Forex Trading Strategies Guide: 4 Strategies you need to Know

In this edition, I will be writing about the best forex trading strategies you need to know and how to use them

What is the best strategy?

There is no single answer to the question. You have to find the one that suits you based on your personality, risk appetite, goal, capital, experience, and other factors.

It is also worth mentioning that, a strategy that works for another might not work for you, also a strategy that has been discontinued or called old fashion might just be the right one for you. Over time, you may have to improvise on an existing strategy by adding or removing anything that works and doesn’t work. A key aspect to consider is the time frame for your trading style. Some strategies work well on the lower time frame, while others work on the higher one.

Short-term timeframes include 1-minute, 5-minute, 15-minutes, 30 minutes, and 60-minutes charts

Longer-term timeframes include 4-hour, daily, weekly, and monthly charts.

There are 4 main types of strategies

1. Scalping
2. Day trading
3. Swing trading
4. Position trading

Scalping

This is a short-term form of trading. Scalp traders/Scalpers only hold their position for a few seconds or a few minutes and often trade with the 1-15 minutes chart. These positions can be entered with big lot sizes with the purpose of making quick huge profits or small lot sizes with smaller profits gain, but let profits accumulate from several trades executed over time.

This trading style requires tight spreads and high liquidity in the market.

The downside of this is that it can be stressful for traders since it is time-consuming since you need to focus on charts for several hours. In addition, your capital could be wiped out during volatility if trading with big lot sizes and no stop loss.

Day Trading

This strategy is often used by traders who are not comfortable with the scalping strategy, but still don’t want to hold their position overnight.

A day trader will enter and close their position the same day to avoid any large moves overnight. This strategy is often used by new beginners. This requires sufficient analyses of the markets and frequent monitoring of positions, unlike the scalping strategy.  

Swing trading

Swing trading holds positions for several days or even weeks. This type of strategy does not require a trader to sit and monitor their traders throughout the day.

This strategy is popular among people who are not committed to trading and have another job on the side but still would like to trade. They still however need to find time to analyze the market and trends before entering their positions. Their positions are often based on trends, counter-trend, momentum, and breakout trading.

Position Trading

This strategy focuses on long-term price movement by looking for maximum potential profits to be gained from major shifts in prices. A long-term trader would often look at the end of a day/weekly/monthly candle before taking their position. This position requires patience, discipline, fundamental knowledge, and capital.

There are other advanced trading strategies that will be discussed here