/ Top six best Forex trading strategies

Choosing a Forex trading strategy is the first step to successful trading. There are several factors at play here, but taking the time to really evaluate which ones will work for your situation will allow you to maximize your trading profits. Even if you don't choose one of the following Forex trading strategies, you can still expand your knowledge of the market by understanding them. For example, you may prefer a Forex strategy based on scalping, but it is useful to understand that market conditions favor momentum-based Forex strategies. Below are some of the most popular and effective Forex trading strategies. These strategies are ranked according to the time it takes to implement them, with the most time-consuming strategy at the top of the list. 

Scalping

Before we look at, all of these strategies in more detail, it is important to briefly review the nature of the Forex market. The volume of Forex trading that takes place every day is enormous. Some currency transactions are based on the fundamentals of economic activity, such as selling US dollars to buy euros so that an American customer can buy a Mercedes-Benz in Germany. Speculators also play a role, and even small transactions increase trading volume in the market. Market liquidity occurs when millions of buyers and sellers participate in the same market and trade at the same price changes. Liquidity is an important factor and scalping, which involves trading short-term price fluctuations, works better in markets with high liquidity.

Scalping is an effective Forex trading strategy that involves trading short-term price fluctuations. For no particular reason, this strategy is often associated with small trades. Many inexperienced traders are attracted to the scalping strategy. This strategy is very intense and requires a large number of regular trades. This means that you spend a lot of time watching market movements and trading monitors and that you learn a lot about yourself, both good and bad, in a very short time. Often the goal is to make a small profit. This is accomplished by opening and closing several positions throughout the day. Positions can be directional, buy only or sell only, or a combination of the two. Scalping can be done manually or with the help of an automated trading program, in which the algorithm determines the trading instructions. The manual approach may be easier for beginners, but learning some algorithmic patterns can also be helpful.

Trend trading

One of the simplest Forex trading strategies is to recognize a trend and follow it. This strategy is used by traders with any level of experience. Strategies such as Blue Trend from hedge fund BlueCrest Capital brought investors billions of dollars in profits during the 2008 financial crisis. The company's computer algorithms recognized medium- and long-term trends. You can also bet on short-term trends by using minute charts to achieve the same effect as using daily charts. One of the basic tips for recognizing Forex trends is that higher highs and lower lows indicate a bull market and vice versa for a bear market.

Stop losses are usually set wider to avoid liquidation of positions. Stop losses can be lowered gradually to avoid profit taking. After all, as they say, the trend is your friend until the end. Beginners often make the mistake of trading short-term price reversals, i.e. corrections. Trading corrections can be profitable, but it is more profitable to acquire the skills necessary to follow the trend rather than go against it.

Day trading

Strictly speaking, in day trading, all positions are closed at the end of the trading day and there is no risk of seeing a large loss in the morning. The characteristics of this strategy evolved from day trading in the stock market. Stocks traded on exchanges such as NASDAQ usually trade between 9am and 5pm. The price fluctuations between the previous day's closing price and the next day's opening price are significant and beyond the investor's control.

Although the foreign exchange market operates 24/5, the principles of day trading apply to the foreign exchange market as well. Day trading is a pure approach, which reduces risk. Therefore, this strategy requires some investment of time and resources, but provides some flexibility. In day trading strategies, a trade is opened at the beginning of the session and closed before the end of the session.

Copy trading

It should be noted that the final strategy should be customized to the specific situation. Copy trading involves using another trader's trading instructions and applying them to your own account. This type of trading is becoming increasingly popular. Many strategies use technical analysis, which may not be as effective when the market is in turmoil: moving averages, trend lines and oscillators are less effective when FOMO (fear of being left behind) or a “buy because the price is going up” mentality prevails. This can cause moving averages, trend lines and oscillators to be less effective.

Range trading

Prices do not fluctuate linearly, and range trading is trading price fluctuations within a certain range. This strategy works well in markets with low volatility. If the direction of medium to long term price fluctuations is not yet clear, prices may move sideways. The most important tool in this strategy is technical analysis. Other indicators can also trigger a trading range. There are times when the market is sluggish, such as during the summer months when many institutional investors are on vacation. In the US in particular, public holidays are traditionally a sign of market volatility, while in other parts of the world, large US investors are at work waiting for the market to decide on a direction. When using a range trading strategy, the goal is to make sufficient profits within the trading range and set a stop loss tight enough to minimize losses when the inevitable breakout occurs.

Carry trade

Carry trades predict currency movements based on the interest rate policy of a country's central bank. If the Bank of Japan is expected to cut interest rates, speculative money will flow from the yen to other currencies offering more favorable rates.

For example: The Bank of Japan has currently imposed a negative interest rate (-0.1%) while the Bank of Australia has imposed an interest rate of 0.25%. The Japanese economy is suffering from long-term deflationary pressures, while the Australian economy, particularly the real estate market, is seen as presenting inflationary risk. The continuous nature of central bank statements means that this strategy has a longer holding period. Some positions are held for weeks, months and even years. This allows the flow of funds from one country to move to another and be reflected in exchange rate movements. 

Conclusion

Whichever method you choose, be consistent and make sure your approach is adaptable. Your approach should change as market dynamics change. You may have a favorite strategy, but if market conditions don't suit it, you may prefer not to trade at all or use a different strategy.