Trading and managing to make a profit is an art, and there are only so many ways through which you can go about doing that. In the simplest of terms, forex trading is when you buy low and sell high. Currently, the most significant kind of currency trading happens due to speculation.
Having a proper trading strategy is essential for success and is also necessary for newbie traders. There are multiple different strategies designed to make trading systematic and organized.
How Do Forex Trading Strategies Work?
Forex trading strategies exist to make your work easier. You need to consider many factors before carrying out Forex trading. These factors range from deciding on the best techniques to use for trading, to the platforms you should trust for information.
The trading world has hundreds, if not thousands of different trading strategies, and it can very quickly feel overwhelming for a new forex trader. Even the most seasoned of traders often do not have much information and do not know each trading strategy.
Most traders find a trading strategy that works for them and that best fits their goals and objectives and use that as a guideline for all their projects.
Naturally, all forex traders have different goals and objectives. You may be someone looking for a means to multiply your actual amount, or you may be looking at Forex as a constant revenue stream for you.
Do you want immediate gains, or are you looking at Forex as some form of a long term investment?
So let’s talk about the trending forex trading strategies in 2020.
1. Forex Scalping Trading Strategy
The scalping trading strategy involves trading currencies based on real-time analysis. What happens in scalping is that traders buy or sell different currency notes and hold the position for a short period and then eventually end up closing the said positions for a small profit.
Scalping can be said to be much quicker than day trading as in day trading. A forex trader will open a position and then close it again during the current trading session.
In day trading, the forex trader never carries the trading position overnight, but where a day trader may look to hold the trading position once or twice during the session. Scalping will go on to keep the trading position multiple times during the session.
Some scalpers like to take advantage of the high-velocity news such as the release of economic data and reports and use that information to drive a profit. Scalpers often trade for 5 to 10 pips per trade.
Pips in an abbreviation for “percentage in point” and is often the smallest exchange movement a currency price can take.
Is This Strategy For Everyone?
No, it isn’t a strategy that would suit most personality types. To be a scalper, you need to love having to sit in front of your computer for the entire session, and you also need to have an insane amount of focus all the time to be able to execute profitable trades.
If you’re trying to move for every small change in a currency, then you always need to keep your head in the game and also need to have excellent focus and quick decision-making skills.
The strategy is for those willing to sit in front of the computer for long periods. You also need to be able to make split-second decisions and call the shots within the blink of an eye.
For scalpers, their intuition is their best friend, and they continuously make many decisions without much research.
The Scalping decision allows you with no time to think, and you need to be able to execute quick decisions.
2. Day Trading
Another popular trading strategy is Day trading. In Day trading, traders often only carry out 2-3 trades throughout the day and close the deals before the day is over.
Day trading is also a relatively fast-paced trading style, and day traders base their analysis on periods ranging from 15 minutes to half an hour. The extended time allows them to think carefully before executing a trading strategy.
To be able to effectively day trade and make a profit, you need to have a certain amount of experience.
Experienced traders use charts, indicators, and patterns to predict future price movements. For beginners, it is best to focus on the simple things at first to devise your trading strategy.
The very first thing you need to do is analyze your risk appetite. How much risk are you willing to take?
The key to becoming a successful trader is only to risk as much as you can afford to lose. While starting, it is best to work with only limited trading indicators and work on perfecting your skills on those.
For new day traders, you need to learn not to get carried away with day trading, and you need to choose a time frame that suits you best. However, you cannot expect to make a profit by trading for only an hour each day. You will need to be able to devote a lot more hours to be able to make actual trading profits.
Day traders also need to exhibit a certain level of consistency in their work. You always need never to let emotions get the better of you, and you need to take calculated and logical decisions.
Is Day Trading For Everyone?
Day trading is not for everyone simply because everyone is different, and everyone has a unique personality.
Most of us tend to act irrationally out of fear and also panic when the market operates volatile in the first 15 minutes.
Day traders need to function with a calm head and take calculated decisions each time. Day traders do not rely on intuition to make their trades happen.
3. Position trading strategy
The position trading strategy works in the way derivatives do. The position trading strategy is for the patient of traders that are willing to wait for months for their results.
For position trading, you need to focus more on the long term trends than on the short term trends.
Position trading requires a keen eye and a far-sighted approach. Position traders do not run at the sight of small losses and allow for some minor financial damages before getting a big win.
Position traders need to analyze large stacks of data to be able to reach a favourable decision. Position trading also needs to be backed down by reliable sources of information.
For the new traders looking to go towards position trading, they need to keep a couple of tips in mind.
- Choose your currencies: In position trading that involves long periods, you need to carefully analyze and choose the cash that has historically been performing well and the kinds of currencies that you expect to do well in the future.
- Decide the amount of loss you are willing to bear: Some traders set aside a particular percentage for their losses and use that percentage as a benchmark.
- If your trade ends up moving 40 pips against you or more or shows signs of not reverting, then the best route is to exit the deal manually.
To be a successful position trader, you need to keep your winning trades in function and continuously cut out the deals that are giving you losses.
Position trading is the least stressful of all the trading strategies because of the prolonged continuity.
4. Forex Swing Trading
Swing trading is ideal for the people who find day trading and scalping very stressful and also at the same time, do not want to wait for months to be able to record a profit.
Ideally, swing trading is for those individuals that cannot give the required amount of hours to trading during day trading but only have time to analyze the market for a few hours in the night.
Swing trading is ideal for those who only have a couple of hours free during the day. Swing trading works on identifying swings within a common trend and try to enter only when there seems to be higher profitability of winning.
Swing trading is on the short term side and focuses on capturing a single swing. The holding period might take longer than a couple of hours to two weeks.
To be able to master swing trading completely, you need to be able not to be tempted by the desire to wait just a little bit longer for more profits.
Knowing when to stop is a crucial skill, and this skill helps you navigate through most, if not all, trading strategies. The art of swing trading is to take your profits and leave before the start of the resistance level.
Swing traders use the help of trading indicators to devise strategies that minimize their movements and maximize their profits.
Is Swing Trading For Everyone?
Swing trading is not for everyone. No solid trading pattern is for everyone. Your personality plays a significant part in the way you trade and interact with the market.
For people who like rapid trading, swing trading is not an ideal option for them as with swing trading. You will have to sit down calmly and wait for the actual profits to start coming in.
In swing trading, the trades usually fluctuate and decline before you can make a profit. For the people weak at heart, this might not be a good strategy psychologically.
5. Automated Forex Trading
Automated forex trading is perhaps the most set way to trade foreign currencies with a computer program with a set of analyses that automatically decide whether or not you should buy or sell a currency at a given time.
Automated forex trading works through a computer program and follows a set of rules that the trader has taught the system.
The most significant benefit of having automated trading platforms is that the trader can virtually be absent in the market and still have all his trades carried out. The forex robot is going to systemize the market data work out an effective strategy, and then process the deal.
Automated forex trading is ideal for people who get stressed out quickly as through automation. The robot takes all the decisions for them immediately. It helps use their strategy to derive quick profits.
Many traders are taking advantage of the robot forex trading system because it allows them to relax and take time off from the screen.
The program is often able to scan the market much more quickly to find profitable trades, and the program is also able to execute decisions more quickly.
The only problem with the robot forex trading system is that there are a lot of scam robots available in the market, and finding a suitable robot for your tasks is a big challenge.
While looking for a forex trading robot, you should consider if the robot has been backtested on various currency pairs and across multiple market conditions—their live trading results based on real-time data only and their limitations regarding order sizes.
You also should check the credibility of a system before making a forex robot purchase. Check how long the system has been in operation for and how many users it has.
Is This For Everyone?
Yes, automated trading can be customized and fit according to a forex trader’s specific needs and preferences. In automated trading, there is no place for emotions, and all trades are don’t strategically and quickly.
You can also easily backtest your robot using historical trading conditions and see how it performs in times of crisis.
With automated trading, you can also remain consistent with your goals, and you can have a diversified trading plan, too, with different accounts. All at one time!
Forex trading is a skill that relies a lot on luck and even more on experience. There is no set recipe for success, and the best way to succeed is to use a strategy that works well with you and also helps you make a large amount of profit. Happy Trading!