If you are new to forex trading, you must be looking for a successful forex trading strategy. And if you do so, then this post got you covered.
As a trader, it is highly important that you have your own forex trading strategies. So you can actually start making money.
And there is quite a lot of trading signals available out there designed by different types of traders to help you make a profit in the market.
But as an individual trader, it is important that you find the Forex trading strategy for yourself that suits your trading style and your risk tolerance.
Also, to make a profit, you should also focus on eliminating the losing trades and trying to find the winning trades. And any strategy that helps you to find the winning trades is the strategy you will need to follow.
How to Choose The Best Forex Trading Strategy?
Before I go ahead and share any forex trading strategies, the first thing you need to know is how to choose the best forex trading strategy. And for this, you can follow these three main points:
One of the first things that you should do is choose a time frame. You need to choose the best time frame that suits your trading style. For a trader, there is a huge difference between the 15 min chart and a weekly chart.
And in case if you are trying to gain small benefits with smaller market moves, then you should always focus on lower time frames. Like the 1min to 15mins.
However, if you are interested in swing trading, then you can use a 4-hour chart. As well as a daily chart so you can figure out profitable trading opportunities.
And the best way to figure out what type of trading is best for you is to ask yourself this question -how long do I want to stay in a trade? Based on the answer, you can choose your own trading time frame.
Number of Trading Opportunities:
While choosing your strategy, you also need to answer this question – how frequently do I want to open positions?
If you want to open a higher number of positions, then you should focus on a scalping trading strategy. But if you are someone who wants to spend his or her time analyzing the market, reading through reports and fundamental factors.
Then you will spend lesser time in front of chats. As a result, you might be interested in looking at higher time frames.
You also need to find the proper trade size. Successful trading strategies require you to know your risk management capabilities. Risking more than you can is extremely dangerous and can lead you to bigger losses.
Hence, it is advised that you set a risk limit for each of your trades. For instance, you can tend to set a 1% limit on your trades. This means you will not risk more than 1% on a single trade.
To simply this, if your account has a $20,000 limit, then you should only risk up to $200 on a single trade. Also, depending on your risk sentiment, you can switch between 0.5% or 3%.
Must Read: Forex vs. Stock Trading
Forex Trading Strategies for Successful Traders
Price Action Trading
Price action is one of the most popular trading strategies available out there. It involves studying the historical prices to formulate technical trading strategies.
Also, it can be used as a stand-alone technique or with a combination of an indicator. Also, fundamentals are not heavily used in price action.
Plus, the best part is that the price action trading strategies can be applied over varying time periods such as long, medium, or short term. Also, it offers you the ability to use multiple time frames for analysis makes price action trading valued by many traders.
There are quite a lot of methods available which help a trader to find the support and resistance levels. And these entry levels are considered as entry and exit points:
- Fibonacci retracement
- Using candle wicks
- Trend identification
Also, within the price range itself, we get to see the range, trade, day, scalping, swing, and position trading.
Range Trading Strategy
Range trading strategy includes identifying support and resistant points. And as a trader, you will need to place trades around these key levels.
This strategy is also well tested in the market and works pretty well without significant volatility and no discernible trend. Technical analysis is the primary tool used with this strategy.
Also, you should know that there is no length per trade as range-bound strategies can work for any time frame. Also, managing risk is an integral part of this method. As breakouts can occur at any time.
In this trading strategy, the oscillators are most commonly used as timing tools. As a trader, you can use oscillators such as Relative Strength Index (RSI), Commodity Channel Index (CCI), and stochastics. Moreover, in some cases, price action is also being used with the range trading strategy to validate range-bound signals or breakouts.
- It offers a good number of trading opportunities.
- It has a good risk to reward ratio.
- You will need to put in a lot of time.
Trend Trading Strategy
Up next, there is the trend trading strategy. This one is a simple forex strategy used by many traders at all experience levels. The best part of this is that the trend trading attempts to yield positive returns by exploiting a market’s directional momentum.
Also, trend trading usually takes place over a medium to long-term time frame. As trends themselves fluctuate in length. Plus, with price action, multiple time frame analyses can be adopted in trend trading.
In this trading strategy, the entry points are designated by an oscillator, and exit points are calculated based on a positive risk to reward ratio.
As a trader, you can stop level distances equal to that distance or exceed it to maintain a positive risk-reward ratio. For example, if the stop level is placed 50 pips away, the take profit level would be set at 50 pips or more away from the entry point.
Position trading strategy is for those traders who are looking for long-term gains. It is more focused on fundamental factors. But you can also use technical methods like Elliot Wave Theory.
Also, in this case, the smaller or minor market fluctuations are considered in this strategy. As they do not affect the larger market picture. Also, you can apply this strategy to every market, from stocks, crypto to forex.
Talking about the length of the trader, it is for the long term that includes weeks, months, or years.
Key levels on longer time frame charts (weekly/monthly) hold valuable information for position traders due to the comprehensive view of the market. Entry and exit points can be judged using technical analysis as per the other strategies.
Day Trading Strategy
Day trading strategy is designed to trade on the trading day. So you have to close all the positions before the market closes. You can take a single trade or multiple trades throughout the day.
In this case, the trade times range from very short time like minutes to hours. As long as the trade is opened and closed within the trading day.
Forex Scalping Strategy
Finally, there is the Forex scalping strategy. The scalping forex is the common term to describe the process of taking small profits on a frequent basis. You can do so by opening and closing positions throughout the day. It can be done using an algorithm or manually.
Also, the scalping trading strategy is less time taking. As you are aiming for short-term trades with minimal return. Also, the preferred time frame for this would be 1 minute to 30 minutes.
Just like any other trading strategy, the first step is to identify the trend. For this, you can use trading indicators such as moving averages to verify the trend.
Also, using these key levels of the trend on longer time frames allows you to see the bigger picture. Plus, these levels help you to create support and resistance bands. Scalping within this band can then be attempted on smaller time frames using oscillators such as the RSI.
Moreover, the stops are placed a few pips away to avoid large movements against the trades. Also, you can try out the MACD indicator, which is pretty useful when it comes to finding enter and exit trades.
So those were a few forex trading strategies for successful traders. Now go ahead and check these strategies out and do well research on them. Also, make sure to take trades when you fully understand a trading strategy. Else, you would be making losses only. So do deep research and then come up with your own forex trading strategy. And if you are new to forex trading you can also check out beginners guide and forex VPS plans to make your trading experience effective.