Magnify your profit with the best forex trading strategy

What is Forex Trading Strategy?

A forex trading strategy is a way used by many traders to estimate where to sell or buy the currency pair at any specific time. Forex trading strategy depends on fundamental analysis, news-based events and technical analysis. These strategies usually employ the trading signal, which triggers sell or buy decisions.

It is not hard and fast to follow forex trading strategies advice by analysts or any trading article. They are just to guide you. You can formulate your own strategies depending on the situation and your suitability. The best strategy is the one with which you are comfortable. Here is the list of some common forex trading strategies which you can use in your trading.

Forex trading strategies for beginners

Forex trading requires deep knowledge about multiple factors and putting together these factors to make a trading strategy which generates potential profit. You have read many strategies, but when it comes to implementing them, you should go with the one which suits you best. The one with which you are comfortable. Every investor has different resources and targets, which must be taken into account while choosing a suitable technique for you.

For comparing the suitability of different strategies, you can consider the factors provided below:

1) Typical distance to the goal

2) Frequency of trading opportunities

3) Required time resource

1) Price Action Forex Trading Strategy

Price action trading reflects the price movements of a security. This strategy is used to analyse past price shifts. In short, we can say price action trading is a technique which allows an investor to analyse the financial market and make subjective decisions on trading. These decisions depend on the actual and recent price shifts rather than relying only on technical indicators.

If you doubt where to get these technical indicators and how to use them while trading then the answer is brokerage firms. Various brokers provide tools for analysis along with the tutorial to use them. One such broker is T1markets. It is a leading and well-regulated brokerage firm running under the guidelines of the Cyprus Securities and Exchange Commission.

Steps for price action trading

1) Identifying a scenario

2) Identifying the trading opportunities within the scenario

Length of trade

You can employ price action trading over different time intervals (short-term, medium-term and long-term intervals). Many traders value price action trading just because you can use it in numerous time frames for drawing analysis.

Entry and Exit points

There are numerous ways to determine resistance or support levels that are usually used as exit or entry points:

1) Oscillators

2) Indicators

3) Using candle wicks

4) Fibonacci retracement

5) Trend identification

Within the price action there comes trend, scalping, day, range, position and swing trading.

2) Range Forex Trading Strategy

Range forex trading strategy is a forex trading technique whereby an investor recognises oversold and overbought areas (or resistance and support areas). It purchases at the oversold area (that is support) and sells at the over purchased area (that is resistance). This technique works in the financial market without notable volatility and no discernible trend. The primary tool used for this technique is technical analysis.

Length of trade

Range trading strategies can work in multiple time frames. Hence there is no fixed length per trade. Managing and hedging risk is an important part of these techniques because breakouts can happen.

Entry and Exit points

Generally, the oscillators are employed as timing tools. Commodity Channel Index (CCI), Stochastics and Relative Strength Index (RSI) are some of the popular oscillators. Price action trading is sometimes employed in combination with oscillators to validate breakouts and range bound signals.

Advantages

1) Favourable risk to reward ratio

2) Substantial number of opportunities available in trading

Disadvantages

1) Requires extended time intervals for investment

2) Requires a strong appreciation of technical tools

3) Trend Forex Trading Strategy

The next forex trading strategy is trend trading. This strategy is the one which involves using technical analysis tools for identifying market momentum. It lies in the fact that financial markets have a component of predictability. Thus, with the price movements and analysing past trends, an investor is able to anticipate what will happen in the future. This style of trading generally takes mid to long-term techniques into account. But with theoretical reference, it can cover any time interval, based on how long a trend exists. It is generally adopted by investors who prefer swing trading or position trading style.

Length of trade:

Trend trading usually takes place over long-term and medium-term timeframes because the trend itself varies in length. Like price action trading, trend trading can also adopt multiple time horizon analysis.

Entry and Exit points

Entry points are generally defined by an oscillator which includes CCI, RSI etc. Exit points, on the other hand, are estimated by a positive risk-reward ratio.

Advantages

1) Favourable risk to reward ratio

2) Numerous trading opportunities available

Disadvantages

1) Requires an extended interval for investment

2) Requires a strong appreciation of technical tools

4) Position Forex Trading Strategy

Position trading strategy is a common strategy where a trader holds position in any assets for an extended time interval. The interval typically lasts for months or years. Position investors overlook short-term price shifts in favour of profiting from long-term trends.

Length of trade

As discussed above, position traders work on long-term outlook (months, weeks or years). For applying this technique to trades, one requires a deep understanding of how economic factors work and influence the market and knowledge of technical predispositions.

Advantages

1) Highly positive risk to reward ratio

2) Requires minimal time investment

Disadvantages

1) Few trading opportunities available

2) Requires a strong appreciation of fundamental and technical analysis

5) Day Forex Trading Strategy

Day trading strategy is employed for trading financial instruments within the entire trading day. It means that all the trading positions are closed before the financial market closes. One can trade single or multiple trades in this duration of time.

Length of trade

The time horizon of the trade is short-term (hours) or very short-term (minutes) as long as the trade is closed and opened within the trading day.

Advantages

1) A large number of trading opportunities available

2) Median risk to reward ratio

Disadvantages

1) Requires extended time interval for investment

2) Requires a strong appreciation of technical tools

6) Scalping Forex Trading Strategy

Scalping is a common term used in forex trading. It is used to define the process of grabbing small profits frequently. It is accomplished by closing, and opening numerous positions throughout the trading day. It is carried manually or through an algorithm. An algorithm is a predefined guidelines placed in a program which guides traders on exit and enter positions.

Length of trade

Scalping involves short-term trade with the minimum return, generally operating on small-time horizons (ranges between 1min and 30min)

Advantages

1) This strategy entails the greatest number of trading opportunities as far as other forex strategies are concerned

Disadvantages

1) It requires an extended time interval for investment

2) Requires a strong appreciation of technical analysis

3) Lower risk to reward ratio

7) Swing Forex Trading Strategy

Swing trading is a risky strategy whereby traders take advantage of trending markets as well as the range-bound markets. By selecting bottoms and tops, traders can enter short and long positions accordingly.

Length of trade

The swing trader generally holds their position for a few hours or a few days. Thus, it is regarded as a medium-term trading strategy.

Entry and Exit points

It is similar to the range-bound strategy. It employs indicators and oscillators to determine the optimal entry and exit trading position and time. The minor difference is that swing trading is used for both range bound markets and trending markets.

Advantages

1) A Large number of trading opportunities available

2) Risk to reward ratio is median

Disadvantages

1) Requires strong appreciation of technical analysis

2) It also requires an extensive time investment

8) Carry Forex Trading Strategy

Carry trade is based on the fact of borrowing one asset at a lower price, followed by investing in another asset at a larger yielding price. This strategy is commonly employed in forex trading and results in fruitful profit.

Length of trade

Carry trades lie on the fluctuation of interest rate between the associated assets. Therefore the length of trade lies between medium to long-term terms (weeks, months and sometimes years).

Advantages

1) Low time investment required

2) Risk to reward ratio is median

Disadvantages

1) Requires strong appreciation of forex market

2) Infrequent trading opportunities

The Bottom Line

When you choose a forex trading strategy to proceed with the things which you should consider are total trading opportunity, their regulatory and risk to reward ratio. Along with these never forgot to compare the total investment time required to monitor the market shifts. Every forex trading strategy is unique in its own way and has its attributes. Select the one which suits you best. The initial and important step in trading is matching trading personalities with a suitable strategy. If done precisely, no one can stop you from harvesting the huge profit.

Are you confused with the various brokerage firms? Searching for the suitable broker for forex trading? You can go with T1markets and an authentic firm with excellent trading features at just $250.