Forex Trading Strategies
In this article
Did Caesar invade Gaul without a strategy? No, he was a cunning general and strategist and you need to be the same if you want to win your battles in the markets. The difference between winning traders and losing traders is their ability to execute profitable forex trading strategies. Good luck and a feel for markets will only win you a few skirmishes, turning that feel and knack into a system will win you the war and make you an economic powerhouse.
Just like a war involves many battles, and a marathon involves many steps, you need to plan and pace yourself if you’re going to still be standing at the end.
Different types of forex trading strategies
There are forex trading strategies to suit each and everyone, whether you only have 30m a day to position for long-term trends, or whether you have a few hours to scalp the market for all its worth, there is a trading strategy that will work for you if you are committed to profitable trading
Trading forex with a trend-following strategy
Trend-following strategies are a long term strategy and are one of the oldest and consistently profitable trading strategies and they work just as well today in forex as they did in the stock market 100 years ago. Don’t mind the bend, just follow the trend.
Trend-following strategies are perfect for new traders as they require very little mental effort, you’re not trying to outsmart the market, you’re just following it. If you have just one hour or less per day to trade, trend-following strategies are perfect and you can not go past the tried and tested moving average cross.
Trading forex with swing trading strategy
Swing trading is where a lot of traders start out without thinking about it and can generate some serious profits for traders who have honed their edge and developed a knack for picking reversals. Swing trading is a medium-term strategy with trades lasting anywhere from a few hours to a few days.
One of the most popular swing trading strategies is the RSI divergence strategy, though this strategy is not 100% reliable, when you nail an RSI divergence trade, you really nail it, selling the exact top or bottom.
Forex trading strategies: scalping
Scalping is similar to swing trading but you will be working on much lower time frames and performing lots and lots of trades. This kind of trading is high intensity, mentally taxing and probably best left to you have the requisite experience and cojones.
In order to generate reasonable profits scalping, you will need to employ lots of leverage and you will need to stick to your rules like super glue, giving back all your gains with one mistake a distinct probability if you don’t know what you’re doing.
Scalpers will generally use the same kind of strategies and indicators as swing traders and may also take trades based on pure price action.
Scalping can be incredibly profitable and is one of the only ways to make a full-time income with a small balance, chances are you don’t have what it takes yet, but if you’re up for a challenge, have a go with money you’re happy to lose – start small and scale up your size once you’re confident.
Backtesting your FX trading strategy – manual or auto?
Whether you’ve found a trend-following, swing trading or scalping strategy that looks great, you need to put the idea to the test. This is done via backtesting – seeing how the strategy would have performed in the past.
Manual backtesting is very easy to do, though it’s time-consuming and requires an objective view – when you’re scrolling back through your charts manually backtesting, profitable signals will leap out at you and you may totally ignore the times your signals were utter tripe or led to huge losses. Manual backtesting is essentially the bare minimum due diligence you should do before taking a strategy to market.
Backtesting using automation is hands-down more reliable than manual testing as subjectivity is eliminated, though you once needed to learn MQL4 to backtest, Tradingview’s pine is much easier to learn than any spoken language and a small time investment in this self-education will pay off exponentially. A good starting point for learning Pine is basic indicator tutorials, these take no more than 10-15m and will have you on the road to Pine wizardry in no time.
Whether testing manually or automated, all backtesting should be taken with a grain of salt, market dynamics constantly ebb and flow and what worked well for the past few years may be a terrible strategy when the paradigm shifts. Regardless, if your strategy doesn’t work in backtesting, it is never going to work in live trading.
Back your strategy, back yourself
There are hundreds if not thousands of profitable forex trading strategies out there on the web if you don’t know where to start. Finding a profitable forex trading strategy is actually incredibly easy – the hard part is believing in your strategy and believing in yourself. If you know your strategy works, follow it like a lemming, even if it looks like you’re about to walk off a cliff.
All strategies have winning streaks and losing streaks, study these cycles in your backtesting and prepare yourself for experiencing them in live trading. Master your strategy, master yourself, master the market.
Jason Morgan is an experienced forex analyst and writer with a deep understanding of the financial markets. With over 13+ years of industry experience, he has honed his skills in analyzing and forecasting currency movements, providing valuable insights to traders and investors.
Forex Content Writer | Market Analyst