Are you looking for the best forex trading strategies?
Well, I am sure that you know that the forex market is very dynamic.
Maintaining discipline is often the key to successful trading here.
The need is often for a consistent and time-tested approach.
The confidence in the efficacy of the strategy will help better implementation.
Moreover, it will enhance the quality of returns you can expect.
In many ways, forex trading strategy is also about keen investment sense.
It is never one-dimensional in approach.
In fact, you have multiple elements to focus on.
When seasoned investors are talking about strategies, it comprises of many facts.
Most times, it is not just one singular element.
You have to consider a strategy based on who and how much to invest.
Most times, individual trading aptitude and understanding also creates an impact.
It makes you choose or reject a particular trading concept.
But before you consider any strategy, it is important to consider certain elements.
They will help determine the efficacy of the forex trading strategies that you adopt.
In many ways, it also helps you to adopt a strategy that satisfies your expectation.
Key Requisites of All of the Effective Forex Trading Strategies
Broadly, when you are deciding on a forex trading strategy, you have to look at
1. Size of Position
It is common knowledge that some strategies are a good bigger trade.
Given the dynamic nature of the forex market, the size of the trade is very crucial.
Based on the exact extent of the trade, you have to take up a strategy.
Remember forex trading strategies are rather tricky.
Given that forex markets are functional 24×7, even the smallest change can be huge.
So carefully consider the amount of money you are ready to invest.
Make a rough calculation and then go ahead with a forex trading strategy.
However, it is very important to check how trade pans out.
You must be alert about the trade positions at all hours.
2. Risk Appetite
There are some forex strategies that can deliver a huge return.
But at the same time, they may also incorporate huge intrinsic risk.
In case the strategy fails, the risk element is also crucial.
So you have to assess your risk appetite carefully.
Only then, you must go ahead with the strategy.
That will help you decide on the most effective forex trading strategy.
3. Return Prospects
That brings us to the most important element.
You have to consider the scope of return.
There are many attractive strategies.
But you have to consider what makes business sense for you.
Ultimately a strategy that yields favorable returns for you is the best option.
4. Exit Routes
This is another challenge in forex trading strategies.
Carefully consider the exit routes.
Avoid any strategy that fails to offer a clean exit route.
We all get a strategy hoping it works.
But the plan B is equally important.
Most Popular Forex Trading Strategies
This is undeniably the flavor of 2018.
In fact, it is one of the most popular forex trading strategies.
However, scalping is never a long-term position.
It is, in fact, a rather short-term strategy.
Most times these trades are held for barely a few minutes.
As the name indicates, it is all about scalping the gains on the surface.
A scalper looks to quickly skim some gains before the market closes.
It could be just about beating the bid/offer price by a whisker.
Normally Scalping involves a large number of trades with a small profit from each.
On an average, this forex trading strategy yields 5-10 pips gain on every trade.
However, in case the trade reverses, your losses can be huge.
Of course, this depends on the extent of your leverage as well.
So deciding on scalping strategies is also about deciding how much time you can devote.
Also, your availability at the right time is crucial.
You can undertake scalping only during specific hours.
Another important factor is your ability to think on the fly.
This is one such forex trading strategy that yields rich returns to fast thinking.
You have to quickly predict how markets will perform.
Based on that you have to quickly open and close trade.
One of the most important factors in this is the herd mentality.
This is an integral element of this trading strategy.
But forex traders adopting this strategy need to have a high-risk appetite.
They should be able to accept the losses also whenever that happens.
As a result, don’t make the profit your sole concern.
Also, keep your eyes trained on the exit route.
Often that will be the best bet to limit losses.
There are many types of scalping.
Read thoroughly and make an informed choice.
As the name indicates, these forex trading strategies are for a day.
You have to exit this position by the end of the day.
So you are relatively protected from any drastic overnight changes.
Trade, in this case, typically lasts for a few hours at the most.
You will see investors going for risky trading propositions in this case.
The premise is that most times markets can only move to a certain extent.
The idea is to garner as much possible profit within one trading day.
As a result of this, these day trading strategies are far more action packed.
Traders need to be alert and aware at every step.
On an average, the risk is directly proportional to the time frame.
The smaller the time frame, greater is the risk the trader embraces.
So, it is not just a risky trade proposition, it is also for experts.
You have to pretty confident about the market moves before trying this.
The problem is even the slightest mistake, in this case, can prove to be costly.
The extent of losses and chance of making mistakes are both high.
So, you have to calibrate your moves carefully and look at preserving capital.
Volatility and liquidity are the two factors to look at.
These are the two main catalysts in this forex trading strategy.
Volatility is the extent of swings in the market.
This will keep changing every day.
So, you need to be extremely careful about the potential volatility.
Liquidity is the other major factor to consider.
You must remember that short-term trades are very precise.
You don’t have the smallest window to wiggle out.
Therefore, good quality liquidity is very important.
Without the desired liquidity, you will never get the desired outcome.
3. Swing Trading
This is another interesting forex trading strategies.
In this case, a trader can hold positions for a relatively long period.
On an average, this strategy extends over a few days.
The idea is to gain profit from short-term price patterns.
It is typically positioned between very short intra-day trades and long-term ones.
The idea is to take advantage of a fairly extended trading window.
Most times, you will see the long-term players at the far end of the spectrum.
Their strategies extend for months or even years in one go.
In contrast, the Swing Trading strategies pan out for a few days at the most.
However, their trade is longer than the Scalpers or the day traders.
When you are planning a fairly reasonable market exposure, this is an option.
In this case, the time duration helps you take advantage of many favorable options.
The time factor can be crucial to plan out better exit strategy.
But the problem is this can also lead to huge expenses.
The number of transactions involved also increases the associated charges.
As a result, you have to calibrate the trade very carefully.
That alone can guarantee a reasonable return outlook.
You also need to be careful about what trades you pick for this.
It is best to avoid any counters which are susceptible to sharp overnight moves.
That way, you can safeguard your trades from very sharp moves.
Therefore, it is important to identify the risk elements in this trade.
That will help you in diving deeper into these swing trading strategies.
Moreover, the relative returns are also dependent on the risk involved.
The time duration also directly impacts the profit potential in the trade.
– Examples Of Swing Trading Strategies
Forex market veterans use a variety of swing trading options.
Most times, it is dependent on time and risk profile.
One simple option is you look for a trend and then wait for countertrend.
Any pullback will provide the necessary swing that traders can cash on.
This is a fairly simple strategy that allows reasonable gain.
There are many who use this forex trading strategy without a limit.
The idea is to target higher amount of profit.
Most times, this will make you target profits for a longer duration.
You can also look at using a counter-trending swing strategy.
Like the previous case, here also you are targeting short-term buildup.
The uptrend is created by increasing highs.
The downtrend results from decreasing lows.
In this case, the investors target swing during trend reversal.
So, you can see most time price action is the driving force in most of these strategies.
Recognizing the price action and enhancing it is crucial.
The important factor here is matching the long-term trend.
That alone can set the direction of the trade for a sustained period.
You can also look to incorporate technical indicators for more precision.
You can also use MA or moving averages to identify the trend.
A moving average gives a relatively clearer picture of the overall trend.
Appropriate money management is the foundation stone of a great swing strategy.
Always make sure that you are not trading against the basic market trend.
It is always advisable to incorporate a secondary indicator.
That will help you confirm the signal to a large extent.
It is advisable to try these strategies in a risk-free situation first.
For example, explore the options in a demo account.
That will help you assess the overall risk much better.
4. Positional Trading
This is a relatively long-term trading opportunity.
This forex trading strategy extends for months and years too.
In this case, investors target maximizing profit from major price shift.
So, once again, the price action is a key factor to fall back upon.
On an average, this is a fairly profitable strategy.
Though there is no way to predict how much profit you can earn from it.
In this, as the name suggests, you hold the position for long.
The holding period can vary from one month to one year.
Ability to predict long-term trends is crucial in this case.
The advantage, in this case, is you do not have to monitor your trade very often.
Day to day monitoring is not necessary.
The norms of positional trading keep altering depending on the asset.
– Examples Of Positional Trading
Positional trading is intrinsically dependent on three factors.
The variants in this forex trading strategy are based on that.
Right from the amount you invest to the profit you earn depends on this.
- Low Volatility In Short-term
Volatility is undeniably an important aspect of the trade.
Most forex trading strategies are deeply dependent on this factor.
In case of low short-term volatility, you will not see the sharp fluctuation.
At the same time, the movement will be relatively slow.
The currency pair will move in the direction of your trade quite slowly.
Most times a sharp fluctuation will make you close position.
- High Volatility In Long-term
Almost the exact opposite happens in this case.
Volatility plays a crucial role in this case as well.
There are some currency pairs that work best in this type of trade.
Target currencies that are susceptible to political events in near future.
You can also look at currencies affected by economic events.
Most cases, these currencies are expected to be impacted in the near future.
That increases the relative volatility.
This is exactly where you can choose to garner profit in this strategy.
- Low Margin Position
Normally forex traders go for highly leveraged positions.
But that’s not advisable in this type of positional trading.
The cardinal rule of this forex trading strategy is less leverage.
Of course, you can determine the leverage based on your risk appetite.
Remember to use only your risk capital in this case.
Also carefully calculate the risk-reward ratio.
That will help you identify the right amount of leverage.
There is no set formula to decide the leverage.
It will differ significantly from one trade to another.
Moreover, it depends from person to person.
Look for exposure levels best suited for you.
That will yield best possible return.
Common Mistakes That You Should Avoid
Whatever be the forex trading strategy, you need to adopt some precautionary steps.
A solid foundation is crucial for sure success.
Many people approach the forex market because of its dynamic nature.
It is open 24×7 globally.
It is interlinked with the geopolitical development across the world.
But remember this dynamic aspect can spell your doom if you are not careful.
Therefore, instead of making long-term gains, you can plunge deep into losses.
You can make a fortune in forex trading, but don’t lose discipline.
Most forex trading strategies incorporate disciplined and regulated trading.
The core idea is to strike when the iron is hot for maximum impact.
Don’t be too buoyed by short-term gains.
You also need to carefully calibrate long-term implications.
Good trading discipline is crucial for sustained gains.
It does not just ensure that you preserve capital but also increase holdings.
Euphoria is never good in forex trading.
A moderated response system is crucial in this case.
Most trading strategies are not effective in extreme market conditions.
So you have to look for mid-ground.
This will help you clock sizeable gains over an extended period.
Believe in well-calibrated decisions.
That alone can lead you to sustained gains.
So when you decide on a forex trading strategy, you have to remember some points.
- What currency pair you are choosing and why?
- The key reason for deciding on a specific strategy.
- Key conditions that will trigger a sell or a buy
- The stop loss and margin levels to preserve capital.
- Deciding on the final profit level.
- Ways to manage a trade for a sustained period.
All of these are very important to remember.
The ideal strategy is one that is able to address all these queries.
The ultimate expectation is to bring in maximum gains.
But, at the same time, you must watch out for relative capital preservation.
Leverage is crucial in any forex trade.
So, look for the most balanced options while deciding on forex market strategies: