Forex is one of the largest financial markets in the world, with millions of traders entering the space daily. Unfortunately, while only 10% of traders manage to make money, the remaining 90% end up losing their hard-earned capital rapidly. The reasons are obvious, i.e. not following sound forex trading strategies.
New traders often try their hands in social trading or copy trading without realising that each trader and their forex trading strategy is unique. While a trader can generate short-term profits through copy trading, there is always a need for a unique forex trading strategy to generate long-term wealth.
But forex trading strategy may sound complicated to some investors, right? Sounds like it is reserved for the ‘professionals’ and not for a ‘commoner.
In reality, forex trading strategies may sound complicated but easily understandable if someone sacrifices their time.
To learn forex trading strategies, you do not have to be a seasoned trader, technical chartist or fundamentalist. In this article, we will discuss the top advanced forex trading strategies for beginners.
What Is Forex Trading?
Forex trading is a process of buying and selling foreign currency pairs such as USD/EUR, EUR/GBP and others to make profits or hedge against unfavourable exchange rate fluctuations.
Forex traders could speculate and trade on currency price fluctuation between two currencies to profit in the forex markets. The rise and fall in these markets create daily price movements that offer profit-making opportunities to a forex trader.
A forex trader makes choices based on their forecast of future trade flows related to demand and supply and predicts the future direction of a particular currency pair. For instance, a trader will buy (sell) or take a long (short) position if they deem the value of a specific country of the base currency will rise (fall).
However, the skill of forex takes time and experience to develop. A trader will need a combination of fundamental and technical analytical skills and knowledge of factors that influence price movements in a currency.
What Is Forex Trading Strategy?
A forex trading strategy is a type of financial strategy that helps the trader in deciding the right time to buy or sell a currency pair. It broadly involves understanding the basics (economic data, market environment) and technical (trends, breakouts) factors. Some of the advanced forex trading strategies include Hedging, Scalping, Price Action Trading, Position Trading and Day Trading.
What Are The Advanced Forex Trading Strategies?
The answer to this question probably does not exist as the success of the strategy depends on various factors. Forex trading strategies differ from trader to trader, and what might work for James might not work for John. The primary factors to consider while choosing the best forex strategy include:
- Time Horizon: Determine whether you’re a short-term, medium-term or long-term trader.
- Your Risk Appetite: How much risk you can afford?
- Your Trading Style: Decide whether you want to place short trades or like to hold.
Top 9 Advanced Forex Trading Strategies For Beginners 2022:
There are plenty of advanced forex trading strategies for beginners; however, finding the best takes your time and experience.
Hedging is a risk management strategy that forex traders could use while currency trading to mitigate risk by taking two opposite positions on one currency pair. This involves simply initiating a long and a short position on the same pair. Professional traders sometimes use two different currency pairs to make one hedge, but that is an advanced forex trading strategies.
For example, Sam, a forex trader, decides to short the US dollar against the Swiss franc (USD/CHF). However, after some time, Sam believes that the US dollar will strengthen, and the short may cause him to lose money rapidly. Hence, he decides to undertake a balancing act.
He observes that the EUR/USD pair moves inversely opposite to the USD/CHF. If the dollar strengthens, the EUR/USD is likely to move downwards.
Hence Sam takes a short trading position in the currency trade. With effective risk management Sam can cut the losses on his USD/CHF position and meet his profit targets with the EUR /USD trade
Position trading is a forex trading style that involves holding a position in currency pairs for a long time. It has perhaps the most extended holding period compared to other trading styles. The holding period may differ from a few weeks to years. Position trading is an extreme contrast to day trading since short-term price action and market corrections in exchange rates do not influence a position trader.
Conversely, for this reason, position trading has some risks. First, an unexpected reversal in exchange rates could lead to significant losses. Secondly, the capital of the forex trader is locked in for an extended time. Hence it is less liquid.
In Forex, scalping involves making short-term trade for a few pips, usually using high leverage. Forex traders generally do scalping in concurrent market news releases and favourable technical conditions. The time horizon for scalping could range from a few seconds to hours. Many traders begin their forex trading with scalping since it does not take long to realise if a particular trade is a losing trade.
Despite scalping being risky, it is one of the best forex trading strategies; the risk involved is disproportionately higher than the potential reward. Therefore, it is recommended by advisors to use forex scalping as a secondary trading strategy that should be used in combination with the overall primary trading strategy.
Swing trading aims to exploit the upward and downward “swings” in asset prices. In the forex market, swing trading is used by forex traders to buy and sell currency pairs. Swing traders rely on complex technical indicators and advanced foreign exchange tools such as Fibonacci retrenchments, candlesticks, and T-line trading charts. They use these indicators to identify if the currency pair possess momentum and identify when would be the optimal time to enter or exit a trading position.
The time horizon for swing trades may vary from a day to a few weeks. Swing traders seek to secure small wins within a bigger overall investment trend. For example, other traders might wait for five months to gain a 25% profit, whereas swing traders could make 5% gains weekly, consequently exceeding the other trader’s profits over the long term.
Price Action Trading
It is one of the advanced forex trading strategies as it allows traders to study the historical patterns and determine the support and resistance levels. Afterwards, they place trades near support and resistance levels, and an upward or downward rally leads to profit.
The strategy works well in all market conditions, whether range-bound or volatile. It can be used across all time frames, i.e. short-term to long-term. The versatility of price action trading makes it the best trading strategy for professionals.
Range trading is among the most popular forex trading strategies. Range trading simply refers to trading in ranges. In this strategy, the trader identifies strong support and resistance levels and then trades between these ranges. Range trading is best for stable currencies and less volatile to sudden news breakings.
A support level refers to the bottom level where prices will stop falling and reverse.
The resistance level refers to the top level around which the prices will halt, moving upward further and reverse.
Trend trading is probably one of the most advanced forex trading strategies. The ultimate goal is to find a trend. A trend refers to the expectancy of prices continuing to go up or down continuously. An uptrend means the consistent upward movement of exchange rates, whereas a downtrend means the consistent downward of exchange rates.
In trend trading, the trader determines whether there is an upward or downward trend and then selects an entry point to intensify profits. The strategy is broadly affected by inflation, interest rates and government policies.
The three simple basics of trend trading are:
- Bullish trend
- Bearish trend
- Wait & watch
Day trading or intraday trading refers to opening and closing trade positions on the same day. The trades can last anywhere between a few minutes to a few hours to a whole day.
The strategy doesn’t depend on the fundamentals of the economy. Instead, the concept is to speculate whether the exchange rate will go up or down and place your trade accordingly.
Carry Trade Strategy
Carry trade is emerging as one of the best forex trading strategies, which works on the ‘buy low- sell high principle. The currency with a low-interest rate is referred to as funding currency, whereas the currency with a high-interest rate is referred to as asset currency.
In asset currency, traders (buy) borrow the funding currency and take short positions (sell). A carry trade strategy can be helpful when the central banks plan to raise their interest rates. The most renowned carry trade currency pairs include AUD/JPY & NZD/JPY, as their interest rate spreads are pretty higher.
The Forex market can be attractive for traders. Forex traders can open a trading account with as little as $100 and earn lucrative returns. However, the rewards come at a risk. The majority of retail investor accounts that trade forex loses money. Only a minority percentage can hit their profit targets and become successful traders in the currency trading markets.
The article explains several tools and advanced forex trading strategies that retail traders could apply. But the most critical factor that makes one a successful trader is assessing all options objectively while making a trade. It requires exceptional trading discipline, patience, and risk management. Advanced forex trading strategies involve using market movements to your advantage.
One should be able to make profits and control losses. Many professional advanced traders give the following investment advice; “avoid taking big losses until you stumble into a huge winner”. Unfortunately, most traders end up losing money rapidly because they gamble their trading capital rather than making an informed decision. Hence, when the million-dollar trading opportunity appears, traders have no money left for day trading/investing.
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Risk Warning: CFDs are complex instruments; hence one should take investment advice before indulging them. CFDs are leveraged products that do possess high risk. Retail traders must educate themselves regarding the products or risk making money-losing trades.
What Is Best Strategy For Forex Trading?
Forex scalping is probably the best trading strategy, focusing solely on minor market movements. This strategy refers to opening a large number of trades in a bid to generate small profits per trade.
What Is The Most Profitable Forex Pair To Trade?
EUR/USD is the most traded forex pair on the forex market, making up 24% of daily forex trades.
What Is The Easiest Forex Strategy?
When it comes to the easiest Forex trading strategy for beginners, Day trading s probably the best choice.
What Time Of Day Is Best To Trade Forex?
The forex market operates during the normal business hours of four different time zones. The U.S./London markets overlap (8 a.m. to 12 p.m EST) offers the heaviest trading volume and is best for trading opportunities.
Why Do Most Forex Traders Fail?
Overtrading and lack of good forex trading strategies are probably the main reasons why most forex traders fail.
How Much Can You Make In Forex?
With a good win rate and risk/reward ratio, and excellent forex trading strategies, a forex day trader with a sound strategy can make between 5% and 15% per month.
Is Forex Trading A Good Career?
Forex trading has emerged as the best way of accumulating wealth quickly. With good forex trading strategies, you can have a great career in Forex.