4 Professional Forex Trading Strategies

4 Professional Forex Trading Strategies

  • Posted on 2020-0101-2021
  • by Gareth McCauley

According to Investopedia, the forex or foreign exchange market is the largest financial market in the world. With a daily trading volume of around $6.6 trillion, it trumps even the stock market. This is because governments, organizations, and individuals all participate in the market. Also, according to Forbes, the bar for entry into trading is relatively low while having huge return potential, even for smaller investments.

So, how do people find success in forex trading? Here are the top four strategies that work. If you have more questions about this or other forex market topics, don’t hesitate to call Fair Forex.

 

Four Popular Trading Strategies: Explained

There are a lot of trading strategies in the forex market that make people money. That said, some strategies are more applicable to your style and risk appetite than others. Even with this list, there may be items that do not resonate with you. At the end of the day, it’s important to consider what kind of trading style suits you.

 

Position Trading

This strategy is defined by a longer-term trading style. You usually hold trades for weeks or, in some cases, even months. This strategy requires you to look at fundamental analyses and apply them to your trading. You examine NFP, GDP, retail sales, and other similar reports to inform your bias.

Position Trading in Action

Here is a hypothetical example of position trading: after a thorough analysis of CAD/USD, you determine that it’s bullish. However, you don’t really want to go long at just any price. What you do instead is wait for CAD/USD to come to Support before doing anything. If your analysis is right, you’ll be the first one to enter this new trend.

Notable Advantages of Position Trading

  • Since trades are longer-term, you don’t need to spend too much time trading.
  • You’re also not that concerned with short-term price fluctuations. This means the overall process of position trading is not that stressful.
  • Your risk-to-rewards ratio is favorable.

 

Swing Trading

This strategy is considered medium-term. You will likely hold trades for days or even weeks. You will typically trade on the 1-hour and 4-hour timeframes. The name of the strategy is based on how you will be focused on capturing ‘a single move’ or a swing when trading.

While swing trading, you will usually buy Support, sell Resistance, trade breakouts, pullbacks, and the bound of the moving average. This is why it’s important to have a good grasp of the technical concepts like the candlestick pattern, the moving average, and Support and Resistance.

Notable Advantages of Swing Trading

  • The availability of more trading opportunities gives you the potential to be profitable every year.
  • Swing trading doesn’t require you to devote too much time.

 

Day Trading

This strategy is similar to swing trading. However, instead of holding trades for days or weeks, you only be holding them for hours or even minutes. It’s a faster version of swing trading where you will likely trade on timeframes like 5- or 15-mins.

Your main goal as a day trader will be to capture the volatility of the days. Profits are made when you trade the most volatile session of your instrument. Like swing trading, you will also likely usually buy Support, sell Resistance, trade breakouts, pullbacks, and the bound of the moving average. You don’t necessarily need much knowledge of the fundamentals of the economy or the long-term trends.

Notable Advantage of Day Trading

  • There is no overnight risk since you always close your positions by the end of each day.

 

Scalping

Scalping is a very short-term trading strategy where your only concern is what the market is doing at the moment. You will hold trades for just minutes or even seconds, depending on how the market performs.

You will be using order flow as your main trading tool. This shows you the buy-and-sell orders in the market.

It’s important to note that although you can technically do scalping as a trading strategy, you will be up against machines, which places you at a disadvantage. The transaction costs can also eat up a lot of the profits, especially if you are a retail trader.

Notable Advantage of Day Trading

  • That said, you can still make a healthy income with scalping.
  • You also have a lot of trading opportunities each day.

 

When thinking about trading strategies in the forex market, it’s important to remember that there is no one strategy that will be profitable for everyone. A lot of it depends on how much time you can invest, which parts of the market you are interested in understanding more, and which general style you prefer. For more information about trading strategies or anything related to the forex market, feel free to get in touch with us.