Creating pips, keeping them and repeating the process is the key to reliable profitable forex trading.

Unfortunately, it’s not as easy as it sounds.

You must develop a trading strategy that gives you a competitive advantage in the markets, solid risk management and a solid understanding of your trading psychology.

But what the heck is a forex trading strategy and why are we talking about it?

Well, let’s find out!

What is a forex trading strategy?

A forex trading strategy is a systematic approach to deciding whether to buy or sell a currency pair at any given time based on certain rules.

Forex trading strategies include fundamental or technical analysis. These approaches to trading signals can be manual or automated.

Manual systems involve the trader making trading decisions and hitting buy and sell buttons on their own.

On the other hand, the trader creates an algorithm, robot or advisor that detects trading signals and executes trades in automated systems.

In automated systems, human emotions are removed from the equation, which can increase efficiency.

How to choose the best forex strategy?

Before we discuss the best forex trading strategies, it is important to understand the best methods for choosing a trading strategy.

Here is how you can choose the best forex strategy:

Time Period

It is very important to choose a time frame that suits your trading style. There is a significant difference between trading on a 15-minute chart and trading on a weekly chart for a trader. If you want to be a scalper, a trader who seeks to profit from small market movements (we’ll cover this later, don’t worry), you can work on lower timeframes, such as 1 minute to 15 minute. charts.

On the other hand, swing traders (we’ll talk about this later too) are more likely to use the 4-hour chart and the regular chart to create profitable trading opportunities. As a result, before choosing your preferred trading strategy, consider answering the question:

“How long do I want to stay in a trade?”

Number of trading opportunities

When choosing a strategy, you should consider the following question, “How often do I want to open positions?”

If you want to open more positions, you can use a scalping trading strategy.

On the other hand, traders who devote more time and money to studying macroeconomic reports and fundamentals are likely to spend less time in front of the charts.

As a result, the trading approach they choose focuses on longer time frames and larger positions.

Trade Size

The value of determining the correct trade size cannot be overemphasized. Effective trading strategies require an understanding of risk tolerance. Risking more than you can afford is dangerous because it can lead to large losses.

A common tip in this regard is to set a risk limit for each trade. For example, traders often set a limit of 1% for their trades, which means that they will not lose more than 1% of their account in a single trade.

Okay, now let’s get to the savory part:

Here are some of the best trading strategies:

1. Following trends

Trend following is one of the easiest strategies for a beginner. It requires trading in the direction of the trend. If a trader has identified the direction of the trend, he or she should open positions in that direction.

It is important to note that market patterns can be short, medium or long. Traders should focus their trading strategies on the duration of the trend. For example, a scalper may follow the trend for shorter periods of time.

Because there are so many factors affecting the market, the pattern can change in an instant. To prevent losses in these cases, traders should use different types of technical analysis. You can optimize your trading opportunities by looking at trends on charts or using indicators.

Pros:
Wide trading opportunities
Favorable risk/reward ratio
Minuses:
Requires a long investment of time
Requires a deep understanding of technical analysis

2. Scalping

Scalping sounds like a thriller, but it is more than that. Forex scalping is a common trading strategy that focuses on small market fluctuations. This approach requires opening a large number of trades in hopes of making a small profit on each one.

As a result, scalpers seek to maximize profits at the expense of a large number of smaller profits. This strategy is the opposite of staying in a position for hours, days, or even weeks.

Because of the liquidity and volatility of the forex market, scalping is quite common. Traders seek out markets where pricing behavior is constantly changing in order to profit from minor fluctuations.

This form of trader is interested in profits of about five pips per trade. However, scalpers hope that many trades will be successful because the profits are stable and easy to achieve.

Pros:
Lots of trading opportunities
Fast profits
Minuses:
Requires a lot of invested time
Lowest risk/reward ratio

3. Day trading

Day trading is a traditional trading strategy in which you buy and sell a financial instrument during a single trading day to capitalize on small price fluctuations.

Unlike scalpers who just want to stay in the market for a few minutes, day traders usually monitor and manage open trades throughout the day. Day traders develop trade ideas primarily using 30-minute and 1-hour timeframes.

Many intraday traders base their trading strategies on important news events. Scheduled events such as economic data, interest rates, GDP, elections, etc. etc., have a significant impact on the market.

Day traders usually set a regular risk target in addition to the limit set for each position. Setting a daily risk limit of 3% is a popular decision among day traders. This protects your account and capital.

Day trading is suitable for forex traders who have enough time during the day to research, execute and monitor the trade.

If you think scalping is too fast for you and swing trading is too slow, day trading may be for you.

Pros:
Lots of trading opportunities
Average risk-to-reward ratio
Minuses:
Long time periods required
Requires strong technical analysis

4. Position trading

Position trading is a long-term investment strategy. This trading strategy, unlike scalping and day trading, is mainly related to fundamentals.

Minor market fluctuations are not taken into account in this strategy because they do not affect the overall market pattern.

To determine market patterns, position traders are likely to watch central bank monetary policy, political events, and other fundamental factors. During the course of a year, successful position traders may open only a few trades. However, the expected profits on these trades are likely to be in the hundreds of pips range.

This trading strategy is for patient traders, as their position can take weeks, months or even years.

Pros:
Requires minimal time investment
Excellent risk/reward ratio
Minuses:
Few trading opportunities
Requires strong fundamental analysis

5. Swing trading

Swing trading is a strategy for traders who prefer a medium-term trading style in which positions can be held for several days and seek to capitalize on price fluctuations by finding “swing highs” or “swing lows” in a pattern.

To determine where to enter or exit a trade, you must analyze the price movement. You must also look at the economic stability or political situation in the country to see where the price is likely to go.

A currency pair with a wider spread and lower liquidity is preferred when using a swing trading strategy such as EUR / USD or GBP / USD.

While this strategy usually requires less time to focus on the market than day trading, it does put you at risk for any overnight volatility or gaps.

Pros:
Significant number of trading opportunities
Average risk-to-reward ratio
Minuses:
Requires strong technical analysis
Requires significant time investment

6. Range trading

Range trading involves identifying support and resistance points, so you can make trades around these key levels.

If the price is near resistance levels, it is a sign that a downtrend will follow. So, it is necessary to open sell positions. On the other hand, if the price is near support levels, it is a signal that an uptrend will follow. So, you should open buy positions.

Pros:
Significant number of trading opportunities
Favorable risk/reward ratio
Cons:
Requires long periods of time
Requires careful technical analysis

7. Trend lines

Drawing trend lines on a chart is one of the stress-free trading strategies. To use this method, draw a straight line connecting two points. Connect two low points if there is an uptrend and two high points if there is a downtrend. When price breaks these trend lines, it indicates a trend shift.

Pros:
Little time is required
Average risk/reward ratio
Minuses:
Requires careful analysis of the forex market
Rare trading opportunities

 

Bottom line

If you want to succeed in the forex world, you have to come up with the right strategy. If you don’t have any strategy, you may see your dollar bills saying goodbye to you.

Also, before you choose any strategy, determine your risk tolerance. That way, you won’t blow up your account.