Trading in currency is a high-risk investment, but many experts have been able to find their feet in the currency market and make maximum gains in various trading positions. It is not a fluke that any of these traders rely on strategies that keep them alert from trading in wrong currency pairs or investing in a long-term timeframe for pairs that should be medium-term trading.
A forex trading strategy is a definite system that aids traders in determining when to buy or sell a particular currency pair. It is an essential part of being a currency trader. Traders design various strategies to help them profit from trading currencies in the forex market. Each is unique for its preferred trading style, period, and risk tolerance.
Seasoned traders do not have a size that fits all strategies for trading in the forex market but has a record of trading strategies, either technical or fundamental analysis you can apply at different turns and twists in the market, which will help them mitigate losses and maximize profits.
I highlight some top strategies used by forex traders below.
This is one of the most popular trading strategies traders use, especially during an overlap in trading sessions. It involves opening up many trades within the shortest possible time frame, usually seconds or minutes, to make swift traders rake in small profits per trade.
Scalping is a game-changer strategy for investors looking for a price action that is constantly moving and capitalises on its fluctuations and minute increments. This trading strategy is quite popular among forex traders because of its volatility and liquidity but majorly trades major currencies to get more scalp with substantial pips.
Scalping is time-consuming and stressful for traders, as you need to be alert throughout the trading day, focusing on charts for several hours to detect windows of opportunity.
One of the best strategies for a trader is day trading, as it gives you a grasp of how the market works over time and does not make the same mistake twice. Everyone who trades in forex uses this strategy. The catch is that you have the luxury of the day’s activities to enter and exit their trading positions with a profit or loss margin. Day trading happens within a short-term trading period, not more than a day without the added risk of overnight market fluctuations. You end your trade at the official close of the market.
However, you need to know how to exploit technical and fundamental analysis (for instance, elections, acquisition or mergers, GDPs, interest rates, etc.) Using key indicators, such as the Relative Strength Index and MACD, to identify trends and market conditions.
Day trading is like scalping because you need to accumulate small gains to build your profits, which is usually time-consuming.
Swing trading is a very strategic way of exploring the forex market. I consider it a medium-term trading strategy, as you can hold the position for several days or weeks to capture short-term market moves like a trend, counter-trend, momentum, and breakout trading.
This strategy is time-saving as you do not need to be monitoring charts or trades for the whole day but at specific times of the day, then making your move when you notice a window of opportunity.
If you use this strategy, you won’t be able to ride significant trends and be prone to overnight risk or loss, as you would hold the position for weeks.
Forex traders interested in long-term trades usually use the position trading strategy. Trading positions take weeks, months, and years to play out for these traders as they analyze and evaluate the market for potential entry and exit levels.
This trading strategy involves monitoring central bank fiscal and monetary policies, political developments, and other existential factors to identify recurring trends you can exploit to maximise profit when trading in currency pairs.
The central principle for these traders is patience, as their position may take months or years before it pans out.
Also, they do not need to trade regularly, just a few trades, and they can make hundreds of pips on the trade. But the downside is that you need to have professional knowledge of exploiting technical and fundamental analysis for maximum gains because you will only have few trading opportunities to implement it.