What are the best forex trading strategies?

What are the best forex trading strategies? Image credit: AdobeStock
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South Africa has the most active Forex community on the continent. The daily volume is a staggering $20.3 billion! Popular FXTM Forex trading strategies help millions of people make money, but which one is the best?

  1. Choose Suitable Timeframes

Not every trader is keen on hectic action. You may open and close all positions quickly, or leave them open overnight. Whatever your perspective, timeframes are a decisive factor.

The most popular software accommodates all styles. For example, MetaTrader 4 has nine timeframes, from 1 minute to 1 month. You may scrutinize market movements of any scale. For instance, scalpers are interested in briefest changes. They often use 15-minute or even 1-minute charts to spot good entry opportunities.

Meanwhile, swing traders do not fret over tiny fluctuations. Most often, they examine weekly dynamics, paying attention to daily changes and 4-hour shifts as well. To conclude, begin by identifying the optimal pace of action. How long are you going to stay in a trade?

  1. Choose Trading Frequency

How many positions are you going to open daily? The Forextime broker provides free educational resources, so you can make an informed decision. For instance, if you perform well under pressure, consider scalping. You will execute multiple trades, dipping in and out of the market throughout the session.

Traders who chase fundamentals take a long view. They concentrate on macroeconomics — events covered in the media. As a result, their trading is less frequent, and price charts are not the core analytical tools.

  1. Calibrate Position Size

How much currency will you trade at once? The bigger the volume — the higher the risk. Thus, look for the optimal balance. Most experts will advise you to risk 1% of overall capital per trade. Therefore, if there is $50,000 in your account, it is reasonable to limit position size to $500.

Risk tolerance should not be a variable. Do not go over the allowed threshold. You may only lower it — for instance, to 0.5%. In general, volumes are high when the frequency is low, and vice versa. Scalpers make a bit of profit on multiple trades. For them, quantity beats volume. Now, let’s examine this strategy in detail.

How Scalping Works

In scalping, trades are short-lived. A position is active for less than an hour — sometimes, a few minutes. On a good day, modest profits accumulate, bringing a decent total. The strategy is highly stressful, as you need to make quick decisions and monitor the charts closely.

Scalpers are attracted by liquidity and volatility. They choose markets where finding a match is the easiest. The prices are relatively changeable, so you may capitalize on short-term swings. The average profit target for each position is 5 pips.

How Day Trading Works

As you may guess, positions are opened and closed within the same day. They never remain open overnight. Day traders avoid overnight charges, but their style is still quite intense. This method is feasible in all financial markets, including stocks and derivatives.

Finalizing positions before the market closes limits your risks. Besides, you may neglect the smallest changes. Generally, day traders choose 30-minute or 1-hour frames. They work during the day, keeping an eye on the markets.

Risk is also viewed differently. The general limit of 1% holds, but you may also risk no more than 3% of capital per session. Unlike scalpers, day traders are more likely to use fundamentals. Instead of searching for Hammers or Morning Stars, they focus on financial news. Changes in oil prices, GDP, geopolitics, interest rates, etc. help them foresee trends.

How Position Trading Works

Position traders need the longest time frames. They also focus on fundamental factors and cyclical trends, overlooking quick shifts. This style is most appropriate for huge volumes, as you may limit your action to several trades during the year.

You could open a position and wait for months until it plays out. Clearly, this method requires a lot of self-control. However, profit targets are spectacular — often, several hundred pips per trade.

Should I follow Only One Strategy?

In Forex, learning is a life-wide process. No strategy is guaranteed to bring returns. Choose a style that suits your own risk tolerance, goals and resources. What works for someone else may not work for you. Try popular strategies in the demo mode and build the necessary habits. Keep a Forex trading journal with parameters of every move. If a style feels too stressful or brings unsatisfactory results, try something else.

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