The world of foreign exchange is vast and has dynamic market conditions. Almost every day, many traders enter the forex market with the aim of earning a good return. However, making money through forex trading strategies is not as easy as it looks. Many of our clients face issues in the initial stage, and the most common reason is a lack of forex strategy.
The first thing you need to smoothen your forex journey is a trading strategy. In Beirman Capital, this article will discuss the top forex trading strategies and their key features. It will help you to select the right one and make maximum money in the FX market. So, let’s get started on your journey to become a market professional.
Introduction to Forex Trading Strategies
Forex trading is all about buying and selling currency pairs to take advantage of their exchange rate fluctuations. Forex is the largest financial market, where traders can participate in currency trading activities and make significant amounts.
With a wide range of trading instruments, flexible timing, and high-profit potential, forex has become a popular choice for traders. However, your success in the forex exchange world highly depends on your trading strategy.
A forex strategy defines the way in which you buy or sell a currency pair. In simple words, a forex trading strategy acts like a roadmap to your trading journey. It deals with what, why, where, which, who, and how will you trade.
Strategy is the most important pillar of your trading journey. With high profit potential, forex trading also involves the risk of losing money. You may have seen data showing a high failure rate in the financial market and that is due to the absence of the right strategy.
Forex Trading Strategies paves the way to success in the market. They will help you in managing the risk, and avoiding the possibility of losing money rapidly. Also, trading plans enhance your profit and help you stay in an overall good position throughout your trading journey. So if you want to survive in the market for the longest you must have a trading strategy in forex.
5 Best Forex Trading Strategies
The Forex market is vast, with different kinds of traders and numerous currency pairs. So naturally, the ways of trading in currencies are also endless. We cannot discuss all the forex trading techniques, but we can discuss the best ones. So below is the overview of the top proven forex strategies with their key features:
Scalping: A Professional Strategy for Market Professionals
A scalping trading strategy is the most advanced and professional forex methodology. Scalpers work on the principle of making money from short-term price fluctuations.
The Forex market is highly volatile, where the exchange rate rises and falls within seconds. Scalpers take advantage of these little movements and make small profits.
A scalper generally opens and closes multiple trades from seconds to minutes within a day. They use technical analysis to identify potential opportunities and aim for a profit of around 5 to 10 currency pips per trade.
Pros of Scalping
- Scalpers aim for a small profit per day. However, the profit from all trade in a day makes a huge amount. So, it is amongst the most profitable forex trading strategies.
- The strategy is less costly. Scalpers generally choose tight-spread pairs. In addition, trades are closed within a day, so you don’t have to pay overnight swap charges or any additional fees.
- Scalping allows you to take advantage of diversification and spreads your capital into different currency pairs.
Cons of Scalping
- The strategy ignores fundamental analysis, and trade is solely placed based on technical analysis.
- Scalping involves high risk of losing and may not be suitable for beginners.
- You need to be very quick while making scalp trade decisions. Delayed decisions may result in unfavorable trade outcomes.
Forex day trading: Alternative for forex scalping
Day trading is quite similar to scalping, however time frame and trade frequency make the difference. Under day trading, traders open and close a trade within a day or a trading session. The trade duration is somewhere between a few minutes to hours. And a day trader generally places around one to five trades in a day.
Day trading strategy gives you proper time to analyze the market conditions and identify potential opportunities. These traders combine both technical and fundamental analysis to make trade decisions. If you want to become a scalper but lack proper knowledge, you can start with day trading.
Pros of Day Trading
- Day trading allows you to take advantage of high liquidity and tight spreads trading. You can even use a currency leverage facility to enhance the trading outcome.
- The strategy has high-profit potential, and you can quickly withdraw your trade profits.
Cons of Day Trading
- With a day trading strategy, you are placing trade every day. So the strategy requires in-depth knowledge and you cannot start day trading with just basic learning.
- Day trading is a time-consuming process. So, it may not be suitable for side hustlers or part-time traders.
Swing Trading Strategy: Best forex trading strategy for beginners
The above two forex trading strategies may not be ideal for beginners or side hustlers. However, if you are looking for a profitable strategy with limited risk to start spread bets CFDs trading, then you must consider swing trading.
Swing trading is a medium-term trading strategy where a trader can hold a trade for more than a day. Generally, the time frame is around 10 to 15 days. It is neither too advanced nor too passive. You can learn about the market, too, with limited risk.
Also, it allows you to take proper time to plan your trades. You can seek the help of multiple forex indicators and fundamental analysis tools to identify professional opportunities. In addition, you can start swing trading with just basic market knowledge and learn more in the process.
Pros of Swing Trading
- Decent profit potential, limited risk, and little involvement make swing trading a good-to-go forex strategy for beginners.
- Swing trading does not come with a time restriction of closing trade soon. In day trading or scalping, you have to close a trade in a short time, no matter what the outcome is. However, being a medium-term strategy, swing trading offers you more flexibility. So, you can close a trade position when the price moves in your favor.
Cons of Swing trading
- In swing trading, you are holding trades for around 10 to 15 trades. So, overnight charges and currency spreads make for a huge amount.
- Day trading and scalping are less stressful, and it has a huge impact on your mental state. However, being a medium-term strategy, swing trading is less stressful.
Position Trading: Best for slow and steady traders
Position trading is the longest forex trading strategy. Under this, traders can hold a trade for a month to even a year. Position traders use a combination of fundamental, technical, and sentimental analysis to identify trading opportunities.
However, since they hold a position for a significant time, they give more importance to forex fundamentals. So, a position trader needs to watch global market events, central bank announcements, impactful news, economic reports, and trends. It will help in making informed decisions considering the long-term perspective.
Pros of Position Trading
- Position trading requires the least involvement and is the best for passive traders. You don’t need to watch forex indicators, charts, or fundamentals daily.
- The win rate is high, and the risk is the lowest with position trading. You just need to put the money in the market and wait for the right time to close the position.
Cons of Position Trading
- When you are putting money for over a month, the profit expectations are higher. So, naturally, the trading capital requirement is also higher with forex position trading.
- While in day trading or scalping, you can withdraw your profit in a day. In position trading, you need to stay patient for profit withdrawal, and your capital is locked till the time the trade is open.
Price Action Strategy: Best for Technical analysis lovers
Price action is the most popular trading strategy in forex. The strategy is entirely based on technical analysis. Price action traders believe that the currency pairs tend to react similarly to similar market conditions. Thus, they dedicate hours to watching charts, candlestick patterns, and forex indicators.
So, you need to have a solid knowledge of complex technical indicators like Bollinger bands, moving averages, oscillators, and others. In addition, confirmation is a must with price action, and you cannot place a trade solely based on one indicator.
Pros of Price Action Trading
- Price action strategy has a wide scope, and it can be used to trade different financial instruments. You can trade in forex, cryptocurrencies, commodities, stocks, indices, or any other market using price actions.
- You can determine trendlines, support, resistance, breakouts, and other pivot information. It will help you to set entry, exit, stop loss, and take profit levels effectively.
Cons of Price Action Trading
- Technical analysis is subjective, and traders can interpret the same situations differently. So, the chances of false interpretation are higher.
- Price action traders overlook fundamental analysis, and in the currency market, fundamentals can affect market conditions significantly.
Conclusion
No forex trading strategy is perfect; every strategy has some pros and cons. However, how effectively you use a strategy to manage the downside changes the whole game.
Traders should consider their goals, risk management criteria, currency pair, time frame, leverage, market session, and analysis method for selecting the right trading strategy in forex.
Many traders formulate forex trading strategies in a hurry or follow the other traders. However, that’s not the right way. Skipping a plan, copying it, or having a vague strategy may result in unfavorable trading outcomes.
You can select any of the above trading strategies in forex; however, you cannot use them as they are. You need to customize your forex strategy according to your needs. In addition, continuous learning and evolution are necessary to make the required changes in your plan.
In addition, your success not only depends on the strategy but also on the platform. For the effective implementation of your trading strategy in forex, you need fast trading execution, advanced trading tools, tight spreads, and many other resources.
And Beirman Capital is the single destination to get all these, open a demo account with us, and master trading strategy execution with the best platform.
Frequently Asked Questions (FAQs)
What is the best forex strategy for beginners?
The best strategy depends on a trader to trader. However, swing trading can be a good strategy for beginners with decent profit potential, limited risk, and little involvement.
How much capital do I need to start trading in forex?
You need at least 100 USD dollars to start trading in currencies.
Can I use multiple strategies in forex trading at once?
Using multiple trading strategies in forex is not a good idea. It makes the trading process more complex and may result in unfavorable outcomes.
How do I minimize risks in forex trading?
Always trade with a plan and trade with a proper risk-to-reward ratio to minimize the forex trading risk.
How long does it take to become a profitable forex trader?
There is no fixed period for becoming a profitable trader. It totally depends on your trading strategy, approach, interest, experience, efforts, and learning method.
