Strategies are an important part of your journey to becoming a successful trader. In the same way, forex trading strategies help you achieve your financial goals more efficiently.
As forex is one of the most volatile financial markets, it becomes important for a trader to first learn the market fundamentals and develop a good trading strategy before getting started.
If your knowledge and strategy are well-reasoned, you can execute your trade even more efficiently and effortlessly.
If you’re too looking for the best forex trading strategies, then this article is truly meant for you. So, without wasting a second, let’s start now!
What Are Forex Trading Strategies?
A forex trading strategy can be defined as a plan that helps traders in determining whether and when to purchase or sell a currency pair.
Most Forex traders use a different set of strategies. For instance, some use advanced forex trading strategies, while others prefer common ones such as scalping, day trading, etc.
On the other hand, a good and well-tested Forex trading strategy enables a trader to analyze the forex market and execute trades with confidence using effective risk management approaches.
If you’re searching for a good strategy, here, take a look at the top 5 forex trading strategies and choose which one suits your trading style and need.
10 Best Forex Trading Strategies Every Trader Should Consider:
After reviewing and researching a lot, we have compiled a list of a few best forex trading strategies that may help increase your chances of higher returns.
Day Trading Strategy:
Day trading is the most popular and common short-term forex strategy, which usually entails only one trade in a single trading day that isn’t carried out overnight.
On the other hand, any intraday price fluctuations in the relevant currency pair result in profit or loss.
This trading strategy would need plenty of time to research and monitor the trade and a thorough grasp of how the economy may impact the currency pair you’re trading with.
It’s possible that big economic news during the trading day can have an impact on your position.
Swing Trading Strategy:
This trading strategy helps swing traders to profit from price movements by detecting the ‘swing highs’ or ‘swing lows’ in a trend.
It is best for traders, who prefer mid-term trading strategies where positions can be held for many days, but not for months.
Although swing trading allows you to spend less time focusing on the market than day trading, as positions are held for several days, it can put you at risk of paying hefty overnight fees.
Advanced and long-term traders prefer this type of forex strategy the most. In this, traders hold trade positions for several weeks, months, or even years.
On the other hand, short-time price movements don’t affect the traders; instead, they focus on long-term price swings.
Position traders open positions with the aim that the value of currency pairs will increase in the future.
Apart from the forex markets, the strategy can be used in a variety of other financial markets, including Stocks, Commodities, Indices, and Cryptocurrencies.
Scalping is considered the best forex trading strategy for traders who prefer to trade forex for just a few minutes or hours by capturing multiple price swings.
The strategy focuses on accumulating modest but regular profits while also attempting to limit losses.
The forex scalping strategy is best suited to traders who wait for higher-volume trading times and keep an eagle eye on these small price fluctuations.
Trend Trading Strategy:
A trend trading strategy is often considered the most successful forex trading strategy. In this, traders identify the movement’s direction using technical indicators.
On this basis, trend traders go long or short. The fundamental concept of this trading strategy is that past trends and movements can help in forecasting future trends.
However, it is advisable to have a good risk management strategy in place to avoid the chances of high losses.
Carry Trade Strategy:
Using this strategy, traders can profit from the interest rate disparity between two currencies in a currency pair.
There are two types of carrying trade strategies: Positive and Negative. The first involves borrowing a low-interest currency and then purchasing a high-interest currency.
On the other hand, negative currency carries trade is the polar opposite of positive currency carry trading.
Price Action Trading:
Price action trading helps traders in predicting market movements by recognizing patterns or ‘buy and sell signals’ in currency pair’s price fluctuations.
The price action traders usually use fundamental analysis, charts, and technical analysis to identify the best trading opportunities.
Range Trading Strategy:
Because it is one of the simplest strategies, a range trading strategy is quite popular among novices. A market is said to be in a ‘range’ when it continuously moves between two price levels.
Using this strategy, traders identify specific upward or negative trends within that range. They go ‘long’ or ‘short’ on the basis of the price’s position inside that range — long in an uptrend and short in a declining trend.
It is one of the oldest and still effective strategies for trading forex. There are many news events that break out suddenly and can have a significant impact on currency prices.
The political and economic events can add high volatility to the forex markets. These events majorly include monetary policy changes, interest rate announcements, and elections.
Breakout Trading Strategy:
It is one of the most successful strategies for trading forex as it allows forex traders to take a position at the beginning of a volatile period.
A ‘breakout’ occurs when the price of a currency pair moves out of support and resistance levels.
In simple words, traders enter an FX position relatively early in a new trend and set their stop-loss at the market’s breakout point.
How To Choose The Best Trading Strategy?
Choosing the best strategy is your first step toward success in the forex market. Above, we have listed the top 10 forex trading strategies, but it is impossible to use all of them simultaneously.
To help you out, here’s a step-by-step guide to choosing the best trading strategy:
Determine Your Trading Style:
Before deciding on a particular strategy, it is important to determine whether you’re a short-term or long-term trader.
In addition, you should also consider whether you’re doing it for a full-time job or just a part-time hobby. For short-term traders, strategies like scalping and day trading are best.
Setup Your Trading Goals:
Traders should first set up trading goals and objectives as they guide them in their trading journey.
Check whether the particular strategy will work with your pre-defined goals; if not, there are plenty of them to choose from.
Compare Different Strategies:
Above, we have listed the 10 best forex trading strategies with their brief usage. Compare these strategies, and pick the one that suits you better.
Like if you’re a short-term trader, you can go with scalping, swing trading, or day trading. But, conversely, position trading is best suited for long-term traders.
Assess Your Risk Appetize Level:
Despite being the most successful, many trading strategies may fail due to a lack of research or volatility. So, it is vital to assess your risk appetizer before putting your capital at risk.
In addition, put proper risk management strategies in place to mitigate the risk of losing money.
Backtest Your Trading Strategy:
Last but not least, it is highly recommendable to backtest your trading strategy before using it for real trades.
You might need in-depth knowledge to understand a particular strategy; you can’t decide randomly.
The best possible way to backtest a trading strategy is by using it on a demo trading account. The account gives an exact trading experience as a live trading account.
So, you can backtest every forex strategy without the risk of losing real capital.
The Bottom Line:
In this article, we have discussed the best forex trading strategies, hope you have fully understood the topic. Depending on personal trading styles, each trading strategy will suit different traders.
Before making a final decision, it’s always a great idea to backtest your trading strategy before applying it in real trade.
So, start practicing your forex trading strategies via CFDs with ABInvesting‘s demo account today.
Risk Warning: CFDs are complex instruments and often come with a high risk of losing money rapidly due to leverage. remember, most new retail investor accounts lose money when trading CFDs.
What Is The Best Strategy In Forex Trading?
There is nothing like the best strategy; all available strategies have their own advantage. Choose the one that best suits your trading need and style.
For instance, some like scalping and day trading, while others prefer position trading or breakout strategy.
What Is The Most Succesful Day Trading Strategy?
Scalping is considered one of the best and most successful day trading strategies. It is highly recommended for quick traders who can make decisions on the go.
Why Do Most Day Traders Fail?
Not only day traders but all sorts of traders fail due to some common reasons such as lack of experience and knowledge, poor trading plan, and high leverage.
What Is The Easiest Forex Strategy?
The breakout strategy is one of the easiest forex strategies, which makes it a perfect choice for the novice.
It allows forex traders to take a position at the beginning of a volatile period.
How Can I Become The Best Trader?
To become the best trader, you’ll first need to understand the market basics. In addition, a good trading strategy can also add higher chances of profit.
Is It Better To Day Trade Or Hold?
Holding a position involves various levels of risk, but for retail and beginning investors, it is often less dangerous than day trading.
If you have a limited amount of money, to begin with and don’t want to trade every day, holding can be a better option.