5 Popular Forex Strategies: Pros And Cons

popular forex trading strategies pros cons foreign exchange trade tips

When it comes to achieving success in the trading world, maintaining your discipline is one of the key elements. In order to become a disciplined trader, you need to first find a trading strategy that suits you. Once you have found a strategy that you feel is successful and matches your trading style, it will allow you to gain more confidence in your abilities. 

Keep in mind that one strategy may not work the same for multiple individuals, so the only way to find one that suits you is to experiment with multiple ones. When choosing a strategy, make sure to take into consideration your personality, trading style and timeframe. Below is a list of five of the most popular Forex trading strategies that you can try.

Scalping Strategy 

The scalping strategy is a short-term trading strategy that focuses on buying a currency pair and holding it for only a few minutes before selling it again, in an attempt to make profit. A scalper, which is how a person who uses this strategy is called, looks to make small profits on a frequent basis. Trading with this strategy can be done either manually, or by using an algorithm with predefined guidelines, which tells you when to enter or exit a position. Usually, a scalper would not hold onto a pair for more than 30 minutes. The advantage of such strategy is that you get a large number of trading opportunities, all of which can add to your profit. To maximize your chances, look for the best scalping Forex brokers that offer such opportunities. 

When it comes to disadvantages, one big minus is the fact that it requires quite a bit of time investment to pull out a scalping strategy. At the same time, it requires you to have a strong appreciation for the market trends, in order to know exactly when to enter and exit positions. 

Day Trading 

Another short-term strategy, day trading involves entering and exiting trades before the end of the same day. Like all short-term strategies, day trading is quite a risky approach, as it involves the trader to be in alert throughout the entire trading session. Short-term traders are more dependent on liquidity and volatility, because of the small period of time it involves, which can leave them more exposed to mistakes. 

Day trading is not recommended for beginner trades, as they may not hold the necessary knowledge to make quick decisions. Just as scalping, day trading offers the advantage to enter and exit a big number of traded and has a medium risk to reward ratio. 

In order to succeed with a day trading strategy, you need to have in-depth knowledge of the market trends, as well as quite a bit of financial stability, as the risk can become quite high. 

Price Action Trading 

Price action trading requires quite a bit of knowledge about the history of pair prices within the Forex market. It can be utilized for both long-term and short-term trading, which makes it an important strategy for a large variety of traders, no matter their style. When it comes to determining the entry and exit points, there are multiple methods that can be used. The most popular are: 

• Fibonacci retracement 
• Trend identification 
• Oscillators 

In order to track pair prices throughout time, traders can use a forex calendar, where they can keep a history of all fluctuations involving a certain pair. Then, by analyzing those patterns, they can determine when to enter and exit a position. Basically, traders are using the footprint left by a certain pair in time to make predictions and act accordingly. 

The key to learning how to use price action is to start with longer period of times and, in time, shorten them. Once you get used to using the Forex calendar or other price action methods, you will be able to master price action trading and gain quite impressive profits. 

Trend Trading 

One of the most simple and popular forex trading strategies, trend trading is widely used among traders with all levels of experience. This is where the “trade with the trend” saying comes from. Just as the name says, trend trading revolves around making decisions based on the current market trends. This is a strategy that suits long term or medium term horizons, due to the fluctuating length of particular trends. 

Again, oscillators are used to determine the best entry and exit points, in order to give a positive risk to reward ratio. Trades need to be aware of the fact that trends can fluctuate quite often and they need to attain a high level of patience, in order to make the best entry or exit decisions. 

One method to trade based on trends is to always keep yourself informed of current events, such as government interventions or inflation. Read the news, join groups and spend time of Forex platforms in order to identify trends and act on time. 

Range Trading 

This involves the forex trader identifying support and resistance points by which other traders will place trades. This is a strategy that works well in markets with low volatility and without discernible trends. There is no period of time for this method, as it can be used for any trade frame. In order to succeed with a range trading strategy, you need to be aware of the face that breakouts can occur quite often. This means you need to possess quite some risk-management skills to avoid them. 

In order to determine entry and exit points, traders use oscillators, such as Relative Strength Index (RSI) and Commodity Channel Index (CCI). What makes range trading such a popular strategy is the favorable risk to reward ratio, but you do need to possess a great number of technical analysis skills in order to succeed. 

Conclusion

No matter what forex trading strategy you choose, keep in mind that all of them require patience, good knowledge regarding the news on the market and risk-management abilities. In order to choose the best strategy for you, take the time to try multiple ones, decide on a time frame and risk tolerance.

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