy which helps traders to predict the volatility of the market and determine the timing of opening and closing trades. It aims to identify the forex pairs with the most convenient upper and lower bands narrowed significantly. It might predict more trading opportunities as it shows a higher degree of variation in the exchange rates.
Generally, the Bollinger Bands strategy is useful to determine the potential tops and bottoms of currency pairs. However, success isn’t always guaranteed while using Bollinger Bands as it largely depends on the major economic events and many other factors that usually have a big impact on the usual market patterns.
Trading forex on News
Forex News trading is among one of the most effective trading strategies as it applies to any situation and traders can use it everywhere. While trading, it’s important to keep track of current tendencies in the economy and try to guess your outcomes based on your experience. There are many different reliable websites to gain important information about the financial news of the world but Bloomberg is generally accepted among the traders. This is why trading forex on news is an essential part of trading because you have to be ready for major changes in economics.
Using this strategy, traders usually focus on some sectors including Interest rates, unemployment rate, trade, and budget balance, and Consumer confidence. Everything on this shortlist may not have a direct impact on the exchange rate of a currency, but they still have an influence somehow through the speculation they cause. For example, if CC (consumer confidence) is going down in the country, it’s predictable that the economy will decrease. Also, unemployment rates can have a huge impact on currency exchange rates because then unemployment is low, employers have to offer higher wages to attract workers from other companies. Low unemployment causes higher inflation which results in falling exchange rates.
So, keeping up with daily news is important to prepare for the inevitable changes, and this is why trading forex on News is still a top trading strategy in 2020. However, this strategy is considered a short-term one and you shouldn’t rely only on this one. Using one of the long-term strategies will increase your effectiveness and opportunities for success.
200 Day Moving Average
The last one in our list of 2020’s top trading strategies is the 200-day simple moving average (SMA). This strategy is considered as a key factor in determining long-term market trends. It plays a vital role and serves as a support level when prices are above the moving average or resistance level when prices are below it. The 200 days SMA is calculated according to the last 200 trading days and when the currency pair is above this indicator, it’s considered as an uptrend and above the 200 days, SMA is the downtrend. This strategy helps the traders to determine current trends and open positions to capitalize.
The 200-day strategy is often compared to a 50-day strategy but sometimes these two methods are used together which is referred to as MA crossovers. Sometimes it’s important to integrate short-term moving averages, which allows traders to calculate when is the time for the existing trend to run out of steam.
So, this strategy is essential to determine the direction of the long-term trend in any market and you can easily track when a market is going to decline using this method, but it is often considered as a self-fulfilling prophecy and doesn’t always work.
Conclusion
Finally, we can say that there are many other strategies that traders use to improve their performance and each of them is important to achieve your goals effectively, but remember to choose wisely and determine your strategies according to the current situation.
