There are so many forex trading strategies that you can apply while trading in the Foreign Exchange market. The traders gain easy accessibility to the global Forex market due to the internet and technological advancements. You can trade the currency against other currencies through various online Forex brokers around the globe. The one thing you need to keep in mind is that the Forex trading strategies you may follow can be profitable and risky according to your trade size and risk appetite.
The strategies can be both technical and fundamental for forex trading. However, trading without Forex trading strategies or the wrong approach can cost you a lot of money. Therefore, before investing your hard-earned capital in currency pairs, you should focus on the right strategy to eliminate unnecessary potential losses.
What is a Forex trading strategy?
A strategy that forex traders use to identify the entry and exit points to trade the currency pairs is called a forex trading strategy. Forex trading strategies include both technical and fundamental analysis. To balance out your profits and losses, you need to apply trading strategies properly.
A good trading strategy can help you manage risks and is loaded with trading signals that help to make buy or sell decisions at the right moment. Of course, you may develop your own strategy or follow the existing strategies. But remember that the whole idea behind the application of forex trading strategies is to determine the right time to open or close your trading position.
You can copy trade also if you are a beginner. Both novice traders and seasoned traders can drive through their trading journey with the vehicle of specific strategies. So here we are discussing the top 10 forex trading strategies to uplevel your trading knowledge and skills.
10 Successful Forex trading strategies
These trading strategies will help you to get your hands in the forex market efficiently. Traders must select a suitable strategy according to their understanding and comfort. Forex trading strategies depend on many factors such as trade volume, market signals, news, traders’ sentiment, etc.
The strategies are
In position trading, traders hold their positions for a long time. The period can be several weeks, months or even years. Traders who believe in long-term investing generally use this strategy. This strategy is focused on various fundamental factors, while you can also use technical indicators like Elliott wave theory.
While predicting trade ideas, it is essential to understand the impact of economic indicators on markets. Position trading is well-known for its highly positive risk to reward ratio. However, the strategy requires so much patience and the right skills to identify favourable long-term trends.
Technical analysis may be required to determine correct entry or exit points. On long-term trading charts, you can have a comprehensive view of the market. They give you the essential information about the trade. The information can be associated with the length of the trade, time, price patterns etc. Traders mostly use inside day patterns and pullback patterns for position trading.
Price action trading
Thorough research on previous price patterns and using them to predict the current entry and exit points is the part of price action strategy. Typically, traders use price action trading to construct various technical strategies for trading. Therefore, one should focus on the price action to successfully conduct the market analysis and minimise the number of risks.
Price action trading can be short, medium or long term. Traders appreciate price action strategy worldwide because it allows them to use multiple time frames suitable for them. In addition, using a price action strategy, you can figure out your own way to enlarge the probability of higher returns.
Price action strategy also includes position trading, day trading, scalping, swing trading, range trading, and trend trading. So you may call price action strategy the mother of strategies. In addition, there is a wide range of technical indicators to determine the entry or exit points covering oscillators, candlestick charts, Fibonacci retracements and more.
Double top reversal trading pattern is also a part of price action trading. The double top strategy is known for constant price swings on the price chart.
Day trading is a form of short-term trading. Before the end of the trading day, you have to square off your position in day trading. You can open your position only for seconds, minutes or few hours before the market closes. In day trading, most traders use stop orders to avoid the overnight position.
Forex traders who want to generate regular income from currency trading and have enough time to analyse the market and monitor the trades throughout the day, forex day trading is best for them. On top of that, you may also believe that it is easier to take advantage of small price fluctuations instead of long-term investing. Therefore, day trading can be a good source of income for such traders.
Day traders heavily rely on technical indicators to analyse their trades. By understanding market patterns, you can build a strong portfolio. Day traders use various patterns such as the 2 Doji candlesticks, double red pattern, breakout strategy etc.
Scalping is the process of earning profit through small price movements. Traders tend to place many small bets to accumulate enormous profits. This technique requires patience enough and a stable mind as there are many risks subjected to this process. Scalpers conduct this strategy to eliminate the risk of an overnight position.
There are a lot of technical indicators used by scalpers, including stochastic indicators and exponential moving averages (EMA). Scalping requires skills to analyse the price pattern in short timeframes. You have to work hours to master the skills as scalpers generate their regular income through this trading style. They do not have time to focus on other full-time jobs.
One of the most significant advantages of scalping is that you do not require fundaments to monitor your trade as they don’t play an essential role in such a short time.
It will help if you trade at a time of high trade volume as you might get higher spreads and slippage, reducing your profits. Additionally, keep an eye on an economic calendar and note essential market news since these can cause significant price swings in short time frames.
Swing trading is an investment strategy in which a person buys a currency pair and holds it for a short time before selling it for a profit. The idea is to profit from a currency’s price movement throughout that time period before moving on to the next.
Swing traders will hold on to a currency pair for days or weeks while its price rises or falls. Trend traders, on the other hand, strive to capture longer-term price trends. As a result, swing traders prefer to trade in and out of larger trend structures rather than holding a position for long periods of time.
Because swing trading tactics might take several days or even weeks to complete, there is a risk of trading gaps during the weekend or overnight. Therefore, swing traders typically consider the risks and rewards of a possible trade before deciding whether or not to make it.
Another common trait among swing traders is that the vast majority of them use technical analysis as their primary market analysis method. Because this set of traders trades tiny to intermediate price movements, it’s only natural that they rely on technical analysis for market timing.
Pull back pattern trading
When the market breaks out above or below a given level of resistance or support, there will be a reversal sooner or later. When a break out occurs at a significant resistance or service level, the economy moves in the opposite direction of the general trend to reinvestigate the degree of the service or graph formation.
Pullbacks are common occurrences in the foreign currency market, and they give opportunities for dealers who know how to trade them. A breakout test occurs when the price returns to within a few pips of the entry point and tests it. Because the price pulls back to the identical breakout point, traders who initiated a position on the breakout may have their stops hit if they are not properly set.
Candlestick patterns, in our experience, are the most effective when it comes to confirming pullbacks. This is because many traders enter positions in the breakout’s direction when the breakout occurs. Then, after the initial run, they take partial profits and leave the remaining portion of the position on the market with the help of a stop-loss tool.
The range trading method is one of the most widely used trading strategies across all markets, and FX traders employ it frequently. Range traders seek price ranges or channels that can help them predict what the currency will do in the near future. It can be combined with Price Action trading to provide a large number of trading chances.
You can also wait until the currency’s relative value falls before buying at the top of a range. Range Trading Strategy is based on technical analysis, such as the usage of oscillators, and it works flawlessly without any volatility or discernibility, making it one of the most excellent Forex trading techniques.
You can benefit by buying at the bottom of the range and waiting for the currency to advance up the range to a higher position if you know these boundaries. In a range trading technique, Forex traders locate support and resistance points and place trades appropriately.
Many forex traders choose to trade currency pairs based on current market conditions. A currency is going up or in an uptrend when advancing in one direction with little opposition. However, trend-following methods may be better since they provide greater profit possibilities and a more stringent risk management strategy.
When their analysis implies an opportunity for more upward, traders seek to take advantage of a strong trend. Price will always make swing rotations, even in the strongest of trends. These swing moments and pullbacks are also good periods to look for high-probability transactions.
Support and resistance trading
Support is the level above which the price will not rise, and resistance is the level or area below which the price will not fall. Most forex trading methods are built around support and resistance levels. They’re used by a lot of traders to trade continuations and reversals.
The trader should conduct extensive research into how to find these areas and how to trade with them. This is one of the best Forex trading strategies. In addition, you should keep a close eye on charts while predicting the support and resistance levels.
Inside day trading
Before inside day trading, first, you should know what an inside day is. There is a 2-day price pattern in an inside day. The pattern in which the price range of the first day includes the complete price range of the second day.
The inside day strategy is about taking advantage of this continuation pattern to earn profits. The strategy is widely used among forex traders. Many traders appreciate the strategy because of the low volatility or stable price patterns. The major con of this strategy is that you cannot completely depend on it. It requires additional strategies to work out.
Apart from these, a large number of Forex trading strategies are available online. You can find thousands of articles and YouTube videos online on the trading strategies. However, it can be overwhelming for you to select the right one. So the key here is to make a free demo account and try various strategies. Now choose what works best for you. You can open a free demo account with ROinvesting brokerage firm that provides favorable conditions and all indicators or tools discussed above.
Above are our best picks from tried and tested trading strategies that you can also apply while trading.