What are the Best & Most Profitable Forex Trading Strategies?
Trading in the stocks or forex market, you need to trade with the right strategy that can work as per the market conditions. Simply putting your money into any instrument can be a risky decision, as there are various factors affecting the foreign exchange rate.
Apart from choosing the right pair of currencies, you must adopt the right trading strategy while trading in the forex market. The right strategy will not only help you earn profits but also minimize the chances of loss while trading the foreign currency market.
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To perform trading in the currency market, you have to trade in future and options, with the limited time period expiry of all the contracts. Hence, picking the right strategy is very important and can work within that time frame and give some returns. In respect of the same, we brought here some of the best forex trading strategies for beginners like you.
Also Read: Advantages and Disadvantages of Forex Trading: How to Start
10 Most Popular & Forex Trading Strategies
#1 Trend-based Trading Strategy
As the name suggests, this is one of the most reliable forex trading strategies in the currency market as per the trend of the currency price movement. Hence, identifying the trend of the instrument is very important to know the correct direction of the trend.
Also Read: How to Identify Trend in Stock Market: 10 Points to Find Trend
The price rises consistently creating higher highs means the currency is in an uptrend, in which you can create long positions. ,when such an instrument continuously decreases or creates lower lows, means it is in a downward trend providing an opportunity for the traders to create a short-selling position in such instruments.
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To confirm the trend of the market or individual financial instrument you can also use the technical indicators like moving averages like 200-DMA or 50-DMA and crossover of the same giving the signal of entering or exiting from the trade positions.
Also Read: How To Use Best Moving Averages for Intraday or Day Trading
#2 Price Action Trading
This can be also one of the most profitable strategies in forex if executed with the right approach. Price action trading strategy involves the process of making focused decisions based on the price movement of the instrument. Here you need to avoid using popular indicators like RSI, Bollinger Bands or MACD, instead use the breakouts or breakdown and trend reversal candlestick patterns that can identify the price action or movement in the currency.
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You can use the moving averages to find out the trend or incorporate simple indicators to keep your chart clean and avoid the overloading of information. Using multiple indicators on your chart can create unnecessary confusion, as using the multiple indicators has the conflict giving the disguise indication at the time taking the trade decisions.
#3 Trading Range Strategy
Sometimes traders use the consolidation phase of the instrument for trading. The trading range could be from a few days period to hours depending on the timeframe you choose to trade. Under this strategy, traders look for the currency in the forex market that is not trending. You can use moving average or other indicator to find such instruments.
You can find a support and resistance of the instrument, and create the long positions at the support and short when the currency reaches at its resistance levels. This could be one of the most profitable forex strategies but it will give you not enough room for trading, as you will get the chance to earn profits within the trading range. However, it can give you multiple trade opportunities during the trading sessions within that trading range.
#4 Scalping Trading Strategy
Scalping is one of the most effective forex trading strategies in the forex market that works when you can trade with a focus on smaller price movements in the market. Intraday traders take advantage of smaller movements with a large number of trades to earn smaller profits on each trade. While trading with scalping you have to spend more time keeping an eye on the computer screen to track even the smaller price movement of currency.
Using the scalping trading strategy you can generate a large number of profits by making a large number of smaller gains on every trade. You don't need to worry about holding your positions for longer days or considering various other factors like the fundamentals of the economy of the country, which are considered long-term investments.
Also Read: Why is Fundamental Analysis Important for Investing in Stocks
The disadvantage of trading with a scalping strategy, you cannot risk staying in the trade for long days. While trading you need to spend a lot of time and attention analysing the charts or technical indicators to take action on smaller price changes.
Also Read: Technical Indicators that Every Trader should be aware of
#5 Day Trading Strategy
Day trading is one the most common forex trading strategies, under which the trade positions are created only for one day. This means you have to square off your positions in the currency on the same day or before the overnight. You need to find a suitable currency to create the trade position in the morning and within the next 24 hours square off the same.
Traders use the 30-minute and 1-hour time frames to generate trading ideas and create the right position in day trading. Day trading can be risky, and you cannot hold your positions for longer days. Hence, be careful while doing intraday trading avoid mistakes to minimize your losses and use the best technical indicators or effective news and events.
Also Read: 7 Biggest Mistakes To Avoid While Doing Intraday Trading
#6 Position TradingStrategy
This is one the simplest forex trading strategies creating the trade position with the motive to hold your position for longer days. Based on the market conditions or upcoming future expectations you can buy the currency contracts traded on exchange for weeks, months or even for years. You have to avoid the ups and downs during a short period.
However, there are various factors that affect the price of currency, hence you have to keep in mind these factors. While playing with position trading strategy check the country's economic conditions, central government's monetary policy, foreign trade policy and political condition of the country that are favourable or not.
Here you need to keep patience while holding your positions and ignore the minor market fluctuations even if your position moves against your expectations for a few days or trading sessions, you need to stay calm and wait till your time horizon to get returns.
#7 Swing Trading Strategy
This is one of the most popular forex strategies used in the equity market that you can also use in the currency market. Swing tradingis again just like position-based trading in which you have to create a position for multiple days like you can say for days, weeks or months. To trade swing-based you can follow the market trend, range trading or breakout trading. And to determine the entry and exit you can use the oscillators and other technical indicators.
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Trading with this strategy you have to again keep disciplined and patience to wait when the instrument moves with swings. While creating the position in swing trading you can analyse the fundamentals or technical analysis to make the right decision. You can use the oscillators and buy the currency at support levels and sell at resistance levels.
Also Read: Is Technical Analysis Useful or Useless or Enough for Trading
#8 Carry Trading Strategy
This is one of the most successful forex trading strategy works only if you can create the position with the right strategy. The carry trading strategy will work and be beneficial for the traders, due to the difference between the interest rates between the two countries. Here you can buy the currency of the country having the higher interest rates while selling the currency with low interest rates. In such trade, you will get the interest rate payment based on the size of their position.
This trading strategy is directly dependent on the interest rate fluctuations of the particular currencies. You can get the benefit only when you hold your position and earn a substantial amount of interest in a favourable market environment. This strategy works well in bullish market conditions when traders seek high risk in such trades.
#9 Breakout Trading Strategy
This could be one of the highly profitable forex strategies if you can identify the price movement timely. When a currency is trading in a range for many days and breakout that range, you can create a long position which is called the breakout trading strategy in the forex market. Traders use this strategy by keeping an eye on the momentum of the instrument, and as soon as it comes out from its range-bound trajectory creating an opportunity for the traders.
To trade under this strategy first you have to find the currency trading in a range for many days, and use the technical indicators if there is such kind of indication to break out the range. And for this, you also have to keep an eye on the price and also identify the entry and exit points with a stop loss or profit booking strategy to make your trade profitable.
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#10 News-Based Trading Strategy
This is one the most common forex trading strategies among the traders they use forintraday or for short-term trading. Yes, news-based trading works well when there is such kind of news likely to come and can influence the entire forex market. If you talk about individual currency, any country-specific news affects the price of currency on such news.
The foreign policy central bank's monetary policy or country's economic data or trade deficitand geopolitical conditions in the country are top events that you can use to create a news-based trading strategy in the currency market. However, this trading strategy can be risky as the market becomes highly volatile when such news is about to come.
Moreover, choosing the right pair of currencies while creating the news-based trading strategy you have to analyse the economic conditions of that country and also market conditions. You should also have the knowledge of how the market will react after coming such news in the market so that you can trade with an unbiased approach to get positive results.
Other Common Forex Trading Strategies
Apart from above most successful forex strategies that are widely used by traders worldwide, there are multiple other common forex trading strategies that you can use. Retracement trading, Grid trading, 50-pips-a-day strategy, one-hour strategy, oscillator-based trading, and Candlestick charts-based trading are also used in the currency market.
Applying all the strategies in all types of trades in currency trading is not possible, as they have their own risk and return potentials depending on market conditions. Hence, you should choose the most reliable forex trading strategy that can work as per your expectations and as per the latest trends and current market conditions in the forex market.
Also Read: Types of Risks Associated with Investing in the Stock Market
Final Words
Yes, it's true that all the above-mentioned forex trading strategies will not work as per your expectations unless the market condition is favourable for such trade positions. However, most of the forex trading strategies discussed above can be applied while using the right tools, and technical indicators and analyzing the fundamental conditions of the economies.
Also Read: Top 5 Best Technical Indicators for Intraday or Day Trading
However, for day trading you can use trend trading strategy, swing trading, scalping trading, day trading price action and news-based trading strategies. On the other hand, for short-term to medium-term trading strategies in the forex market you can use position trading, carry trading, range trading, trading strategies.
Whatever the trading strategies you adopt as per the market conditions always use the technical indicators and also keep yourself updated with forex currency exchange related to all the news and major events in the international markets that can affect the price movement of the currencies. And according to that, you can create a successful trading strategy.
While trading in the forex market you also should take advice from the market experts who can suggest you best trading strategies as per the market trend while considering your risk-bearing capability to help you earn maximum profits.
Also Read: USD INR Options Trading Strategies Beginners Guide to Trade
Here you can choose the Moneysukh for trading strategically in the currency market. It provides the ones stop online solution to invest or trade in the forex, market commodities and equities. Along with the facility to open a trading account and demat account here you will also get tips and recommendations from the market experts.
Also Read: How to Open Demat Account: Benefits and Documents Required
At Moneysukh different types of market experts analyse the stocks, commodity market and currency market separately and based on their analysis they give tips and recommendations to the clients. Moreover, here you can also get the algo-trading facility to take advantage of AI-based high-frequency trading in currency or equity markets.
Also Read: How to Start Algo Trading in Moneysukh: A Best Algo Trading Platform
Trading here you will also get updated information on market news, and research reports on the forex market and equity market that will be exclusively mailed you to on your registered mail ID. Moreover, here you can also read blogs and articles written by experts on various topics like trading or investing, fundamental analysis and technical analysis.
Also Read: Technical Analysis vs Fundamental Analysis: Which is Better
These topics will help you to gain knowledge about the financial market that will help you understand trading and investing more deeply. So what are you waiting for, just apply here to open the tradingand demat account and subscribe to the newsletters published by the Moneysukh to enjoy the knowledge-based trading facility at one of the best online trading platforms that is offered here at the cheapest brokerage fees in the industry.
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