What Are The Best Forex Trading Strategies

When choosing a forex trading strategy, it helps to be aware of what type of trader you are and what types of strategies exist. So in this article, we will list some general strategies that utilized by traders to provide structure to their trading efforts.

What is a Forex Trading Strategy

A forex trading strategy defines a system that a forex trader uses to determine when to buy or sell a currency pair. Forex trading strategies can be based on technical analysis or fundamental, news-based events.

Technical analysis is used to analyze statistical trends and historical trading data with the belief that the patterns will repeat again. Most trading platforms come with tools for technical analysis such as charting package, drawing tools, technical indicators, etc. Fundamental analysis focuses on social, economic and political events that affect currency prices.

The trader's currency trading strategy is usually made up of trading signals that trigger buy or sell decisions. A trader may have different forex trading strategies to use depending on the market conditions, currency pairs, market sentiment or news.

6 Types of Forex Trading Strategies That Work

There are a variety of ways to trade forex, so it's important to choose an approach that is well-suited to you. We have outlined five popular forex trading strategies to help you find your ideal fit.

1. Position Trading Strategy

Position trading is a long-term trading strategy, in which traders hold their position over an extended time period—anywhere from a couple of weeks to a couple of years. As a position trader, you mainly rely on fundamental analysis in your trading.

Position traders typically use a trend-following strategy. They rely on analytical data to identify trending markets and determine ideal entry and exit points therein.

A major advantage of this strategy is that the trader places only a few trades in months or years and there are no frequent analyses. It can be done on a part time basis.

2. Scalping Strategy

Scalping is a trading style that specializes in profiting off of small price changes and making a fast profit off reselling. In forex, scalping strategies are typically based on an ongoing analysis of price movement and a knowledge of the spread.

Forex traders who prefer short-term trades held for just minutes, or those who try to capture multiple price movements, would prefer scalping. Scalping is very popular in Forex market due to its liquidity and volatility. Investors are looking for markets where the price action is moving constantly to capitalize on fluctuations in small increments.

But for any trader, managing more than one trade adds complexity to the process. Succeeding as a day scalper demands unwavering concentration, steady nerves, and impeccable timing.

3. Day Trading Strategy

If you want to trade for short periods, but aren't comfortable with the fast-paced nature of scalping, day trading is an alternative forex trading strategy.

Day trading is the strategy of opening and closing positions within a day. Most day traders open positions at the beginning of the day and close it before the market closes for that day.

Day traders make profit by focusing on intraday price movements and capitalizing on the volatility that occurs therein. These small market fluctuations are related to current supply and demand levels rather than fundamental market conditions.

Similarly, day trading can be stressful as you are constantly watching the markets and requires more experience and familiarity with the market.

4. Swing Trading Strategy

Swing trading strategy is similar to position trading except that swing trading aims to capitalize on short-term and medium-term surges in price momentum. In this type of trading style, the traders use daily, and a weekly chart to place the trade and keeps it running for weeks or till his targeted price is reached.

This strategy requires a thorough understanding of technical analysis methods and much discipline on the part of the trader.

Although this strategy normally means less time fixating on the market than when day trading, it does leave you at risk of any disruption overnight, or gapping.

5. Trend Trading Strategy

Trend trading is a strategy that seeks to identify price patterns and place trades in the trend direction as it occurs. Trend traders buy and sell forex pairs in concert with a directional move in exchange rates. If it is an uptrend, a “buy” position is opened and if it is a downtrend, a “sell” position is opened.

To determine the direction and strength of the current trend, traders often rely on moving averages, which can be also used to gauge support and resistance levels.

Unfortunately, most trend indicators lag price action. More precisely, they offer a delayed signal as to the market's direction. So, in order to have a competitive advantage, traders fight for early entry in any trend.

6. Range Trading Strategy

Range trading is one of the forex trading strategies that is based on chart analysis and mainly based on the concept of support and resistance. The rang traders believe that price will still come back to the identified support or resistance levels and then positions their trades accordingly.

When price reaches the resistance level, traders anticipate a reversal in the opposite direction and sell. Similarly, when price approaches the support level, it's considered a buy signal.

Conclusion

Forex trading strategies are of great importance to every trader that wishes to excel in his trading business. Each trader needs to find the best Forex trading strategy that suits their trading style. By defining factors such as when you like to trade and what indicators you like to trade on, you can start to develop a forex strategy. Matching trading personality with the appropriate strategy will ultimately allow traders to take the first step in the right direction.