With the growing popularity of forex trading, a lot of beginners are stepping into the global currency market. Once you start exploring the world of trading, you will get to learn many things and gaining knowledge is essential to kickstart your trading journey. You need to get familiar with trading platforms, forex tools, and more before becoming a trader. Having the right set of tools such as trading calculators allows us to carry out trading with greater ease as we get quick results for any trade-related calculations. But in order to make the best use of these tools, you need to choose a suitable strategy that can be followed to make profits in the dynamic forex market.
This article will help you in making a wise choice as I am about to tell you about the 10 best forex trading strategies that are tested and proven to be profitable.
- Carry Trading Strategy
Usually, all forex strategies are focused on making profits from the fluctuations in exchange rates or in other words, the gains depend on the number of pips by which the currency pair price moves during a trade. It is important that the movement happens in the same direction that you had anticipated or else you will encounter a loss. But carry trading is different as you are not trying to make profits from the changes in the value of currencies.
Instead, you will be making a profit from the interest rate differential between two currencies in a pair which is referred to as swap. This is done by buying a currency having a higher interest rate while selling one with a lower interest rate. You get to make profits by holding the trade for an extended duration, collecting the positive swap that gets credited to the trading account balance. If you want to know how much profit you have made in your own currency, then you can easily do that with the help of a profit calculator, which gives accurate results within a second.
- Forex Arbitrage Strategy
In this strategy, traders make profits from the price difference that exists between brokers. The same currency pair will be sold and bought at different prices when you trade with different brokers. Because the spreads charged by brokers will be different and this can be seen in bid and ask prices. Traders think that the prices will eventually converge and they make a profit before that by opening different positions in the same currency pair with different brokers and closing the trade to gain from the disparity in prices.
- Multi-Timeframe Trading Strategy
In this strategy, you will be analyzing the market through technical analysis by using multiple timeframes. Traders who follow short-term strategies don’t really consider longer timeframes and only focus on finding trade setups by analyzing charts with shorter timeframes. But when you consider short and long timeframes, the analysis will be more accurate and help you make better trading decisions. Beginners should always start trading with longer timeframes as trading with shorter time frames tends to be more complex in comparison.
- Forex Hedging
Hedging is a strategy in which you open two positions in opposite directions to offset the risk of the first trade. Hedging can be very effective in the forex market as the currency price movements can be unpredictable at times and risk management is essential for limiting the potential losses. When you are hedging, you can either hedge with the same currency pair or different currency pairs that are correlated. You can also hedge using derivatives like options. When you are trading pairs that have a different base currency, You can also use tools like currency calculators to find the value of one currency in your account base currency.
- Forex Scalping
Scalping is a strategy in which you enter and exit trades within a few minutes as you try to make small profits from the price movements that happen in a currency pair. The target profit for a single trade will only be a few pips as scalpers focus on the minor fluctuations that take place in shorter time frames. You will be executing multiple trades to make enough profits and this fast-paced strategy requires both speed and precision. Scalping may look easy on the surface but only skilled traders can succeed as scalpers in the long run.
- Fair Value of Forex Pairs
In this strategy, traders will be looking at the fair value of currency pairs by assessing the strengths or weaknesses of different currencies based on economic data and indicators. This is done by comparing the two currencies in a pair based on the GDP, inflation rates, unemployment and more that reveal the state of their economies. For instance, the fair value of GBP/USD will be decided after considering the CPI of both the UK and the US as it tells you about the level of inflation in both economies. The interest rate policy of BOE and Fed will also be taken into account.
- Forex Fibonacci Retracement Strategy
This strategy is dependent on the Fibonacci numbers and points as you make trading decisions after considering the trend, pullback, or retracements seen on the chart. The retracement can also be referred to as a breakdown and techniques like breakout trading involve the use of Fibonacci retracement tools and indicators. Fibonacci levels are used by mathematicians and thus this strategy allows you to make sound trading decisions with added precision.
- Price Action Strategy
Price action strategy is a simple approach to trading as you only rely on the primary data that you get from the charts without using any advanced indicators. Because of this, this strategy is also known as naked chart trading. But you can still use simple indicators like Moving Averages to identify the key support and resistance levels with ease. This strategy is based on the belief that the price movements will reveal everything about the market and there is no need to consider any other data.
- Divergence Forex Strategy
This strategy involves divergence indicators like Moving Average Divergence and Convergence (MACD). This indicator is more helpful than MAs as they also consider the divergence and convergence for confirming the emergence of trends. If you see the price of a currency pair moving up by breaking the higher highs along with higher lows, this suggests an uptrend as the market sentiments are bullish. But if there are lower highs and lower lows, then there is bearish market sentiment which might result in a downtrend.
- Horizontal Price Channel Forex Trading Strategy
This strategy is suitable for trading in a range-bound market with a horizontal price pattern. This is also referred to as a sideways trend which is seen in the absence of a clear uptrend or downtrend. A horizontal channel appears like a rectangle pattern as the buying and selling pressure is almost equal and the direction of the price action is sideways. If the price starts breaking the range or moving above the horizontal channel an uptrend can be expected.
In The End
To conclude, the top 10 strategies listed here are followed by many forex traders but you need to choose one that perfectly aligns with your goals and trading style. There is no right or wrong strategy in forex and the success rate depends on your skill level.
