What are the best Forex trading strategies?
Is there more than one “best” way to trade currencies?
Before we answer these questions, we have to know what we mean by best strategy.
If you want to trade forex, chances are you’re not looking to gamble your money away for the fun of it.
Under the assumption that Fx traders want to make money consistently (throughout time), and not just make a lot of money once and peter out…
And considering you want these best Forex trading strategies to be “replicable”, as in, you can teach them to someone since the strategy works.
Then we arrive at the conclusion that we must pay attention to what pro traders do.
Because they do it for a living.
Throughout time, many a sweatshop has worked on the science of sucking as much profit as possible from the markets.
As such, we will define “Best” as those strategies followed by professional Fx traders to have an edge in the markets day after day.
These strategies have been well tested, and are without a doubt consistently profitable.
without further ado:
We will go in-depth on each strategy, but since this is the general presentation let’s leave this clear:
They are also called trading styles, in the sense that many a trader specializes in one of these since it plays best with his or her personality.
There are at least three major best forex trading strategies:
Forex Swing Trading (also called position trading);
Forex Day Trading (day trading market sentiment); and
Forex Scalping (trading technical levels).
Each of these has specific advantages and disadvantages.
While it’s true that many Fx traders tend to lean to one style or strategy more, many learn and apply two or three of these strategies to maximize profits.
I’ll go deeper on this in the next section.
For now, let’s talk a bit more about each of the best forex trading strategies.
Swing or position trading is about longer-term moves.
You enter a trade and hold it for a few days or even weeks (if you get positive interest due to rate differentials over a good period, then you’re carry trading).
In order to produce this trade, a pro looks at the big-picture fundamentals of the currency pairs.
The pro takes into consideration the market sentiment, and either enters the trade on a favorable sentiment (when it matches the fundamental picture), or enters after a retracement (short term sentiment against fundamental picture).
But before entering the trade, the pro takes into consideration what might happen in the next few days that could affect the currencies under consideration.
Is tier 1 data coming out two days from now?
Are we waiting for an interest rate decision?
Or will the markets remain silent?
A pro considers these potential events, and also how likely they are to disrupt the trade.
If everything looks solid, then it’s time to check the technical to determine a good entry.
More details in the specific swing trading page.
The next one in the best forex trading strategies list is day trading market sentiment.
To do this, pro traders get a premium news feed which gives them information on market shaping events as they happen.
For that, dedicated companies talk the news over what’s called a squawk.
A trader, in his desk, can be alerted immediately on a market shaping event simply by having the squawk on (just an audio feature on the premium feed).
With this immediateness, a trader can take advantage of swift moves, and make pips every week (if you know what you’re doing).
This is the single biggest source of trading opportunities on a regular basis. This might be why many choose to trade this way.
Finally, but not least, we have Forex scalping.
Scalping is all about trading the confluence of technical levels such as support/resistance, Fibonacci retracements/pivot points, psychological levels (those ending in 0 or 5 for example), and options expiries/bank orders.
Wait, if you use all technical why did we mention fundamentals?
If you’re going to scalp, you need to know what’s going on in the markets at that given point in time, as well as what is coming soon.
In other words, you have to know which way the wind is blowing on a currency pair before you get in.
For example, you could scalp a level which favors the fundamental/sentiment trend (trading into a strong support level for a pair which should go up).
Or you can wait until nothing is going on (for real), and scalp the levels without interruption.
Even if you’re wrong, this strategy allows you to place exquisitely tight stop loss orders. Which reduces you risk greatly.
While at the same time, such small risk allows you to leverage heavily (since risk is small).
You could grow your account more quickly with scalping, but you really, really, really need to know what you’re doing, or you will just get a huge drawdown.
When it comes to the best forex trading strategies, some people can only do one, while others can do many.
But taking away your ability or preference for any one style, these are the facts:
If you have a full-time job, or another time-intensive responsibility, you won’t be able to stay at your desk all day waiting for a squawk.
Therefore, you won’t be able to day trade the forex market sentiment.
However, swing trading is perfect for you!
Count yourself lucky, since you can still make double-digit yearly returns on your account swing trading alone (if you’re good).
Swing trading isn’t perfect though.
While it’s true you don’t need that much spare time, unlike day trading or scalping in which trades are performed quickly, swing trading has you holding a position for days.
This means price will move against you. And in order to weather those storms, you will have to place a much wider stop loss than with the other methods.
This means your (initial) risk is higher with this strategy.
Another weakness is swing trade opportunities (the really good opportunities) are less frequent than day trading sentiment.
So, pick and choose.
But if you have the time and the resources, try all three and at least get proficient at all of them. This will ensure you don’t get too narrow into a style which isn’t the best for you.
And it also ensures you have more tools to make the most out of the markets (and your account, muahahaha).
I think this was easy to grasp.
Do go into each of the best forex trading strategies (the pages on this website) to learn more.
See you soon,
The Forex Economist
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