Every forex trader’s chief goals are making profits, sustaining profits, and increasing capital. As a beginner or advanced trader, having the right mentality and strategies is important to your success in the global forex market. Your choice of forex trading platforms also significantly impacts your success. But when you have chosen the right broker and worked on your mentality, the only variable you need to confirm is your market strategies. This article explores ten strategies that, if applied correctly, will help you become a profitable and successful forex trader. These strategies are also applicable to other financial markets.
Day trading is a general term that describes strategies that take advantage of intraday market prices. Day trading focuses on price volatility caused by fluctuating demand and supply and not necessarily by other market factors. There are different day trading strategies; scalping, moving averages, and daily news trading. All day traders open and close positions within a trading day which could be within a trading session or overlap more sessions.
The biggest advantage of day trading is that traders can monitor their trades and do not experience overnight training effects such as sudden volatility, fees, etc. Day trading is a proven strategy for beginners and advanced traders alike.
Scalping refers to the short-term trading of assets. Scalping involves quickly buying and selling assets and holding positions for a short time. Scalpers only stay on a trade for a short time but can spend an entire day trading. The idea is to earn small profits on short-term trades while keeping a minimal exposure to volatility.
For example, scalpers can enter a buy position on the EUR/USD pair at 1.023 and close the trade at 1.025, taking quick profits. Speed and mental alertness are crucial to the scalping strategy, as there may be no time to use the Take Profit and Stop Loss features to close trades.
Swing trading involves entering positions based on the volatility of market momentum, essentially trading the trough and peaks of price. Swing trading is popular among day traders because it allows them to explore the market closely to take advantage of volatility. Thus, swing traders look at timeframes lower than one week in addition to analyzing the market trend. Swing traders may also take fundamental news, which triggers volatility.
A ranging market has prices moving sideways, with no clear direction, moving between a support and a resistance. Range trading, therefore, involves “trading within the range” to take advantage of small volatility. Range trading is most effective in “quiet” markets without much activity; it is almost similar to scalp trading, and scalpers prefer markets with clear trends.
The forex market is influenced by a wide range of factors, ranging from political to economic and even health events, which ultimately affect the demand and supply of a currency. This opens up a trading strategy called fundamental (news) trading. The idea is simple: to trade according to the predicted direction that a currency’s price will move after certain news is published. For example, a higher employment rate may boost the demand for a currency, giving traders and investors confidence in a price increase.
Fundamental traders largely look for global news but also focus on country-specific news that hugely impacts prices. For example, the GBP responded to certain news in September this year. Fundamental traders use popular and dedicated forex news channels that filter the most impactful news.
Position trading is a long-term strategy that involves holding a position for a long time, typically between a week and a few years. Position traders look at the bigger picture of the market and do not consider the “market noise” from smaller time frames (less than a week). Their capital is usually large enough to sustain volatility in the other direction. Position trading is largely based on technical analysis, but position traders also keep track of fundamental data with potentially massive impacts on the market.
The breakout strategy is widely used for its relative simplicity. It involves targeting price breakouts from a trend, helping traders secure a few profits before a retest of previous levels. The key is identifying the support and resistance levels and determining where the next breakout occurs. Breakout traders enter positions once the price moves below the support or above the resistance lines, ride the movement for a few profits, and then exit the trade.
Counter-trading takes advantage of the fact that breakouts mostly result in price reversals with strong momentum. Counter trading is highly effective and often results in profits if done right. Counter traders use technical analysis, typically watching out for candlestick “reversal” patterns which sometimes form after a breakout.
Trend trading involves identifying the clear direction of the market and trading along. Trends are price movements in an up-and-down pattern, with momentum and direction clearly defined, breaking previous support and resistance levels. Trend trading is a reliable and popular strategy because traders do not need to identify price reversal levels but only determine where they prefer to close the trade. The strategy is largely technical analysis-based; any news data is absorbed in the market and reflects negligible retracement.
Price often reverses for a short time within a larger trend. This is called price retracement, and it presents an opportunity to trade. Retracements are temporary, often correcting to follow the trend. But sometimes, retracements signal the start of a new trend in the opposite direction. Traders using this strategy use indicators, such as Fibonacci Retracements, to calculate potential levels where price may reverse.
All proven strategies work, but traders have different experiences based on unique factors. Please choose the right strategy that fits your lifestyle and capital, then study and practice it until you become good at it. You can become successful in the global currency market and start learning and trading today.