A forex trading strategy can bring in multiple benefits, such as keeping yourself focused and disciplined and providing insights into where to buy and sell currency pairs. Although there is no forex trading strategy that is better than the rest, they are still not all equal in the sense that some strategies might be better suited to specific situations than others, so it’s important to understand when to use each strategy to maximise your success.
In this comprehensive guide, we delve into what forex trading strategies are in place and how to utilise them:
Table of Contents
Forex Scalping Strategy
Forex traders who prefer a short-term trading strategy or prefer to capture multiple price movements would thrive with a scalping strategy. It is essentially trading that is only open during specific times of the day. You have your choice of roughly 80 major stock exchanges so if you really wanted to break it up, you could spend an hour in the morning or a few hours in the evening. If you are a night owl, you have the option to trade until the sun comes back up.
It’s an option for those who thrive on flexible hours and enjoy the extra freedom that comes with trading.
Scalping is usually appropriate for people who can commit time to the higher-volume trading windows and stay focused on these quick trades. They usually take place at these times:
- 8 a.m. – 12 p.m. UTC+O time (New York and London exchanges are open)
- 7 p.m. – 2 a.m. UTC+O time (Tokyo and Sydney exchanges are open)
- 3 a.m. – 4 a.m. UTC+O time (Tokyo and London exchanges are open)
Forex Day Trading
If you want to trade for short periods but feel more confident because of the scalping strategies’ fast-paced nature, day trading tends to be a short burst of trading similar to scalping but provides a slower version of it. This might be better for beginners, as scalping is fast-paced and a lot is going on. You might be more susceptible to forex scams and silly mistakes. This usually only entails one trade per day, never occurs overnight, and any loss or profile is the consequence of intraday fluctuations in the price of the associated currency pair.
Forex Swing Trading
Swing trading is a type of intermediate-term trading wherein positions are held for a few days. The objective is to capitalise on price fluctuations by determining a trend’s “swing highs” or “swing lows.” When using this strategy, you run the risk of overnight disruptions or gapping, even though it usually requires less time spent watching the market than day trading.
If you don’t have a lot of patience and want quick wins, then this one isn’t for you. It’s a combination of day trading and position trading, which we will get into now.
Forex Position Trading
The phrase “patience is a virtue” applies to this trading style because you are less concerned with the short-term and more with the long-term goal. Position traders hold forex positions for several weeks, months, or even years in the hope of reaping the rewards for their patience. The goal of this strategy is to see the currency pair’s value increase over time.
Forex position trading is best suited for those who are unable to devote hours each day to trading but have a strong understanding of market fundamentals. Therefore, it could be a useful solution if you have some extra cash you want to make into something big for your retirement. While you will need to have more than a basic understanding of trading, it will be worth the effort at the beginning.
Carry Trade in Forex
Purchasing a higher-interest currency pair by borrowing from a lower-interest currency pair is known as a carry trade. Depending on the pair you are trading, this strategy may or may not be beneficial. The objective is to make money off of the “interest rate differential,” or difference in interest rates, between two foreign currencies.
Final Thoughts
Figuring out which trading strategy works best for you might come through trial and error, but it is good to know all of the strategies just in case opportunities arise, although be sceptical of any hot tips because they could lead to a hyperverse scam, which is a disaster you want to avoid at all costs.