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  • by Sophie Robinson
  • Feb 03, 2022
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Top 9 Effective Forex Trading Strategies and Their Main Aspects

 

You may already know that discipline is the most important thing in trading. The question is how to be a disciplined trader and follow the rules.

One of the ways to help maintain discipline in Forex is to have a clear strategy to follow.

If this Forex trading strategy has worked well, you can rest assured that you are using one of the successful Forex trading strategies. This confidence will make it easier to follow the rules of your strategy and help you be more disciplined.

Very often, when people talk about Forex trading strategies, they mean specific Forex trading methods, which are usually only part of a trading plan. Coordinated successful Forex trading strategies provide good entry signals, but it is also important to consider:

  • Main trend direction
  • Management of risks 
  • Exit points

 

What is the Best Forex Trading Strategy

What is the best Forex strategy - there is no single answer.

Each trader chooses a strategy himself, based on his free time and risk appetite. This means you need to consider your personality and come up with a strategy that suits you.

What may work very well for one trader may be unacceptable for another. Conversely, a trading strategy that has been underestimated by others may be right for you.

That is why, only in the course of testing various strategies and approaches can you find the one that suits you and reject those that do not suit you.

One of the key aspects to consider is how much time you can devote to trading.

 How to choose the best forex strategies

 

Various trading styles are described below, from trading short time frames to trading long time frames, which have been widely used in recent years and still remain a popular choice from the list of the best Forex trading strategies.

 

1.    Scalping strategy

Scalping is a very short-term trade that takes a few minutes to open. The scalper strives to quickly make a profit of several points. Tick ​​charts are commonly used, such as those found in the MetaTrader 4 Supreme Edition.

Forex Scalping Strategy

Taking into consideration the short-term nature of opening positions, the profit from transactions, as a rule, is several points (less often - several dozen). The trader compensates for a small amount of profit with a large number of opened trades. Where a short-term trader opens one deal according to the trend, the scalper opens several, having time to “catch” also corrections. As a result, the scalper manages to get more profit in the same period.

 

2.    Day trading strategy Forex Day trading Strategy

Day trading - these are trades that remain open throughout the day, as the name suggests. This eliminates the potential for adverse effects from large pulses. Daily Forex strategies (or intraday Forex strategies) imply that trades can only last for a few hours, and the timeframe can be set for one or two minutes.

Due to the short-term use of day trading in general, day investors can place tens (or even hundreds) of individual orders each day. The main goal for day traders is to aim for small profits. And for experienced traders, this could potentially lead to many winning positions throughout the day, resulting in good profits.

 

3.    Swing trading strategy

 Swing trading is a trading method that can be used when trading stocks. The purpose of swing trading is to identify the general trend, and then make a profit when trading swing within this trend.

Swing trading Strategy

Swing traders tend to work with the underlying trend of the chart, such as an uptrend. What is the process of deciding to buy an asset? Traders can be guided by the following rule: buy when the trend rolls back (that is, at the time of correction), and take profit when the main trend is cancelled. One of the signals to fix positions is a breakout of the support line or curve.

A swing trader usually studies long-term fundamental trends in stocks and can hold stocks not only for several hours but also for several weeks or even months - it all depends on the duration of the trend. The duration of the trend may depend on the general market sentiment. This parameter reflects either the price of the index, which includes the stock or from the positive news of the area where the company operates, as well as its results of work by quarters.

 

4.    Positional trading strategy

Positional trading is a trading style in which an investor holds a position (long or short) for an extended period. In positional trading, the time horizon ranges from days or weeks to several years. The main goal of this long-term trading strategy is to take advantage of larger trends.

Positional trading strategy

 

Usually, this style gives more time and less stress because you don't need to be glued to the screen all day and any slight fluctuations shouldn't affect the long-term vision of the asset. The most important element that distinguishes a positional trader from a day trader is patience. Positional traders prefer to wait for the expected move.

 

5.     Trend trading strategy

Sometimes the market goes out of the range, moving below the support level or above the resistance level, in which case a trend begins. How does this happen?

When support breaks and the market moves to new lows, buyers start to hold on. This is because buyers constantly see that lower prices are being set and want to wait until the minimum is reached.

At the same time, there will be traders who open trades in a panic or are simply forced to close their positions. The trend continues until the sale is exhausted and the confidence returns to buyers that prices will not decline further.

Trend trading strategy

Trading with a trend involves opening a position after prices have overcome resistance levels and selling after they have fallen from support. Trends can be dramatic and long-lasting.

 

6.       Retracement strategy

Retracement is a temporary change in the direction of a security's prices against the prevailing trend. A Retracement does not mean a change in the direction of the prevailing trend. On a chart, when the stock price tends to go up, retracements are small drops in price that interrupt an uptrend in the market. Depending on how the investor evaluates the change in the direction of the stock price movement - as a correction or as an inverse indicator, this will affect how he reacts to these changes.

Forex retracement strategy

Technical investors distinguish between retracement and reversal. A retracement is a short-term change, the opposite of the main trend, while a reversal indicator means that the previous trend should change. It is difficult to identify a correction at first. This may turn out to be both a retracement and an inverse indicator. In order to understand what this change is, technical analysts use the Fibonacci ratio, pivot point and resistance levels.

 

7.    Range trading strategy

Range trading strategy

The most important key to range trading is to find support and resistance to determine the range. As with any trading strategy, this method also requires strategic risk management in the event of a breakout. The range trading strategy is one of the most effective trading strategies associated with Forex trading. When there is no trend or direction in the markets. You can also carve your own path to prosperity using the trading range strategy. Let's find out more about this innovative range trading strategy.

When trading a range, traders assume that the environment remains unchanged, while support or resistance levels remain at specific levels. Price can be used to identify points in the market when demand exceeds supply, creating higher prices, or vice versa. If breakouts of support or resistance work to create new highs or lows, the trader's goal ranges from a limited range to sell back at a higher price or buy back at a lower price depending on the nature of the breakout.

The range search assumes the use of zones. Zones can be created by using a series of short-term highs and lows and connecting them with horizontal lines. The upper range is resistance, while support is the area where price helps traders looking to make a big buy.

 

8.    Grid trading strategy

Forex grid strategies involve intraday trading. This allows traders to capture the maximum price fluctuations by constantly placing orders one after another. Grid strategies involve a trader opening a large number of positions - pending orders - that are triggered when the price reaches them. This strategy, like others, has several advantages and disadvantages.

Grid trading strategy

The main advantage of the grid trading strategy is the ability to quickly get quite a lot of profit. Traders who prefer the grid strategy believe that the price movement is chaotic and it is impossible to predict it accurately. In connection with this statement, there is no need for the supporters of this strategy to analyze and forecast the market situation.

The main disadvantage of a grid trading strategy is that there is a high probability of losing trades. Since market analysis is not considered mandatory, and it is rather difficult to make an accurate forecast of price movements for intraday trading, this type of strategy is associated with huge risks for traders.

 

9.    News trading strategy

The impact of news on the market is uneven. Some segments react more strongly and vice versa. Therefore, one of the main principles of successful news trading is the search for an event that will have the greatest impact on the market. The more significant the news is, and the more “targeted” it hits the desired segment, the greater the volatility of assets after publication.

It is very important to track the news in advance to know exactly when this or that publication will be released and on which trading instruments it will affect.

So, you can make decisions in advance and even place pending orders to open long or short positions.

 news trading strategy

It doesn't matter if you are a seasoned trader or a newbie in the field, everyone faces losses and setbacks at some point. These are all part of the experience and can sometimes be an invaluable lesson in what not to do. This is why creating a set of clear day trading strategies from the start is critical!

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