What is a Forex Trading Strategy?

Let us begin by addressing the most basic question. What exactly is a Forex trading strategy? Traders use certain methods that help them in making a decision regarding the buying and selling of any currency pair. A trader is required to use certain trading techniques for the generation of profits. Trading strategies are of various kinds, and can often be looked at as manual or automated signals for trading.

Manual strategies are those where traders manually look for signals, for example through a computer. Automated strategies are those where there is no human input required and the work is done by an algorithm. The algorithm finishes the job of locating signals and executing them.

It is unsurprising that according to experts, a majority of forex traders end up losing their capital very quickly. If we go looking for reasons, a blatant one is the absence of trading strategies. While from hearing the words forex trading strategies, one may feel that it is a one fit for all thing- a wiser person would know that forex trading strategies are rather unique for everyone.

Undoubtedly, these seemingly complex words can hardly be called some no-brainer, but the common person also does not need to be so frightened of them. It’s important for any individual to first realize that long term wealth cannot be acquired without creating a strategy for their own. The profits without that strategy will only be short term.

To help you achieve your goal, here’s a list of the top forex trading strategies.

Candlestick strategy

One of the most profitable and used Forex trading strategies is the Candlestick trading strategy. One must keep in mind that this strategy is built on the spring principle of price movement. What you’ll essentially require is a chart plus a W1 timeframe. The size of the of the candle bodies has to be estimated. Different currency pairs like AUDCHF, AUDUSD, GBPCHF being some examples. Now by pick the longest distance from candle’s opening to the close. Long position means a bearish candle, whereas short indicates bull. This has to be done within a week of the candle.

Scalping

This strategy is considered a very advanced trading strategy among all the forex trading strategies. The span of these trades is extremely short, sometimes only being a couple of minutes. Scalpers rapidly try to beat the bid. For profit, they only skim some pips before they exit. Usage of low time-frame charts is common in this strategy. An example of this advanced forex trading strategy is the Forex-1 minute Trading Strategy.

Parabolic profit

This is another typically adopted forex trading strategy which fetches people profit. You will be required to set three moving averages and the Parabolic indicator. Use different colors to help make the analysis more convenient. In case you want to open a buy deal, ensure that the Parabolic is at the bottom. It should be on top, however, if the position is short.

Bollinger Bands Trading Scheme

This forex trading strategy utilizes Bollinger Bands, which are tools for technical analysis. They use standard deviation for establishing where the band lies. They’re useful for giving immense information on topics like periods of market consolidation and trend continuation, as well as potential price targets. There are three bands in total, and they revolve around SMA, or the simple moving average. the default value for this is 20. There are two default boundaries- lower band and upper band, and the price generally lies between these two.

Fibonacci trading

Another profitable forex trading strategy that traders tend to adopt involves the use of Fibonacci retracements. These are generally used for the identification and trading of the support and resistance levels. These are helpful in locating exactly where orders for market entry should be placed. Since every trader has their unique strategy, many prefer the Fibonacci style for how it suits them. There is usage of hard data only and close to zero emotional interference. A trader can use these strategies for both short and long term trades.

Is the strategy effective?

While you cannot stick to one forex trading strategy and call it the best or the top, there are some rather distinct differences that tell an effective strategy apart from the others.

The accuracy – an effective forex strategy will not be chockfull of lagging indicators. You will find accuracy through this strategy and can trust it.

Understanding – do you actually understand the strategy? It’s essential for a trader to not fall for the trap of seemingly impressive formulas and stick to something that actually makes sense to them. You must have a thorough understanding of your strategy.

Uniqueness – As we have established, it’s important that your circumstances align with the trading strategy. If it isn’t inherently working out for you and your character, it’s not going to fetch you the profit you want. Your trading strategy should be tailored according to your needs.

Types of Forex Trading Strategies

As previously established, there is no one strategy that works universally. What works for one trader may not suit the other. Thankfully, there are various strategies that traders can choose from, and below are some of the types of the forex trading strategies you can go through for tailoring your own strategy. Some of the common types of strategies are discussed below:

Trend trading – beginning with something incredibly easy to understand, this forex trading strategy is not only reliable but also simple to understand. Through this strategy, we try to get positive returns by taking the advantage of the market’s directional momentum.

Price Action Trading – we study historical prices here and formulate strategies that are technical and can be utilized both with an indicator and on its own.

Carry Trading – here, one currency is borrowed at a rate which is lower, and then we invest in another currency for a comparatively higher rate.

Range Trading – this strategy involves the detection of support and resistance points. Technical analysis is a chief feature of this strategy. Trades are placed around the key levels.

Day trading – this strategy is for short term. It is primarily designed for trading financial instruments within the same day so positions close before the market closing.

Why you must choose wisely

While many of the popular choices that are available have been outlined above, it’s crucial to keep in mind that you need to be wise while making this decision. If you’re not, you’ll end up in huge risks were not worth taking. Analysis of trading strategies is recommended, along with the analysis of the risk-reward ratio. It’s also necessary that you see how much time investment will be required in the strategy that interests you. Whether you’re more open to risk or averse to it also makes a huge difference.

Conclusion

Where most traders end up in losing out on long term success is that they limit themselves to an economic calendar only for fundamental analytics. Which is why creating a unique forex trading strategy is important for thriving in the Forex market. If you’re determined to go ahead in this market, it’s crucial that you brush up with the novelties and dedicate your time to studying ready-made schemes for trading. Emphasis has to be given on your individual action plan.