Nigeria has an expanding community of Forex traders. Residents monetize their knowledge of market trends, capitalizing on rises and falls. They use different Forex strategies to maximize profits. But which approach is the best?
There is no universal recipe for success. Different strategies involve different time frames and key indicators. Day traders open and close positions within the same day, while swing traders hold them for days or weeks. Here are the most popular methods.
1. Following the Trends
At times, a price breaks out of its range. It may go further up or down, surpassing resistance or support, respectively. This is how trends start, so the market can reach new lows or new highs.
When prices plunge, some traders may start short-selling, as they are afraid of losing even more. Buyers delay execution because they want to secure the lowest possible price. This sentiment continues until the price bottoms out. Market participants see that decline has reversed, and gradually regain confidence.
So, what is a trend-following strategy? It teaches you to open a long position once resistance is broken through, and short sell when support is surpassed. Traders use technical indicators to spot their entry points. They open positions when they suppose a new trend has emerged. Reliable brokers like ForexTime provide guidance on this and other successful Forex trading strategies.
An indicator can determine trend inception (the breakout point) fairly accurately. It shows you when the price falls below or rises above its average for a certain period. Of course, this is an approximation, as there is no way to know for sure. Still, this is one of the most successful strategies. Trends can be extreme and lengthy, which works to your advantage.
Overall, this approach works best in fairly stable conditions. In times of increased volatility, prices may change erratically. Spotting breakouts becomes a challenge. Trend-following is also demanding, as traders consider long periods like 20 days.
2. Four-Hour Forex Trading Strategy
This approach is a variation of the swing style, and it uses two sets of moving averages. The trader focuses on a four-hour base chart and looks out for trading signal locations. At the same time, actual positions are taken under the 1-hour chart. The key criterion is that the time-frame for the signal chart is always shorter than that for the base chart, with at least a 1-hour difference.
The two MAs are the 34-period and 55-period indicators. These lines must be relevant to the price action. They serve as the support or resistance level depending on the trend. The best positions can be taken in these zones or around them.
For uptrends and downtrends, the MA lines must be sloping upwards or downwards, respectively. If you bet on the decline, make sure the pair is trading below the MA lines, with the 34-MA line lower than the 55-MA line. In the case of rising, the opposite must be true: price action is above the MAs, with the 34-period indicator above the other one.
3. Counter-Trend Forex Strategies
As the term suggests, this method is the opposite of trend following. The premise is that breakouts may not develop into prolonged trends. Instead, they bounce off the new highs or lows, so support and resistance hold. Here, you will also focus on support and resistance. Risk management must be rigid.
The system is best suited to volatile and stable markets. There, price swings are healthy, and they stay within a range. The difficulty here is that markets may change unexpectedly. Traders should monitor the market closely.
4. Choosing the Best Strategy
These are some of the most popular methods. Unfortunately, there is no immediate way to see which approach is best for you. Some experts in Nigeria wait for breakouts, while others rely on price ranges. Trade mindfully: analyze your decisions and keep a journal to review performance. Remember that each decision puts your capital at stake.
Test each system in the demo mode before applying it to the real market. Today, a wide variety of indicators facilitate trades, allowing you to spot the best entry and exit points. Still, no robotic advisor is infallible.
Beginners should consider the most basic strategies and start small. Choose a well-established system and keep positions low. Avoid using leverage until you learn to manage risks. In Forex, education never stops. Progress from the simple to the advanced, but do not rush it. Perpetual improvement is the only key to success.