Trading 24 hours on weekdays, 35 times larger than the equity (stock) market and three times larger than the derivatives market, the Forex market undoubtedly remains one of the most appealing options for millions of traders. However, it is no walk in the park, and carefully planned Forex trading strategies are critical if you want to keep up.
While 24-hour sessions, considerable leverage, and relatively low costs make for easy access in the Forex market, navigating the trading landscape can be quite a challenge, especially for beginners. This is why 70%, 80%, and even more than 90% of Forex traders end up quitting.
The Forex trading strategies presented in this insightful article aims to help Forex traders optimize market movements and balance risk and profit.
Set your trading strategies right
There are numerous approaches to Forex trading. Different investors choose certain strategies, depending on their financial goals. For instance, major, minor, and exotic Forex pairs can be traded in a variety of ways.
Furthermore, Forex traders can develop short-term and long-term strategies, depending on their predictions about the Forex markets. In this case, it is critical to first try various types of market analysis and see if the results support the investment techniques in question.
Having defined Forex trading strategies may help traders proactively react to the market’s dynamic nature. This helps them to focus on price trends and patterns, and consequently try to take advantage of asset value fluctuations. Below are the 10 most popular Forex strategies you can start implementing today.
Day trading strategy
A day trader is a person who opens and closes positions several times during a single trading day. The goal is to potentially capture small gains and collect them in the process. This is one of the many ways to accumulate a decent amount of money from Forex trading. It is one of the most actively used strategies and very popular among both individual and professional investors.
Day trading can be a lifestyle. Since traders need to catch short-term price movements, they need to track even the tiniest changes in currency prices carefully. It is an active form of trading, mostly used for speculation. To support this Forex strategy, day traders usually conduct technical analysis to forecast whether prices will go up or down. They may also use technical indicators such as Bollinger bands, standard deviation, moving average, Fibonacci retracement, and stochastic oscillator among many others.
The foreign exchange market is well-known for its volatile prices and liquid assets. Therefore, it is critical that day traders utilize every tool and strategy within their reach to pursue Forex trading opportunities with insight, discipline, and risk management.
- A day trader performs several trades within one business day.
- The goal of this Forex strategy is to potentially gain rewards from asset short-term price changes occurring throughout the trading day.
- This strategy focuses on technical analysis. However, some traders may also dedicate their time to fundamental analysis.
- Day trading is an everyday practice for those who want to receive decent potential rewards.
Another short-term Forex trading strategy is scalping. It also implies buying and selling currency pairs several times within a trading day. However, the time between opening and closing a position is much shorter than in day trading. For instance, it can take a few minutes to perform this trading method. Thus, Forex traders can accumulate multiple small potential rewards a very short period. Scalpers believe that smaller market moves may be easier to obtain.
Scalpers need to be very careful. Sometimes they do not need prices to fluctuate to receive a potential profit. They can just buy a currency pair and immediately sell it since the bid/ask difference might already be a decent profit target. However, it is important to note that such a Forex scalping approach can be considered a fraud. It is better to keep a trade open for the recommended timeframe.
The Forex scalping strategy requires a clear exit plan to avoid the risk of large losses. Since scalpers tend to catch on to small gains, considerable losses may negate efforts put into trading.
- Scalping implies performing several trades during a very short time.
- Quickly closing the trade after opening can be considered fraudulent activity.
- Scalpers need an exit plan to minimize the high risk of losing invested money.
Position trading strategy
A position trader usually ignores short-term opportunities. Instead, they pay attention to long-term price trends. The timeframe for position trading varies from weeks to years. This is why this Forex trading strategy can be considered as a passive form of investment.
The center of attention in position trading is the price level, often referred to as support and resistance levels. They can tell traders where currency prices are going, up or down. Thus, Forex investors can decide when they need to open and close a trading position. A support level shows a historical trend of the lowest price point. It may indicate when to expect a long-term price trend and the right time to open a trade. A resistance level may help position traders to identify the highest point for an asset price. It may help them to close a position at the right time.
Support and resistance levels serve as indicators in technical analysis. However, fundamental analysis can also work for this strategy. Forex investors can use the combination of these two types of market evaluation.
- Position trading focuses on long-term opportunities.
- Position traders’ center of attention is support and resistance levels.
- A combination of technical and fundamental analyses can be used for this trading strategy.
Range trading strategy
Just like in position trading, support and resistance levels are also important for the range trading strategy. With these price points, traders identify whether their selected currencies are overbought and oversold and figure out a trading range. Support and resistance levels show the highest and lowest points the currency price reaches before market reversal. Thus, traders can understand when they need to buy or sell Forex pairs.
Range traders perform technical analysis to enter the Forex market well-prepared. They used such indicators as stochastic oscillator, relative strength indicator (RSI), commodity channel index (CCI). They also pay attention to assets’ volatility in the market. They believe that more trading opportunities come up when the market is less volatile.
The timing for entering the position should be determined carefully. Range traders have to wait patiently to open a new position until the price reversal to avoid the risk of losing money.
- Range trading focuses on technical analysis and, especially, support and resistance levels.
- Traders believe that less volatility on the Forex market brings more opportunities for optimized trades.
- The focus of attention in range trading is the right timing for opening a position.
Swing trading strategy
Swing trading is one of the most popular Forex trading strategies. It is also a short-term approach, just like day trading. Usually, a swing trader needs a few days or weeks to execute the strategy. However, sometimes, it may take even several months.
Swing trading implies opening and closing trades during several sessions. Forex investors should pay close attention to currency price movements to react fast to close a position in a favorable moment. Swing traders tend to follow prevailing price trends in the market. To achieve this, they can use the combination of technical and fundamental analyses in developing a potentially effective strategy. Momentum indicators and moving averages help traders analyze the direction of price movements. Macro- and micro-economic indicators allow them to determine the intrinsic value of currencies.
Swing traders take the high risk of losing money during price changes between trading sessions and weekend gapping.
- Swing trading is a short-term strategy with a timeframe ranging from a few days to a few months.
- The strategy focuses on trends prevailing in the foreign exchange market.
- Both types of market analysis (fundamental and technical) are used for swing trading.
- Overnight fees and weekend gapping charges may happen due to holding a position for several sessions.
Price action trading strategy
If a Forex trader prefers to study historical price data to pursue short-term, mid-term, or long-term financial opportunities, he can try the price action trading strategy.
Some consider this method to be subjective. However, a price action trader leverages a number of technical indicators to develop a strategy and determine support and resistance levels. Some of them include Fibonacci retracement, trend identification indicators, or oscillators. Price action traders also use candlestick charts to visualize the market movements.
- Price action strategy suits short-term, mid-term, or long-term trading opportunities.
- It focuses on technical analysis.
- Candlestick patterns are often used to display open and close as well as high and low prices.
Trend trading strategy
Current currency strength and price trends are the focus of the trend trading strategy. A Forex trader, who opts for this investment method, believes that the Forex market is predictable and tries to take advantage of market momentum. Once they identify a moment when the market can sustain price increase or decrease, they may open trades and make predictions on the future price movements.
Trend trading is usually the preferred method for chasing short-term, mid-term, and long-term trading opportunities. With the help of technical analysis, a Forex trader can forecast future market trends as well as identify and confirm the direction of market momentum. The technical indicators used for this strategy include moving average, relative strength index, average directional index, on-balance volume.
Forex traders can use stop-loss and take profit orders for this strategy. This way, they could escape losing money when a trend reversal happens.
- Trend trading is suitable for short-term, mid-term, and long-term Forex strategies.
- The focus of this method is technical analysis.
- Stop-loss and take profit orders may help investors to lock in a potential profit.
News trading strategy
This trading strategy bases on fundamental analysis. Investors believe that the currency market is affected by political and economic events. That is why they prefer to check the latest financial news and trace any turmoil that can happen in a country or globally.
A news trader pays attention to natural disasters, terrorist attacks, changes in interest rates, unemployment rates, inflation, deflation, GDP, and nonfarm payroll, among other factors that can trigger fluctuations in currency exchange rates. Leveraging information from the news, they can make insightful trades.
An economic calendar is a crucial information source for a Forex trader who chooses the news trading strategy. Luckily, many brokers offer it for their clients to stay updated on the latest events in the world.
- News trading strategy is based on fundamental analysis.
- Investors believe that economic and political events are some of the major factors that affect currency prices.
- A news trader checks an economic calendar to forecast market prices.
Retracement trading strategy
Traders, who can distinguish a retracement from a trend reversal, may opt for the retracement Forex strategy. A retracement means that a currency price can reverse for a short period of time before returning to the direction of the prevailing trend in the market.
Fibonacci retracements are a key technical indicator for this strategy. They can help to identify when the change in the direction of currency value fluctuations is temporary and does not form a new trend. Also, they may show signs of a market reversal so that traders could close trades.
- Retracement refers to a short-term shift of movements against a dominant trend.
- Retracement traders should know the difference between a retracement and a reversal.
- Fibonacci retracements are often used in technical analysis when developing this strategy.
Carry trade strategy
The last one, but not the least of the Forex trading strategies is carry trade. It refers to trading a currency with a high value against a currency with a low value. The trader could try to seize the gap between the exchange rates.
Traders usually use this strategy for minor (cross-currency) pairs, to avoid trades with popular major Forex pairs, such as EUR/USD. It is one of the most actively performed trading strategies since the spread between cross-currency pairs might bring substantial profit.
Forex investors open a carry trade when either interest rates are about to rise or the market is experiencing low volatility. It is part of risk management strategies since if currency values do not move a lot, traders can expect potential rewards.
- Carry trade strategy implies speculation on minor Forex pairs.
- Big gap between prices of currencies is potential profit targets.
- Carry trade strategy is performed in times of low market volatility or when interest rates go up.
Can I solely rely on a trading strategy for successful results?
It is important to note that the above trading strategies are not the ultimate. There exists a much greater number of Forex trading strategies than just these ten mentioned above. All of them can suit different people with different investment goals. And anyone is free to choose which approach to the currency market is more appropriate for them.
Most importantly, it is crucial to keep your trading strategies consistent. Keeping in mind, each of them has its unique specifics, remember to open and close your trade accordingly. If you are pursuing short-term opportunities with swing or day trading, take quick actions and manage multiple trades for a short time. On the other hand, if you decide to follow long-term opportunities, have patience, and remove emotions and subjectivity from trading with risk management strategies. Also, keep an eye on volatility and trading ranges to adjust to the market behavior.
Having a Forex trading strategy, whichever you decide to apply might help make your actions in the market deliberate and disciplined. It could also help you improve your trading style and hone your market performance. However, no Forex trading strategy guarantees that you can avoid a high risk of losing invested money, especially when market conditions are not in your favor.
The currency market is a dynamic place, and prices often change in a split of a second due to various economic and political uncertainties in the world. Implementing risk management strategies when entering the market is non-negotiable. Moreover, if investors choose to trade CFDs, they should be cautious because such trades are always set with leverage. This can magnify both potential profits and losses. Since most Forex traders lose money when trading CFDs. It is strongly recommended to invest the sum they can afford to lose when Forex strategies fail.
Try executing your strategies with PrimeFin
You have learned about a great number of Forex trading strategies. But have you found a broker you can work with? You may start implementing your strategies now on real markets with one of the most popular brokers, PrimeFin. This broker offers a great variety of CFDs on Forex pairs. If you want to trade in a client-oriented environment and with appealing conditions, PrimeFin can be the way to go.
We offer you CFDs on various pairs, swing trading, position trading, trend trading, and day trading strategies:
- Major: EUR/USD, GBP/USD, USD/JPY, USD/CHF, USD/CAD, etc.
- Minor: CHF/JPY, AUD/JPY, GBP/CAD, EUR/JPY, etc.
- Exotic: AUD/MXN, GBP/ZAR, EUR/PLN, etc.
You can explore Forex trading opportunities with the excellent services provided at PrimeFin. Choose your preferred trading approach and consider executing it with our advantages:
- Tight spreads
- Education center with learning materials about Forex trading
- MT4 trading platform with a generous number of trading signals, orders, execution modes, etc.
- Demo trading account to practice in a risk-free environment
- Dedicated customer support for quick assistance
Our clients can develop and execute their Forex trading strategies by opening retail investor accounts at PrimeFin. All they need to do is to complete a quick 3-step registration.
- Sign in by providing full names, home addresses, and phone numbers.
- Fill in a questionnaire to let us know the trading experience level.
- Verify accounts by providing copies of ID cards and proof of residence.
Enhance your market performance with PrimeFin.
What is the best strategy for Forex trading?
There is no one-size-fits-all answer to this question. Different Forex trading strategies suit investors with different goals and trading styles. The approaches mentioned above are some of the most popular ones. You can check which one serves your objectives best and open a trade accordingly.
However, you should always remember that whichever asset you decide to trade with any of these Forex trading strategies, you can still be exposed to the risk of losing invested funds.
How do you trade Forex for beginners?
First, novice Forex traders need to gain more knowledge of the industry and practice trading. You can find a lot of learning recourses in the PrimeFin education center. E-books, VODs, courses, tutorials, economic calendar, webinars are available for all our clients to help them improve market performance.
A demo trading account can help you practice your skills and Forex trading strategies without risks. You can get virtual cash and trade CFDs on currencies in a risk-free environment. No deposits are needed to open a trade on this practice account.
Which currency pairs are the most popular for a CFD trade?
The most popular pairs for opening a trade and executing Forex trading strategies are major pairs that include the U.S. dollar.
You can trade CFDs on the following major pairs with PrimeFin:
- EUR/USD (euro/U.S. dollar)
- GBP/USD (pound/U.S. dollar)
- USD/JPY (U.S. dollar/Japanese yen)
- USD/CAD (U.S. dollar/Canadian dollar)
- AUD/USD (Australian dollar/U.S. dollar)