Forex Trading Strategies

When choosing forex strategies or trading strategies that work we have to take into account the risk profile of the trader and mainly the time available to trade the markets.

It is totally different for someone who has a stable job, and who trades Forex for extra income, than for someone who trades exclusively in the markets.

The more trades you make, the higher the profitability, but the more time you spend. That's why people who are engaged in trading have to make a lot of trades with leverage, in order to boost them and generate a monthly income that those who have a steady job don't need.

The main difference between one profile and the other is that a career in the markets has many more possibilities of growth than a permanent job, in the same way that an entrepreneur with an idea has more possibilities of being very successful than someone who does not take risks and clings to a permanent and secure job, although the latter is not really the case.

How to choose the best trading strategy?

The best strategy to use will depend mainly on the time we can dedicate to the activity. If we have a very demanding job we can only use long-term strategies. On the other hand, if the work we do has a lot of flexibility then we can use almost any type of strategy.

Also the strategies used will depend on the trading system on which they are based, and these in turn will depend on the risk profile of the trader. Some trading systems are more aggressive than others and may not be compatible with every trader.

What is the strategy for a novice?

If you are a beginner in the markets, using medium term strategies is the most advisable. The most used strategy is Swing tradingIn this case, you can use similar systems at lower timeframes, but you can dedicate relatively little time to trading. In this way if you are successful and you are encouraged to dedicate yourself exclusively to trading you can go down timeframe to perform more operations.

What strategies are there in Forex?

The main classification of this type of strategy is through the average time spent on each trade. The most common strategies are:

  • Position trading;
  • Swing trading;
  • Day trading;
  • Scalping.

Position trading

This way of trading markets is the longest term forex strategy. It consists of analyzing the currency markets with fundamental analysis and technical analysis. After we find an opportunity, a trade is opened and left for a long period that can be from weeks to years.

It is a type of forex strategies that does not get carried away by the daily fluctuations of the market, as what matters are the fundamentals in the long term. News of central bank decisions are the main source of information. Changes in the strategies of central banks such as the Federal Reserve can cause a trade to end or start for good.

To carry out this type of strategy it is necessary to analyze the markets weekly and in certain important events such as interest rate reductions. It is perfectly adaptable to any type of career, to seek additional profitability of savings.

Swing Trading

Swing Trading - this type of forex strategy is medium-term, the most common timeframe used is 60 minutes so it is also very compatible with almost any other job. The trades last from a few hours to a few days.

Trends followed by position traders are often used by swing traders as trading zones to find smaller trades within that main trend. Trading systems based on this strategy often use indicators such as RSI, MACD or bollinger bands.

Day trading

When we are talking about day trading we are talking about trades that in most cases are opened and closed within the same trading wheel. Occasionally a trade may remain open overnight with this type of forex strategy.

This type of trading requires a lot of dedicated time and is compatible with very few jobs. That is why for day trading it is advisable to be 100% involved. Using indicators like Vwap or moving averages is very common, as well as Order Flow tools.

Scalping

These types of forex strategies are very similar to day trading, but are usually done in 1 minute timeframes. 10 to 30 trades are made per day and it is necessary to use a lot of leverage so that commissions do not impact profitability. It is very common to use automatic or semi-automatic trading bots to assist the trader.

Conclusion

If you are new to the markets the ideal is to train yourself to evaluate different types of medium term and low risk forex strategies, where each trade risks no more than 1-2% of your investment portfolio. Once you can master your setups you can move on to short term strategies in order to gain profitability and dedicate yourself fully to trading.