Forex Trading Strategies
When they first start trading, many traders make the mistake of thinking that there’s that one “Holy Grail” strategy that will reap them untold riches if they can only find it. Nothing could be further from the truth!
There are so many different ways of profiting from the market out there, but they aren’t “one size fits all”. Your challenge as a trader is to find a Forex trading strategy that fits you, and use that as a starting point to develop your unique trading style.
Forex Trading Content for Beginners:
Check out these informative articles below to learn about different areas of Forex trading (all of them are written by a professional ex-trader).
Top 10 Forex Trading Strategies:
- Forex Day Trading Strategies
- Swing Trading
- Scalp Trading
- Pivot Breakout Strategy
- Forex Trading on Fundamentals
- Forex Trend Following Strategies
- Automated Forex Trading Strategies
- How to Trade Forex Using Moving Averages (MAs)
- Forex Breakout Strategies
- Forex Carry Trading Strategy
- Forex Price Action Trading Strategies
- Trading with the Descending Triangle
- Gartley Trading Pattern – Part 1
- Gartley Trading Pattern – Part 2
Long Term VS Short Term Timeframes
The first thing you have to consider before you select your Forex trading strategy is the timeframe that you want to trade in. If you don’t have much time in a day to trade, or if you prefer to take a longer term view towards the markets, then you may be more suited to trading a longer term timeframe like the dailies. However, if you have a couple of hours a night and you prefer to be out of your trades by the end of each trading session, then you may be more suited to a shorter term timeframe.
Obviously, there are pros and cons of trading each timeframe that you need to be aware of. For example, if you’re considering trading a shorter term timeframe like five minutes or half hourlies, then you’ll tend to only capture smaller market movements and miss out on the bigger trends that happen over time. That said, you’re only in the markets for an hour or two at most at a time, so your exposure to market risk is greatly reduced as well. Alternatively, if you’re trading the dailies, then you need to be aware that just as the market can move greatly in your favor overnight, it can make a drastic move against you as well. If you have sleepless nights worrying about your overnight positions, then long term trading is not for you.
Trend VS Ranging Strategies
Once you have a rough idea of what timeframe you prefer to trade in, it’s time to select your overall trading strategy. Typically, the currency markets tend to oscillate between the two modes of trend and range. In other words, sometimes the market has an underlying trend or bias to the upside or downside, and other times it simply oscillates between two extremes of a range.
As a trend trader in Forex, you would want to get in on a trend while it is still early, and preferably at a “low risk” point like a retracement to the mean or at a known support or Fibonacci level. You will then ideally keep your position as the trend progresses, and close it out when the trend is exhausted. A simple example of such a strategy is the Moving Average Crossover, where you enter long when the fast average crosses over the slow average and vice versa. As a range trader in Forex, you would want to be able to identify a range bound market’s upper and lower limits, and then short the upper limit and buy the lower limit over and over again.
As you can imagine, the markets aren’t trending all the time, nor are they range bound all the time. Therefore, it’s critical to be able to recognize whether the market you are trading is trending or ranging, and react accordingly because trend strategies will tend to lose money in range bound markets, and vice versa.
Other Notable Strategies
There are two unique trading strategies that you should be aware of aside from the hundreds of different types of trend and range trading strategies. These are scalping strategies and news trading strategies.
A scalper will tend to enter and exit positions extremely quickly, often in under a minute, to accumulate pips over time. Because they are in the market for such a quick turnaround of their position, their risk is extremely limited, however this type of trading requires extreme discipline and concentration to pull off profitably.
A news trader only trades around the time where significant news releases happen, like interest rate decisions or the Non Farm Payrolls announcement in the US for example. These high impact releases tend to significantly move the markets when they happen, and these traders take advantage of the volatility and rapid movement of the market to profit.