There are a number of forex trading strategies which can be implemented by forex traders of all abilities in order to provide the best chance of profitability. They all vary in difficulty and should be implemented in different market cycles, today we will cover the primary strategies which can provide structure to newbie and experienced traders alike. The functionality of leading forex trading platforms means they are available to all, providing you are disciplined in your approach and ensure the risk is prudently managed.
Selecting the best forex strategy for you
When approaching the task of selecting the best forex trading strategy there is no definitive answer. One forex trader may opt for a certain strategy and be highly successful, whereas the strategy might not work at all for another or a group of traders.
As a professional or hobby forex trader you need to take a holistic view of the way you wish to trade, the hours you are looking to trade and have clear objectives. Forex trading strategies which might not work for others might work brilliantly for you and therefore its worth taking your time, being disciplined and experimenting with all types of strategy until you find one which will reward. Finally, capital that you risk should not be financially impactful to you or your family and you must be willing to lose in order to find your trading niche.
Day trading – trading for a few hours up to a day
A term which typically conjures up a vision on a lone individual attempting to take profit from market movement during working hours is relatively accurate. Typically, a ‘day trade’ will be one which is executed to capitalise from intraday forex market price movements.
As a forex trading strategy, day trading can be perfect for a beginner. Forex day trading removes the risk of sizable market movement or correction that might occur overnight whilst other markets are actively trading. Day trading windows tend to last from a few hours or through to the local market close. As an indication a day trader may trade a certain pair long or short looking to realise a profit from a 50-pip movement, once achieved the trade may be closed and profit taken.
The 50-pip day trade strategy is when a trader will leverage market open movements. These tend to be trades on high liquidity currency pairs such as GBP/USD or EUR/USD. After the market closes (7 a.m.) traders will place orders either side of the market with one order being triggered by the market open and subsequent movement. The other order is then cancelled (one cancels other), the market then continues on its run allowing profit to be realised. To mitigate risk a stop loss order should be placed between 5-10 pips above the initial order this can be moved as the market evolves. The 50-pip trading strategy typically is considered as a day trading strategy but in volatile or fast-moving markets 50 pips profits can be achieved using the scalping forex trading strategy.
Scalping – trades that are made in minutes or hours
The scalping forex trading strategy is one a or a number of brief trades which might be held for just a few minutes. If markets move in your favour, these can be highly effective particularly when central banks or high tier data is released as markets can become volatile, a stop loss order to mitigate risk is highly advisable.
Traders may long trade a certain currency against multiple other currencies believing that the base currency will be boosted by the data or central bank announcement or news. This trading strategy can be highly effective when used in conjunction with reputable forex signals. When utilising the scalping forex trading strategy, it’s highly advisable to use in-depth charts, Meta Trader 4 or 5 should fit the bill nicely and enable you to have the most accurate views over your trades.
Swing trading – overnight or trade that lasts up to a few days
A forex swing trade involves a forex trader implementing a strategy to profit from pricing change overnight or a number of days. The intention is to hold the trade in order to realise more profit than possible during day trade. Swing trading can be highly effective when overnight data or an election result is released. Typically, positions will be traded off before market close and therefore if political news, especially an unexpected outcome, for example, can see huge profits realised. Two recent examples of this include President Trump being voted US president and the EU referendum outcome. Both seeing large amounts of market movement overnight.
Traders, however, should note that as they are looking to realise larger profits careful calculating should be taken to mitigate adverse movements and risk. Before placing a swing trade position, you should carefully evaluate technical analysis, recent trends, support levels and fundamental data.
Positional trading – long term trade that follows a perceived trend
Positional forex trading is where a long-term trade is followed for example a currency that has over a length of time depreciated significantly or incrementally. This can also be applied to a currency which represents a strong economy and is appreciating because of strong economic data or systematic interest rate rises. The best positional trades require a solid amount of knowledge or insight and incredible patience. Cash flow to your forex trading platform should also be considered as if funds are placed into a positional trade they could be tied up for a significant amount of time. If beginning or trading on a budget it might be wise to consider another strategy, especially if a potential positional trade pay-off is a long way off.
Algorithmic forex trading
Alongside the significant development of forex trading platforms has been the emergence of Algorithmic forex trading. Essentially algorithmic forex trading is the creation of a certain set of rules designed to complete a trading task. Some forex platforms can be programmed to make certain trades that can be defined by rules which can include, timing, price and volume. Once these elements are defined the computer or platform can determine and implement certain forex trades.
This type of trading is more orientated to professional traders which have significant insight and knowledge of their platforms. To have the ability to input the relevant rules an excellent level or market knowledge and math must be applied.
Algorithmic trading has led to significantly increased efficiency and has reduced the cost of trading due to its automated nature.
For those that are looking to supplement their household income or trade forex as a primary income selecting the correct strategy will be key to success. A solid strategy coupled with discipline over your trades and budget will ensure that all progresses smoothly. Leading forex trading platforms will offer a raft of information and the ability to begin with a demo account. Use this as an arena to test theories and practice your strategies. Remember, up to 84% retail investors lose money so preparation and good use of trading instruments is key. Finally, good luck and happy forex trading!