Strategy is really needed to make a successful forex trading. Not only to make benefits but also to avoid higher risk of loss. To find which one is suitable for you as forex traders, there are many option of Forex Trading strategies that can be applied by traders. Here we resume the top and the most applied Forex Trading strategies in the market. Learning the following strategies also allow you to know both advantages and disadvantages of each strategy before you buy or sell. Knowing both sides of it, you can choose which strategy is suitable with your current situation or style. Here are the details of each trading system.
Table of contents
- 1. 50-Pips a Day Forex Strategy
- 2. Forex Daily Charts Strategy
- 3. Forex 1-Hour Trading Strategy
- 4. Forex Weekly Trading Strategy
- 5. Trend-Following Forex Strategies
- 6. 4-Hour Forex Trading Strategy
- 7. Counter-Trend Forex Strategies
- 8. Breakout trading
- 9. Carry Trade
- 10. Momentum trading
- 11. Swing Trading
- 12. Scalping
1. 50-Pips a Day Forex Strategy
50-Pips a Day Forex Strategy is one of the newest Forex trading strategies for you to apply in your trading. This strategy in particular affects the early market movement of certain highly liquid currency pairs. To maximize the strategy, it should be done after the 7am GMT or the time when candlestick closes. During the time, traders need to place two positions or two opposite pending orders. One of those positions will be automatically cancelled if one of them is activated by price movements in the system.
The strategy is named after the profit target which is set at 50 pips. On the other hand, the stop-loss order is placed in any point between 5 and 10 pips above or below the 7am GMT candlestick. The rule is applied to avoid and manage risk. After the rules are set, the market will do the rest. For you to note, shorter-term trading could lead to greater risk because of the nature of more trades taken. To empower your strategy, it is important for a trader to use effective risk management.
2. Forex Daily Charts Strategy
Forex Daily Charts Strategy is the next best Forex strategy chosen by traders. This strategy is suitable for short-term market. Even it is daily, compared to the other strategy such as Forex 1-hour trading strategy or even those with lower time-frames, Daily Chats has less market involved. On the other hand, if you can maximize the strategy the daily charts could give you 100 pips a day because of the longer timeframe. It happens because it is associated with the ability to result in some of the best Forex trades.
Daily chart provides a clearer picture of the market, unlike lower time frames which tend to have a lot of noise and signal errors. The Daily time frame more clearly depicts market price movements, thereby increasing the ability to analyze prices in the long and short term. Price action on the Daily Chart better reflects the general market sentiment.
Other benefits of daily trade signals is this strategy can be more reliable than lower timeframes. The strategy also has the potential to catch greater profit although there is no guarantee in market. In this strategy, traders are also less concerned with issues, news or random price fluctuations. Basically, this strategy is divided into three main principles. The first one is locating the trend of the current market, staying focused with the move and doing less leverage and larger stop losses.
3. Forex 1-Hour Trading Strategy
The next strategy is called Forex 1-Hour Trading Strategy. In this strategy, just like the name of the strategy you will take the best chances of the 60-minute time frame. Currency pairs like USD with EUR, JPY, GBP and the AUD are considered as the the most suitable currency pairs to trade using Forex 1-Hour Trading Strategy. To strengthen your strategy, MACD which is available on both MetaTrader 4 and 5 is the most perfect choice. MACD will help you not only for buying but also for selling position.
For buying position you have to set a long position when the MACD histogram goes below the zero line. In this time, the stop loss also could be placed at a recent swing low. While for selling position, you have to enter a short position when the MACD histogram goes below the zero line. During this selling situation, the stop loss could be placed at a recent swing high.
4. Forex Weekly Trading Strategy
Intraday trading strategies in the previous strategies is guaranteed to give more opportunities in a smaller time-frame because of the market volatility. On the other hand, long term trading like forex weekly trading strategy has benefits in providing more flexibility and stability. One of some reasonable reasons is that a weekly candlestick can provide more details of market information than the shorter candlestick.
Weekly Forex trading strategies are beneficial based on the lower position sizes and how it avoids more risks. In this strategy, engulfing candles are commonly used by trades together with haramis and hammers as the most commonly used price action trading patterns.
5. Trend-Following Forex Strategies
Trend Follow is one of the most widely used trading styles, by both new and experienced traders. The basic definition of Trend Follow is a method of following the direction of the trend to determine the execution of a trade. More specifically, here traders can see price patterns that are being formed and then compare them with previous trends. This style is one way to get profit according to the position of the majority of market participants. One method is to wait for the price to touch the trend line while executing the order.
Just like other forex trading styles, Trend Following Forex or simply called as trend trading also requires indicators to read signals. The four most popular indicators that traders often use are Moving Averages, MACD, RSI, and OBV. If the price of the trading instrument has begun to decline, you open a short position, because you assume a downtrend has formed. Trend traders always act according to the movement of the trend.The nature of a market that sometimes breaks out of a range, moves below the support or maybe above the resistance will start a trend.
This natural characteristic happens when buyers begin to hold off because the support breaks down and a market moves to new lows. Buyers naturally do that because buyers notice cheaper prices are established and want to wait to reach a bottom. Some of the other traders sell in panic or are forced out of their current positions or build short positions because they believe the price can go lower.
6. 4-Hour Forex Trading Strategy
The 4-hour Forex Trading Strategy can be inferred as a potential, beneficial and profitable among many Forex intraday trading strategies. This strategy can also be applied in a swing trading strategy. Although this strategy can be used in all Timeframes, but the best time based on the research that has been done is the H4 Timeframe, and it is very suitable for Swing traders. In this strategy, the H4 Timeframe is used as the base chart to identify potential prices, and the H1 Timeframe as the execution chart where we can see in more detail the best potential prices and make transactions immediately.
If traders wants to try with a lower Timeframe, of course it can be done, but remember, as the reference chart remains on the larger Timeframe, and down one Timeframe to do more in-depth analysis as well as make transactions. Because basically this strategy refers to the behavior of the market trend. To determine whether there is a new trend movement or not, we will use a pair of moving averages, with periods of 34 and 55, these numbers are part of the Fibonacci series. For this strategy, traders are advised not to hesitate to experiment with types of Moving Averages, such as Exponential, Simple, Smooth, etc.
7. Counter-Trend Forex Strategies
Another strategy that is commonly used by professional traders is counter-trend strategies. Basically, a counter trend strategy is a trading style in which the trader looks for potential reversal points so as to potentially trade against the direction of the current trend. For example, when the trend is down, you open Buy. Meanwhile, if the trend is up, then you open Sell. But from that all counter trends are often used by traders in responding to market reversals. Because of their desire to trade fast, counter traders always want to get transactions that are fast and simple.
Contrarian, traders who use Counter-Trend Fore Strategy, also apply oscillators such as MACD or RSI to see if the market is overbought or oversold and whether there is a divergence between prices and indicators. However, it should be noted that the erratic market volatility makes it difficult for many Counter Trend traders, when looking for reversal points. Moments like that can be mentally tested because traders are faced with 2 scenarios: hesitate to order and skip the trend reversal timing, or order immediately but get stuck in a false reversal. On the other hand, counter-trend strategies can be considered as one of the best Forex trading strategies because of its high success ratio.
8. Breakout trading
Breakout trading is one of the simplest forex trading strategies and can be said to be the best for beginners. That’s making this strategy is popular between beginners. Breakout trading is a forex strategy that relies on a breakout of a key level as an entry trigger. These key levels can be in the form of important support and resistance levels formed from psychological levels, manually observing price highs and lows, drawing Fibonacci lines from swing points, or calculating pivot points.
The breakout moment is often awaited by traders, especially those who follow the trend following strategy. That’s because, confirmed breakout trading is often followed by a significant strengthening of the trend, so this method is a mainstay for traders who want to get maximum profit. This strategy is important because breakouts often represent the start of increased market volatility. We can use volatility to our advantage by waiting for a break in a price level and joining a new trend as it begins.
9. Carry Trade
Carry trade is also considered as one of the most popular trading and used strategies in the forex market. But this strategy can be quite risky because trades who depends on this strategy are often highly leveraged and sometimes can be overcrowded. The carry trade is a trading strategy that involves borrowing at a low interest rate and then investing in an asset that provides a higher rate of return. In Carry Trade activities, an investor or market participant will borrow some money in a country with a low interest rate, then lend it to a country with a high interest rate.
There are two profit opportunities that may be obtained by carry trade investors. The first is through higher daily interest rates in the targeted countries. While the second is through the depreciation of the home country’s currency, thus making investors get a larger amount of money in the home country’s currency than the initial amount of their loan.
10. Momentum trading
The next trading strategy that is popular is momentum trading and momentum indicators. These position trading strategies are popular because powerful price movements in a particular direction are a good sign for a price trend. It will continue in that direction for some time and provides more opportunities for traders. In the same way of analysis, weakening movements can be an indicator that a trend has lost strength and might be headed for a reversal. These strategy may take traders into account both price and volume. Oscillators and candlestick charts are often used to support visual analysis.
11. Swing Trading
Swing Trading is very popular and very common to be used by professionals. This strategy is considered as a medium-term strategy of trading. The time frames you’ll trade using Swing Trading on are usually 1-hour or 4-hour but you can hold your trades for days or even weeks. Traders who use this strategy are commonly called a swing trader. In this strategy, your concern is to capture “a single move” in the market system which is called a swing.
In this strategy you’ll likely to buy support, sell resistance, trade breakouts, pullbacks and the bounce of the moving average. To master this strategy, it is important to learn technical analysis concepts like support and resistance themselves, candlestick patterns, and also moving averages.
The last system one you need to know is scalping. Forex scalping strategy is a very short-term forex trade strategy where you’ll hold trades minutes or even seconds. Trader using this method or strategy is usually called a scalper. And as a scalper, you have to concern with what the market is doing now and how you can take advantage of it using order flow that shows the buy and sell orders in the market. Some experts don’t recommend a scalping system for the retail traders because the transaction cost will eat up most of your money profits.
As a beginner, you will bear a burden to choose which strategy that suits you and try to find strategies that work such as forex option strategies. In the end, how detailed your trading plan is depends on your trading style and goals. If your trading strategy is too shallow, you will have a hard time getting the desired results because the dynamics of the forex market are complex and require adjustment from time to time. But if your plan is too confusing and complex, you can also have a hard time executing it. Thus, find a style that suits your personality, abilities, and don’t forget to always pay attention to market conditions.