Finding a profitable forex trading strategy is one of the most important things in currency trading. But it is hard to find the right and appropriate forex trading strategy. Different traders follow different strategies to make profit in the market. In general, there are some strategies that seem to be profitable for many traders in the forex market. In this article, you will get to know about the top 5 profitable forex trading strategies that would boost your earnings in the currency market.
How would you find profitable forex trading strategies?
When we say “Profitable”, we certainly clear our intention of trading, although every trade is intended to make money. When we emphasize ‘profitability’, we don’t want to lose a penny. However, there are different factors in the forex trading market that are connected to forming a profitable forex trading strategy. In this procedure, there are three key aspects that should be taken into account.
Period of time
It is important to choose to time for your trading. There are different types of traders out there who trade based on their trading strategies like long-term or short-term trading. The short-term traders mostly trade on shorter times like 30 minutes to an hour. While the swing traders who mostly trade based on a long list of data and charts follow and monitor the market for many hours or even days before the trade.
When you think of making your own trading strategy, you need to decide first how often you’re going to open your position. If you’d like to start a large number of positions, a scalping trading strategy is a way to go. The traders who go through the analysis of microeconomics reports and fundamental factors are seen to spend less time in front of the monitor, following the charts.
Finding the appropriate trade size
Finding the appropriate trade size is very important in forex trading. With the trade position, there also comes the risk management strategies to be enabled simultaneously. If you choose a big trade size, it’ll eventually be risking you to a bigger loss. So make sure, you’re setting the trade position accordingly.
The Forex Trading Strategies
Now as you already know the factors that might help you to make a well-structured forex trading strategy, now let’s move onto the strategies right away.
- Day Trading
Day trading in simple terms means trading currency in a single trading day. Unlike any other trading market, day trading is vastly popular in Forex trading. Day trading may be a potentially gratifying experience if done correctly. However, it might be difficult for beginners, especially if they aren’t completely ready with a well-thought-out plan. Even the most experienced day traders might run into problems and lose money if they don’t make a proper plan for it.
The day traders monitor and manage their open deals throughout the day. They are also highly aware of the factors that drive short-term market fluctuations. Trading on the basis of news is a common strategy. Market psychology and expectations impact scheduled releases such as economic statistics, company earnings, and interest rates. When such expectations are not fulfilled or surpassed, markets respond with quick, large swings, which may be very beneficial to day traders.
Scalping in forex is a commonly traded method that focuses on tiny market changes. This method involved opening a significant number of trades in the hopes of making tiny returns on each of them. For example, if you get 10 to 15 pips per trade-in scalping, the profits on the trades can be increased by raising the position size.
Scalping in forex can be accessible both in manual or in an automated way. In the manual system, the traders have to sit for hours in front of the computer screen and search for indicators to decide whether to buy or sell. But the automated system is totally different and time-saving. In the automated system, an algorithmic program is set in software to find when to buy or sell according to the input a trader sets.
- Position Trading
Traders who take long-term positions in the trading market are known as position traders and this holding position while trading is called position trading. Unlike day traders, position traders are inactive in trading. A position trader does the investment with the intention of it increasing in value over time. Position traders are also known as trend followers. They identify a trend with proper research, then buy and hold the investment until the trend touches its peak.
If you don’t have a long investment plan or manage your living by trading, position trading is not for you. Position trading is mostly for the bull market which has a strong trend and doesn’t lend itself to the bear market. Traders or investors must adapt their trading styles to their particular objectives, and each style has its own set of advantages and disadvantages.
- Swing Trading
Swing trading is the activity of striving to benefit from market fluctuations that last anywhere from one day to many weeks. Swing trading may be lucrative and give an excellent viewpoint to learn about both short-term and long-term market movements if losses are maintained to tolerable levels utilizing stop-loss strategies.
There are different techniques to take advantage of market swings. Many traders choose to trade according to the confirmed change of direction and momentum, while others may choose to trade long in the market with the drop of the market into a lower price.
- Carry Trading
A trading strategy of borrowing money at a low rate of interest and investing it in a greater asset is called carry trading. This strategy is quite popular among the traders in forex, but it is mostly suited for the experienced individual trader or institutional investors who can absorb the consequences of potential risk.
In the forex market, it’s the leverage that is the key to bring money with carrying trading. For example, if you want to borrow $1,000,000 from a bank at an interest rate of 1%, you need to require the cash collateral of $10,000 though you’ll get the money back to you once the loan gets approved. You deposit the money to a savings account of another bank that is willing to give you a return of 5% interest. So after a year, you make a profit of $40,000 which is 400%!! That’s how to carry trading works.
Forex trading strategies may change from one individual to the next depending on their philosophy, trading tactics, and other factors, but the above-mentioned trading strategies have proved to be profitable for millions of Forex traders.