The Top Forex Trading Strategies Used by Professionals
In forex, there are multiple kinds of strategies to choose from, and within those, you can adapt them to fit your budget, expectations, and how much risk you are willing to take. Here are some of the best forex trading strategies used by professionals that you can implement when trading.
- How to Choose a Strategy
- Different Types of Strategies
- Day Trading
- Swing Trading
- Position Trading
- News Trading
- Trend Trading Strategy
- Range Trading
- Breakout Trading
- Momentum Trading
How to Choose a Strategy
While there are no rules on which strategies you can and can’t use for forex, it is important to know your skill and knowledge levels before picking one. Many work for both pro and beginner traders, while others require a level of knowledge only a seasoned trader would have.
To make it easy, if you are a beginner, stick with beginner strategies that allow you to grow your knowledge. These will allow you to learn without too much risk and without getting into strategies you aren’t ready for.
Different Types of Strategies
It is generally agreed upon that there are four main types of strategies, with sub-strategies then fitting into one of them. These strategies are scalping, day trading, swing trading, and position trading.
Scalping involves buying and selling every couple of minutes, taking advantage of the tiny increase a currency sees. This strategy is very work and time-intensive, but traders can enjoy good returns when done correctly.
Day trades are fairly self-explanatory as they involve opening and closing a position within a few hours. Day trading is also one of the hardest strategies to get right, as your window for opportunity is often quite small.
Swing trading is a strategy that potentially sees positions held for a couple of days, up to a week. Swing trades are favored by traders as they require less work and time but take advantage of the bulk of the market’s movements.
Position trading is simply long-term trading. Positions are held for a few months, up to a year or two, and take advantage of long-term growth. Position trading is perfect for those looking to profit from a growing economy or those looking for a slightly safer investment option.
Economic and government announcements, conflict, internal problems, and many other aspects can all affect how a currency performs. News trading takes advantage of these reports and allows you to open a position before the news affects the market.
Trend Trading Strategy
Trend trading is one of the most popular strategies amongst beginner and pro traders as it is easy to understand and trade with. It is based on the idea that there are trends and patterns within forex that you can track and use to your advantage.
While it isn’t bulletproof, and you will still need to pay attention to any changes, forex trends often follow similar patterns depending on the time of day, week, or year.
When the value of a currency begins to fluctuate between two very similar levels, this is called a range. The value will go up to a certain point, then drop to a point, then back up to a similar point, and so on and so forth.
A range strategy allows you to note when a currency is trending down, allowing you to open your position before it rises again.
In trading, a breakout is when a currency breaks out of its range of support and resistance and will either dip or rise suddenly. A breakout trading strategy takes advantage of these sudden decreases or increases to gain a position early.
The strategy involves opening your position just as the new trend begins and placing your stop-loss where the market broke out.
A momentum strategy requires a few tools and a lot of trading knowledge, but it is still highly effective. In essence, a momentum strategy is based on the strength of a trend, not just the trend itself.
You will open your position when the momentum begins or is at its strongest and then close your position when it slows down.