Best Forex Trading Strategies | Includes Videos
BY Chris Andreou|November 7, 2023
The best forex trading strategy will be different for everyone. But there is no doubt that many traders need some help. The markets are complex, and the amount of information available today can be overwhelming.
Your options on choosing the best forex trading strategy for your needs is practically limitless. As there are so many already available you can adopt or adapt. The key is to find one that you trust and fits well with your personality and trading goals.
So in this article, I will provide strategies for different trading styles and give you some tips for the best trading strategies for each style.
Let's get started.
The best Forex trading strategy for every style of trading
The first step is to identify the type of trader you are. Do you gravitate towards day trading? Are you comfortable holding positions for days or weeks at time? Do you prefer to trade during news events?
Once you are clear on this, you can begin to look for the best Forex trading strategy for your preferred style of trading.
Keep reading to learn more.
Scalping is a style of trading where you enter and exit trades frequently and for very short periods of time. Usually after the market has moved just a few pips. Scalping can be done manually or with the help of automated trading systems, but either way it requires quick thinking and fast execution.
The idea here is that you are taking advantage of small price movements to make small profits over and over again. Scalpers focus on the shortest time frames to do their technical analysis. Like the 1 minute, 5 minute and 15 minute charts. This style of trading is usually solely based on technical analysis and requires a lot of screen time.
One of the best forex trading strategies for scalpers is to identify whether the intra-day momentum is trending or ranging and trade accordingly. A simple way to do this is to combine technical indicators or focus on price action.
The best Forex trading strategy for scalping
A simple strategy you can use for scalping is to use the Parabolic SAR indicator. This indicator can help you identify momentum and the direction to potentially trade in. It can also alert you to potential changes in momentum so you can stop and reverse course.
This indicators, like all indicators shouldn't be used on its own. Parabolic SAR works well when prices are trending. It can get you in and keep you in while the price is moving in your favour. However, during range bound markets, it is prone to giving false signals. So it is important to use other indicators to help filter some of these false signals out.
Watch this video to get the complete PSAR scalping strategy.
2. Day trading
The main goal of day trading is to make profits from small, short-term price fluctuations that occur within the same day. It is a trading style that requires a little more attention than scalping strategies do. However, trade durations can typically last for a few hours and you could potentially check on the market just a few times a day.
The best forex trading strategy for day trading is to focus on the 15 minute, 1 hour and 4 hour timeframes. These can provide the relative detail as well as the bigger picture of market conditions respectively.
The best Forex trading strategy for day trading
The best way to begin a day trading session is by checking the 4 hour chart. To see if there are any major trends developing and also how these trends are likely to play.
The next step, would be to identify prices of interest by marking up the key support or resistance levels. Then use the relatively lower timeframes for confirmation to enter and exit trades.
The best forex trading strategy for this style of trading is to trade with the intra-day momentum. Which usually occurs when the Asian session overlaps with the London session. Also when the US sessions begins. More often than not, there is a burst of volatility during these times because this is when most of the world’s trading takes place. So it makes sense to trade with the intra-day volatility that occurs at these times.
The best forex trading strategy for this style of trading is to use price action and candlestick or chart patterns for confirmation. They are prevalent in any financial market and can be seen on a variety of timeframes. They have more weight on the higher timeframes though.
Watch this video to see how this strategy can be applied to day trading the Forex market.
3. Swing trading
This approach to trading typically involves trying to capture gains from the market by holding on to trades for several days or weeks. Swing trading requires less attention to the markets than the previous two styles do. Making it ideal for people who don't have so much time to monitor the charts.
The ideal timeframes for swing traders to monitor are the 1 hour, 4 hour and daily charts. Swing traders primarily use technical analysis to determine entry and exit signals. To try and capitalize on short to medium term price swings.
Swing trading can potentially generate decent returns on the risk and time taken to follow such strategies. But more patience is required if you want to adopt this style. As there are fewer, significant opportunities per week.
The best forex trading strategy for swing traders
Like all other trading strategies, the best forex trading strategy for swing trading needs several components. It at least requires the ability to recognize trends so you can trade in that direction. A signal to enter the market, along with a target or signal to exit. Along with some rules to manage and limit risk.
For trend recognition, moving averages can work well to indicate whether you should be bullish or bearish. The signals to enter and exit can be based on breakouts, support and resistance levels or market structure.
This videos explains a swing trading strategy you can use in more detail.
4. Trend trading
Trend trading, also known as trend following, is a forex trading strategy that attempts to capture gains in momentum over longer periods of time. Essentially, a trader using this kind of trading strategy will be "buying high and selling higher" in an uptrend. Or "selling low, and covering even lower" in a downtrend.
Its not about picking the tops and bottoms. Instead, traders using trend trading or trend following strategies participate once a price trend has been established. With the expectation that the trend will continue.
The rewards can potentially be substantial with this style of trading. Because the price moves can be really big with the ability to scale in to positions. Compared to other trading strategies, trend trading provides opportunities to keep adding more lots for as long as the trend continues.
Best forex trading strategy for trend trading
If you want to adopt a trend trading or trend following strategy, you should gravitate towards the highest time frames.
The best forex trading strategy for this style of trading uses daily, weekly and monthly charts to identify trends the most prevailing trends. Other than this, trend followers can use moving average crossovers and market structure to indicate what direction to trade in.
Here is an example of a complete trend trading strategy. Watch this video to get all the details.
5. Range trading
Range trading is a very simple style of trading. With this type of strategy, traders seek to identify and capitalize on currency pairs trading within price channels. In other words, the price is oscillating sideways with limited drift up or down.
Price ranges can be seen on all time frames, from short term 1 minute charts to long term weekly and monthly charts. The best forex trading strategy for range trading is to identify a price range. Then look for opportunities to buy or sell at the range boundaries, after some kind of confirmation that the price will bounce.
Best range bound forex trading strategy
For instance, if a currency pair is trading within a 50 pip range and there are clear support or resistance areas. You could simply sell whenever the price reacts at resistance and buy whenever price reacts at support.
Markets usually remain range bound for longer than they are trending. So this can be an effective strategy to employ but it all depends on your perspective. Shorter term trends exist within longer term ranges. What might seem like a trend on the 1 hour chart might be price trading within a range on the weekly timeframe.
With that said, range trading also has it's cons. When price breaks out of a range, losses can mount up quickly. So it would then be best to learn how to identify this, cut losses quickly and switch to a trend trading strategy.
6. Carry trading
This strategy seeks to capitalize on the interest rate differential between two currencies within a currency pair. It can be an independent strategy but it usually works better when combined with the trend following or swing trading strategies.
The way this works is by identifying nations who's central banks have high and low interest rates. Then trading those suitable currencies with a high-interest rate differential between them. By going long the currency with the higher interest rate and simultaneously shorting the currency with the lower interest rate, you can earn the positive swap.
Best forex trading strategy for carry trading
To realize maximum benefit from the carry trading strategy, a currency pair should be stable and range bound or trend in favour of the higher-yielding currency. This will allow the trade to accrue daily profit from the swap as well as from the exchange rate movement.
Carry trading comes with exchange rate risk. Meaning that the currency pair could move against you, creating losses that exceed the gains accrued from the swap. However, when it comes to Forex carry trading strategies, there are things you can do to protect yourself.
One of the most important things is to have a stop-loss order in place to automatically close the trade if the price moves beyond a certain point. Also, a trend-following strategy can help increase your chances of the trade moving in your favour over the medium to long term. Trading with low leverage will also help reduce risk and contribute to the potential to profit from this strategy.
The key to carry trading is to get paid to wait for your trade to play out. By holding and accruing swaps over the medium to long term.
7. News trading
News trading is a forex trading strategy that utilizes news releases related to macroeconomics, geopolitics, and market-specific events as the basis for trading decisions.
Forex traders who use a news trading strategy will closely monitor the economic calendar to anticipate significant news releases that might impact currency prices. As well as keeping up to date with the business and economic situation in countries or regions. News, in this case, can encompass a wide range of issues from economic indicators (like GDP, inflation, unemployment rates) to central bank statements, changes in interest rates and geopolitical events.
Best forex trading strategy for trading the news
The idea behind news trading is that significant news often propels currencies in the immediate short-term. That can also cause fundamental shifts in exchange rates over time. Short term traders aim to capitalize on these sudden spikes in volatility. While longer term traders position themselves to capitalize on longer term trends.
The best forex trading strategies for trading news can potentially benefit from these sudden spikes in volatility. But it depends on how they are executed. A lot of preparation and understanding of the economic calendar is required as well as trading currency pairs that could have a significant reaction.
News trading can provide opportunities for profit, but it also has its own risks. Particularly for those not experienced with fast moving markets and the slippage this style of trading can cause may come as a surprise.
if you are interested, watch this video for practical strategies and tips for trading the news.
This article covers the different styles of trading and has provided you some tips and the best trading strategies for each. You can choose to focus on one particular style or another. Or you can use different strategies together to create something more personalized.
The best forex trading strategy will always be subjective. The right strategy for you may not be the right strategy for someone else. The key here is to find a style that works well with your personality and goals and helps you achieve them.
Risk disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Never deposit more than you are prepared to lose. Professional client’s losses can exceed their deposit. Please see our risk warning policy and seek independent professional advice if you do not fully understand. This information is not directed or intended for distribution to or use by residents of certain countries/jurisdictions including, but not limited to, USA & OFAC. The Company holds the right to alter the aforementioned list of countries at its own discretion.
Experienced independent trader
3 AI Stocks to Watch Right Now in 2024
As more companies are using AI in their products and services, there are a few standout market leaders: NVIDIA, Alphabet, and Microsoft. These 'big three' are pioneering new AI technologies a...
NFP Trading Strategy: Capturing NFP Momentum
NFP trading strategy that actually works when trading the Non-Farm Payrolls (NFP) report is what most Forex traders seek after. In this article we will provide you with a strategy that has si...
Exponentially Weighted Moving Average Strategies
The Exponentially Weighted Moving Average plays a crucial role in Forex trading by enabling traders to identify market trends more effectively. Unlike simple moving averages (SMAs) that treat...
Trade responsibly: CFDs are complex instruments and come with a high risk of losing all your invested capital due to leverage.