Forex Trading strategies simplified.

Trading forex could be a very daunting task. I summarize the major trading strategies that are used by traders. There are hundreds of different strategies, even thousands. But on a more basic level there are only a few strategies.

1. Trend Following.

2. Scalping.

3. Long term trading(currency investing)

4. Computer generated signals based on a combination of factors.

Let's dive in a little deeper into each of these.

Trend following is a simple idea. Identify a currency pair's trend and enter a trade when the trend is in its early stages. Ride the trend, and close the trend when the trend starts reversing. Sounds simple? It sounds simple but identifying trends could be the hardest thing to do in any market. There are perhaps hundreds of strategies to identify trends. None are better than others, every trader finds the best trend following method to match his or her trading style.

Scalping is a simple idea, exploit the short term moves of any currency pair. These moves could be as little as 5 pips. Again with scalping there are hundreds of ways to identify a potential trade, RSI, MACD, momentum, breakouts on small time frames, and hundreds more. Again it depends on what a trader is comfortable with.

Currency Investing is a type of trading that involves analyzing a currency and attempting to predict where the currency will be in a year from now. For example if we want to invest in EUR/USD(buy EUR sell USD), we will have to decide if the EU economy and interest rate policy will keep the Euro strong, at the same time we will have to identify potential weakness in the USD, perhaps interest rate policy is dovish(interest rates are low or are on the way lower). Once we have identified these factors we can enter the trade. Again as in the previous strategies we have to have a plan to close the trade. We will keep evaluating and when our view of the EU economy or the US economy has changed we will look to close the trade. Keep in mind that sometimes there are other factors in a currency pair's long term move, which could be unrelated to the country's economy or interest rate policy.

Lastly computer generated signals. These forex signals could be taking advantage of all kinds of trading set ups. It could be scalping, trend following, break outs and any other types of decision based trading. A good computerized system would usually take into account several signals and combine them together to get one strong signal whose probability of success will be much higher.