The global forex market grew to an incredible $2.409 quadrillion in 2019, as it continued to welcome more traders and higher trading volumes from across the globe.
However, the volatility and margin-based nature of this market creates sizable challenges for traders. With this, there’s no doubt that the most successful investors are those who operate with a clearly-defined and tested strategy.
Below, we’ll look at the importance of forex trading strategies, while appraising the three most popular iterations in the digital age.
Why are Forex Trading Strategies Important?
Ultimately, it’s the depth and complexity of the forex market that makes the need for a viable trading strategy so pressing, with a number of fundamental factors likely to impact on your success within the marketplace.
You’ll need to trade according to a predetermined time-frame. For example, as you can execute orders based on 15-minute charts (or even shorter) and weekly charts depending on your trading style and underlying philosophy.
The number of viable trading opportunities is another key consideration, as you’ll need to think about how much time you spend trading and how many positions you’re inclined to open within any given time-frame.
Then there’s the actual position size, which has a direct impact on your risk settlement and potential returns. Although you can open and control relatively large position sizes thanks to the margin-based nature of forex, this can also cause losses far in excess of your original deposit if you’re not careful.
While these considerations can be challenging for investors, it’s possible to control them all as part of a comprehensive and wider forex trading strategy.
This can also be controlled by trading platforms such as the MT4, enabling you sustained and real-time access to the forex market and a direct method of controlling and mitigating risk.
The 3 Top Forex Strategies
This brings us neatly onto the best and most popular forex trading strategies in the modern age. We’ve outlined these below for your attention:
Let’s start with forex scalping. Forex scalping is a popular trading strategy that’s focused on a higher volume of smaller market price movements.
In practical terms, this strategy involves opening a large number of trades in a bid to achieve small profits through each one. As a result, scalpers are reliant on generating a large profit through a series of smaller gains, while they must also succeed by capitalizing on the market’s innate volatility.
The downside here is timing, as scalpers simply cannot afford to stay in the trade for too long. Additionally, this requires a great deal of time and attention, while you’ll constantly have to analyze charts to identify the best opportunities.
2. Day Trading
While day trading may be similar to scalping, investors can thrive through a smaller number of positions opened during each 24-hour session.
While it’s an applicable strategy in all markets, it’s most synonymous with forex and requires traders to hold on to positions for no longer than the duration of a single day.
If you do leave a position or two open overnight, this will increase your exposure and maximize the risk that you’re facing. So, you’ll need to be vigilant when day trading, while mostly using 30-minute and one-hour time-frames to generate opportunities.
3. Position Trading
We close with a long-term trading strategy, and one that’s diametrically opposed to scalping and (to a slightly lesser degree) day trading.
With this strategy, you choose not to focus on minor market fluctuations, and instead pay attention to the broader market picture while holding onto open positions for an extended period of time.
Position traders are likely to monitor central bank monetary policies and decisions when executing orders, while macroeconomic and geopolitical factors will also help with the identification of cyclical trends.
Position trading strategy is driven by quality rather than quantity. This is as a result of the fact that position traders may only open a handful of positions each and every year.