As you probably already know, the forex market is the world’s largest financial market seeing trillions of dollars worth of daily trading volumes. The forex market is also incredibly volatile because of its high liquidity and also due to other political, economical and environmental factors. This causes price fluctuations that may either see a trader profit significantly, or alternatively lose all their capital.
A robust, well-planned trading strategy is incredibly important to manage this volatility. The strategy must however align with your trading goals and cater to your level of expertise, tolerance for risk, available budget and the amount of time you have available to trade. In this article, we’ll discuss common trading strategies used by traders to handle volatile markets.
Trading the news
A news trading strategist will usually trade based on news, before and after the announcement or release is made. Assessing the news as soon as it’s been released is vital, as is the ability to make a fast decision on how to trade it. Somebody adopting a news trading strategy must understand how the financial markets work, how the news is factored into an assets price (fully or partially?), and whether the news matches market expectations.
Key tips for trading the news:
- Make use of a real time Economic Calendar to track upcoming releases (i.e. periodical events)
- Monitor the news channels (while the typically cover unexpected events, they do also provide valuable data on planned events too)
- Identify market-moving news reports
- Establish which news reports to avoid trading
- Refer to the news indicators on your trading platform
Becoming a day trader
Day traders look to execute frequent trades throughout a trading day. Positions are typically held for milliseconds up to several hours but not usually overnight. Like scalpers, day traders make use of technical analysis to assess the markets and make gains off short-term price fluctuations. Price volatility and average day range are also important for day traders. Other traits of day trading are as follows:
- Day traders are mindful of geopolitical or financinal events and/or announcements that may cause spikes in market movements and impact the value of assets.
- Day traders often use leverage to earn more gains. Leverage does however come with high risk and while it may amplify profits, it can also expose a trader to significant losses. This is why someone using a day trading strategy will usually set strict stop-loss and take profit orders to safeguard their funds.
- Day traders tend to use technical analysis more frequently to identify short-term trends and execute trades.
Someone looking to engage in day trading must ensure they have the time available to dedicate to this activity throughout the trading day.
Implementing a scalping strategy
A scalper is a type of trader who attempts to capture smaller price movements as a way of making a profit. They typically enter and exit the market several times during a trading day, holding onto positions for seconds to minutes at most. This short-term trading strategy is usually utilised by a trader with enough time on their hands to manage up to hundreds of trades a day. They usually close trades by the end of the trading day to avoid overnight risk. Other scalping stragey characteristics are as follows:
- Scalping typically takes place when the markets are most liquid, i.e., during the busiest time of a trading day. In the forex market, the highest levels of volume and liquidity usually occur during the London and New York trading sessions (overlapping sessions).
- Scalpers usually target the most popular liquid currency pairs. These usually offer the most competitive spreads. A highly liquid pair is usually one that can be purchased or sold easily and which sees considerable trading activity.
- Scalpers will typically seek a high-speed trading platform, e.g., MetaTrader 4, that can facilitate incredibly quick executions. This is because even the smallest delay can have a maximum impact on the profitability of a trade.
- A scalping strategy will integrate robust risk management techniques to ensure the trader’s capital isn’t put at risk.
- Scalpers must be vigilant as far as monitoring global news and economic annnouncements are concerned. This is because an unexpected news or financial release may adversely impact in seconds.
Traits of a scalper
A scalper is usually someone with extensive trading expertise, a high tolerance for risk and who can take decisions in an instant. Someone who doesn’t have the grit to monitor charts continuously, make snap judgement calls, or seeks a slower-paced, longer term investment strategy, is probably not going to adopt a scalping strategy.
Types of analysis for scalping
A scalper will usually use technical analysis to make a decision regarding a trade. Some of the most popular include trading decisions. This includes indicators like Exponential Moving Averages (EMA), Relative Strength Index (RSI), MACD (Moving Average Convergence Divergence) Indicator, Parabolic SAR (Stop and Reverse), etc.
What is a swing trader?
Swing traders attempts to make short or medium-term gains in any financial instrument (e.g., forex, stocks, commodities, etc) over a period lasting from a few days to weeks. It usually entails holding a trading position either long or short for more than one trading session (but not longer than a couple of months at most). Implementing a swing trading strategy requires a good understanding of technical analysis, as well as fundamental analysis as an additional filter. This is because a multitude of factors can impact trading performance, from central bank announcements, to interest rate hikes, to industry or investor sentiment, to political instabilities and even natural disasters. Like day traders and scalpers, swing traders typically use risk management techniques to manage price movements. Because swing traders also consider longer term trends to make trading decisions, gaining expertise on and managing fundamental risks effectively is key.
Some of the indicators or tools used by swing traders include price range tools, momentum indicators, moving averages on candlestick charts, as well as assess other technical patters in order to make informed trading decisions.
Trading with T4Trade
T4Trade is a great broker that offers a variety of tools and resources to help you become a more trader, regardless of the strategy you intend using. T4Trade’s exclusive Academy is an incredible source of educational material that cover a range of topics relevant to trading different volatile markets and delivered by T4Trade experts. Irrespective of what type of learner you are, there is something for everyone, be this videos, podcasts, videos-on-demand, or even Live TV. The broker’s blog page is also packed full of trading insights and answer many of the questions traders tend to ask. T4Trade traders can also access over 300 financial instruments across 6 asset classes with some of the most competitive conditions. This includes flexible leverage, competitive spreads, quick withdrawals and deposits, fast executions, and 24/5 multilingual, top-tier customer support.
