Forex Trading Strategy – FX Guide

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To enhance your chance of success in the Kenyan forex market, you must develop a trading plan that includes a profitable forex trading strategy.

Following are a few strategies that have proven successful for some fortunate retail forex traders in Kenya based on their experience and expertise in the market. Forex traders can use the strategies listed regardless of whether they are based in Kenya or elsewhere in the world.

What is a forex trading strategy?

The forex trading strategy is a way a forex trader determines whether to buy or sell a currency pair at a certain moment in time in Kenya.

The forex market has many different trading strategies, including technical analysis and fundamental, news-based strategies. A currency trader’s strategy is typically composed of trading signals that trigger buy and sell decisions. There are many forex trading strategies available on the internet, or the traders themselves can create them

Basics of a forex trading strategy

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The forex trading strategies in Kenya used for generating trading signals can be manual or automated. Trading signals in manual systems are interpreted by a trader sitting in front of a computer screen, watching the screen for trading signals and deciding whether to buy or sell. Automated systems are based on algorithms that find trading signals and execute trades automatically. The latter eliminates human emotion and may thus improve efficiency.

Off-the-shell forex trading strategies in Kenya should be used with caution because it is difficult to verify their track record, and most successful trading methods are kept secret.

Opening a demo account and practising trading forex in Kenya is one way to learn how.

Creating a forex trading strategy

For many traders in Kenya, simple trading strategies are their first step. They may observe, for instance, that a certain currency pair tends to rebound from a specific support or resistance level. However, after some time, these trading signals may get more accurate by adding additional elements. For example, they may require the price to bounce back from a specific support level by a certain margin or number of pips.

For a forex trading strategy to be effective, there are several different elements:

  1. Selecting the market: A trader should decide which currency pairs they will trade and become proficient at reading them.
  2. Position sizing: Traders need to establish a target size for each position to determine the amount of risk they will take.
  3. Entry points: There are specific rules traders need to follow when entering a long or short position in a certain currency pair.
  4. Exit points: Traders must formulate rules determining when they should exit a position, either long or short or when they should get out of a losing position.
  5. Trading tactics: Traders need to develop rules for buying and selling currency pairs and choosing the right execution technology.

Traders need to develop trading systems that automate rule-following in programs such as MetaTrader. Additionally, these applications allow traders to backtest trading strategies to see how they would have worked in the past.

Why is having an effective trading strategy important?

By participating in forex trading, one can access a global market with significant potential in Kenya. Moreover, the popularity of forex among day traders has given it a reputation for turning simple profits quickly.

Truthfully, it is no different from other world markets when it comes to complexity and competition. Therefore, understanding the market and honing your trading strategy is essential to succeed and succeed consistently.

You can trade forex in several different ways in Kenya, so you should choose the best suited to your experience level, your objectives, and the context of the trade. This article compares nine popular forex trading strategies, highlighting their benefits and drawbacks, so you can choose which is most suitable for you.

Forex trading strategies

Fundamental and technical are two main categories of forex trading strategies in Kenya. Although most traders use technical analysis to assist them in their trading, both should still be learned.

If you are creating a Forex trading strategy in Kenya, you should be familiar with:

Fundamental Analysis

Fundamental analysis is a method of trading based on news reports about the economy and other factors that impact a currency’s value in Kenya.

Fundamentals influence the outlook of an economy. Bad economic conditions affect a currency’s value and vice versa. Consequently, it is crucial to understand the fundamentals of trading in Kenya.

A fundamental trader monitors the news and refers to forex calendars to gather information about Kenyan fundamentals.

The following economic indicators could impact a currency:

  • Interest rate decision by Kenya’s central bank
  • Prices of goods and services
  • Gross Domestic Product
  • Unemployment statistics

Technical Analysis

By using technical analysis tools in Kenya, traders can figure out the currency’s movements based on chart patterns, charting tools, indicators, etc.

Technical analysts use candlestick patterns, Supply-Demand, trendlines, support resistance, and others to interpret charts. A technical trader will look at different time frames while analysing charts.

News trading

If you are interested in staying abreast of economic and geopolitical news in Kenya, you might be interested in this. Following an economic release or another important news announcement, the strategy seeks to profit from sharp fluctuations in the exchange rate for major currency pairs.

Scalping Strategy

A scalper is a Forex trader that prefers capturing multiple price movements in a short amount of time. They would prefer short-term trades held for just minutes. The goal of forex scalping is to accumulate small but frequent profits in addition to limiting any losses.

The price movements in these short-term trades would be as little as a few pips, but when leverage is included, a trader will still have the risk of significant losses. Typical forex traders who use this strategy devote much of their time to the higher-volume trading periods and remain focused throughout these fast-paced trades. These periods typically include:

  • When both the New York and London exchanges are open: 8 am to 12 pm GMT.
  • Between 7 pm and 2 am GMT, Tokyo and Sydney are open.
  • From 3 am to 4 am GMT, the Tokyo and London stock exchanges are open.

For trading in FX, the most liquid currency pairs are often preferred because their spreads are tight, enabling trades to be entered and exited rapidly. For instance:

  • AUD/USD – 0.7pts minimum spread
  • EUR/USD – 0.7pts minimum spread
  • USD/JPY – 0.7pts minimum spread

Day Trading

Trading strategies involving day trades typically restrict transactions to one session. In the day trading session, traders buy and sell throughout, but they close out all positions at the end of the day to avoid incurring extra risk by holding positions overnight.

If you’re uncomfortable with the fast pace of sleeping but would like to trade for short periods, day trading can be an alternative strategy for you. The trade is typically completed within a day, not overnight. If the price of the relevant currency pair changes intraday, profits or losses are incurred.

Researching and monitoring this type of trading would require a lot of time and a good knowledge of how the economy could affect the pair you are trading in Kenya. In the event of major economic news on that day, your position may be impacted.

Swing trading

In swing trading, the traders enter and exit the market based on technical indicators that reflect market momentum. If they go long, swing traders are concerned with buying and selling high. If they go short, they are concerned with selling and buying low. There is no time constraint in swing trading so that they can take overnight positions.

If you prefer a mid-term trading style in which you can hold positions for several days, you may choose swing trading. It aims to profit from changes in price by identifying the ‘swing highs’ or ‘swing lows’ in a trend.

Though you are less likely to concentrate on the market when you are day trading, you are still at risk if there is any disruption overnight or a gap.

Trend trading

Trend traders follow the direction of the currency pair’s movements over the long term. To execute this strategy, one must identify trends and then establish currency positions following them until they are fulfilled.

Forex position trading

Forex position trading provides a more stable long-term strategy for the patient trader that does not worry about short-term fluctuations. Some forex traders will hold forex positions for months, years, or even decades. The goal of this strategy is to increase the value of the currency pair over a long-term period.

It is more suited to individuals who can’t spend hours trading but have a profound understanding of market fundamentals.

When is it time to change strategies?

Traders who follow forex trading rules succeed when they use trading strategies. Just like any other strategy, one kind of strategy won’t always work for everyone, so what works today might not work tomorrow. Trading strategies that don’t produce the desired results and aren’t providing to be profitable may be changed if the following factors are considered:

  1. Matching risk management with trading style: You may need to adjust your trading strategy if you do not have an appropriate risk-to-reward ratio.
  2. Market conditions evolve: Certain trading strategies may depend on market trends, so they may no longer work if those trends change. If that occurs, changes may need to be made.
  3. Comprehension: If a trader does not fully grasp the strategy, then it’s unlikely that it will work. The effectiveness of a strategy is reduced if a problem occurs or a trader does not understand the rules.

However, it is not easy to change a forex trading strategy too often, even though change can be good. By changing your strategy too frequently, you may lose money.

Strategy modifiers when using a forex trading strategy

forex strategy plan

To ensure the success of any of the above forex trading strategies, you should be aware of how you can adapt your trading strategy. If you wish to reduce risk exposure or provide additional information about a forex trade, you might wish to use the below forex strategies alongside other forex strategies.

Hedging forex

Currency pair traders can hold both long and short positions simultaneously to protect themselves from an unfavourable move.

However, this limits your profit potential as well as your exposure to the downside. The advantage of playing both sides of the market is that you can better guess where the trend is going, allowing you to re-enter at a better price in Kenya.

Essentially, you’re gaining some time so you can see how the market changes, giving yourself a chance to improve your position. When you expect the market to experience some short-term volatility, this is particularly useful.

As a result, hedging forex is useful for long-term traders who predict a trend in a currency pair will be unfavourable but then reversible soon afterward. You can reduce some short-term losses by hedging your forex d=strategy if you predict correctly.

Price action forex trading strategy

You can use a forex trading strategy based on price action without considering external factors, such as economic news and derivative indicators. The use of candlestick charts to detect trading opportunities solely based on price movements requires reading candlestick charts.

It is recommended that this strategy be used alongside other forex trading strategies, such as swing trading and day trading. By combining price action with a broader strategy, price action can help determine a trader’s next move.

Forex traders who use price action strategies can see real-time results and avoid waiting for upcoming news or external factors.

One crucial aspect of using the price action strategy is that it’s highly subjective. While one trader might predict an uptrend for that particular currency pair, another might predict a potential turnaround.

Bottom line

Forex trading strategies serve as a foundation for trading forex markets of Kenya. If you are a trader, you can help define your style by following a general strategy. When developing a forex strategy, the first step is determining which indicators you want to use and when you prefer to trade.

After you have developed a strategy, you can identify patterns in the Kenyan market and evaluate the effectiveness of your plan. However, it is important to note that there is no ‘best’ forex strategy, and traders often combine strategies or rely on strategy modifiers to get the best results. As a result, forex trader can apply their strategy to most foreign markets and adapt to many situations.

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