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15 mins read • 16 Nov 2022
Having a trading plan is essential for success in trading. Without one, you are likely to get lost in the markets, make poor decisions, and you could end up losing your money.
But fortunately, there are various methods used to establish and develop a forex strategy, each with high potential rewards and risks ingrained in the strategy. Here, we will cover four of the most common forex trading strategies that work and show you how you can start using them.
A forex trading strategy is a fixed trading plan with a set of rules to help a trader determine how to maximize profits and minimize risk. Each strategy determines the frequency of trades, the entry and exit levels, the risk and the profit target, and the traders' methods of analyzing the market.
As for the analysis method - a forex strategy can be based on fundamental, technical analysis, or a combination of both. They are also categorized into two major types - long-term and short-term strategies. Short-term trading strategies include scalping, day trading, and swing trading, while long-term trading strategies include position trading.
But, a key thing to remember is that all forex strategies have one thing in common, which is to maximize profits and minimize losses.
There are various ways to trade FX currency pairs, and choosing the strategy that suits your personality, the time you have to invest in trading, and your investment goals is crucial for your success. So, check out these four forex trading strategy guides and choose the one that is best for you.
Naked trading, also known as price action trading, refers to a trading style without any trading indicators. As the name implies, when you naked trade, you look at a clean naked price chart without drawings, support and resistance levels, trend lines, and technical analysis indicators.
It’s the simplest, purest, and oldest form of trading. Instead of analyzing the market’s past performance and adding indicators, naked traders rely on their trading instincts and experience to make trading decisions.
Scalping is one of the best forex trading strategies and is the shortest-term trading method of all, where traders exploit small price changes to make quick profits. Its main characteristic is the super short time between a trade's opening and closing time and the large number of transactions made by scalpers daily.
Scalpers only hold onto their scalping trades for a few seconds or, at most, a few minutes. They are not attached to any position, have a neutral market outlook, and their only goal is to have a positive win/loss ratio by the end of the day/week/month. They are.. Pips collectors.
Day trading is a popular short-term trading style where traders open and close trades on the same day, intending to profit from small price movements. Typically, day traders focus on several assets to trade on during the day, getting in and out of positions routinely and trying to take advantage of small price changes. Finally, they close all positions by the end of the day and finish the day with either a profit or a loss.
Day trading forex is suited for forex traders with enough time throughout the day to analyze, execute and monitor their trade. It is a full-time job that might be extremely rewarding and, at the same time, challenging and demanding.
Swing trading, also known as a momentum or trend trading strategy, is a short-term strategy for a trader to buy or sell financial instruments using technical analysis tools that suggest an impending price movement. The swing trading strategy type can span any length of time, ranging from days to weeks, although most swing traders hold their positions for a period of two-five days.
The 5-3-1 forex trading strategy is very simple and is among the best strategies beginner traders can use. Since the strategy is focused on developing a trading structure, it helps them to maintain discipline and follow their trading plan to achieve optimal results in this complex financial market.
Position trading is a long-term trading strategy where traders hold onto positions for weeks, months, or even years. This approach focuses on identifying and capitalizing on larger market trends and involves analyzing a range of factors, such as economic and political developments, market sentiment, and technical indicators.
Position traders use fundamental and technical analysis to identify potential opportunities and risks and may use a variety of tools, including charts and graphs, to track their positions. The goal of position trading is to capture larger price movements over an extended period, and it can be particularly beneficial for investors seeking to build wealth over the long term.
Range trading is a strategy where traders identify a range in which an asset is trading, then buy or sell when the price reaches the top or bottom of that range. Traders use historical price data to identify support and resistance levels and technical indicators to help identify when the price is likely to reverse direction.
Range trading can be a low-risk strategy, but requires careful monitoring and a good understanding of market trends and technical analysis tools to be successful.
Choosing the right Forex trading strategy is quite a daunting and time-consuming task, especially when you risk your capital. But it is a step you cannot skip. A good trading strategy can make or break a forex trading account. So, to optimize the chances of your forex trading success, you need to find a strategy that suits you. And we can help you get there!
With the support and guidance of our trading coaches, you can find the perfect forex trading strategy and start trading the forex markets. Here's what you get with HowToTrade:
Below are a few of the most frequently asked questions on Forex trading strategies. If your question isn't answered here you can read all of our FAQs.
Every forex trading strategy is suited for different personalities and market scenarios. There’s no one trading strategy that is better than the other. If you have a full-time job and you cannot dedicate yourself to trading, you may want to use the swing or position trading strategy. Otherwise, scalp and day trading could be ideal for you if you have the time to analyze the market and monitor the screens throughout the day. One thing is for sure - every forex trading strategy is suited for beginners.
Generally, every trading strategy can be simple or complex. While some traders prefer working with technical indicators and statistical data, others feel more comfortable with the naked trading strategy, which refers to trading with a clean chart without any indicators and drawings in order to simplify trading.
But, in the forex market - long-term investing requires a lot more capital than short-term trading strategies. Also, due to the nature of the forex market, long-trend investing can be risky compared to short-term investing. Therefore, we believe that short-term trading strategies are not necessarily the easiest, but they will likely be more profitable in the long run.
Testing a strategy before you trade the real live markets is an essential step you need to take. If you want to know if you’ve chosen the right strategy that works for you, you first need to backtest your trading strategy over several weeks or months. One way to do this is to open a demonstration account, choose a strategy, and backtest it for a while.
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