Five Forex Trading Strategies to Explore in 2023

December 2nd, 2022

Entering the world of foreign currency exchange is exciting, but you should strive to reduce the stress. That’s what forex trading strategies are for - clearly understanding what goes on in the market and what your next moves can be.

In the fast-paced trading environment of the forex market, even slight changes in the exchange rates between currency pairings can significantly affect profitability. To implement forex trading strategies effectively, you should understand all the variables that determine currency pairs.

Reducing Risk with Forex Strategies

The busiest times for forex trading are often when New York and London trading sessions overlap from 1 to 5 PM UTC, Tokyo and London sessions trade from 8 to 9 PM UTC, and Sydney and Tokyo sessions trade from 12 to 7 PM UTC.

The USD, GBP, CAD, AUD, JPY, and CHF are some of the most common currency pairings to trade. The moments when the main international forex markets cross are the prime periods to trade these currencies.

There are four things to remember when entering the forex market. These are the rules to live by if you want to reduce risks, as there are always ones, no matter your chosen trading strategy.

  • Having discipline in your chosen forex trading strategy
  • Having reasoning behind every trading position
  • Establishing your stop-loss levels
  • Establishing accurate take-profit levels

Most Popular Forex Trading Strategies

1. Position Trading

Position trading is a technique that looks at the current market’s bigger picture, usually involving a combination of technical and fundamental analysis. When evaluating the markets, position traders usually conduct their research based on weekly and monthly price charts. This is a popular long-term forex trading strategy.

Trading has risks, more than 90% of people who get into it lose at least some money. This is because most traders enter the markets with a “get rich quick” mentality. Short-term trading can be profitable, but you’ll be safer when adopting a position trading attitude in the long run.

When executed correctly, position trading comes with several advantages. The most important advantage of position trading is that it eliminates market noise. Short-time fluctuations and rumors often do not affect your next moves. This causes another advantage - flexibility since you do not always have to monitor the price action. Position traders refrain from trading actively and executing fewer trades.

2. Swing Trading

Swing trading refers to a speculative short-term type of trading that attempts to capture gains in the financial instrument within a time frame that can range from a couple of days to a couple of weeks. The statistical average through the markets is about ten trading days.

If the goal is to make money in a short timeframe, within a couple of days to a couple of weeks, that is, by definition, a swing trade. Traders that rely on swing strategy use technical analysis and seek profits from short-term price cycles known as price swings.

It can be very profitable and only ties your money down for a short time. On the other hand, swing trading has higher trading costs than long-term strategies and exposes you to price gaps occurring over the weekend or at night. Additionally, you might be missing out on capital gains by profiting from individual price swings.

3. Day Trading

A day trader holds stock for less than one trading day, which is six and a half hours. Contrary to a swing trader that keeps a position in swings (around ten days) and is sensitive to night and weekend changes, a day trader is safe when the stock market isn’t open. People who are new to the market usually choose day trading as their forex trading strategy.

Day trading earnings compound faster - you can use the money you made one day to put it into the next trading day. Additionally, there's interest in overnight cash balance positions with certain brokers. If you are able to be in cash by the end of the day, you might earn interest with certain places.

Day trading support and resistance areas could be better developed. Additionally, a lot of the day trading actions are computer algorithmic. It is kind of like trading against the machines, which can be risky since the machine’s trigger response is much faster - they're able to get in and out of positions much quicker.

stressful since you have to be more alert and aware of your position each day, putting a drain on your mental health. Additionally, you can miss an overnight gap if the stock starts climbing higher. When day trading, you are watching stocks’ fluctuations in small periods of time and ultimately making rash decisions based on that day’s movement.

4. Scalping

Similar to day trading, scalping is a short position strategy that involves profiting from a small price change. It is an extra fast form of intraday trading. The trade can last up to a few minutes or even seconds. It is known within the forex community that traders usually make much less profit using this forex trading strategy. Small profits that you have collected over a day can be lost with just one bad trade.

However, the main advantage of scalping is the lower time exposure to the risk, so you can take higher leverage. You don’t have to worry about changes to the market, as your trades last for just a few minutes. Additionally, it is possible to expand your setups and go from 3-4 (a usual number for a day trader) to more than 50 setups a day.

5. Trend / News Trading

Trend or news trading is a forex trading strategy that relies on the economic and political news that affects the fluctuation of the pair. Every trader relies on some kind of analysis. When you analyze the financial markets, there are two ways to do it: technical and fundamental analysis.

Technical analysis is looking back at previous price actions in the form of a chart, searching for patterns and indicators to help with predicting where prices may go in the future. The fundamental analysis is the macro view of the particular stock. Traders are looking for the state of a particular economy, company, or other trends.

The biggest disadvantage of this technique is that this is the most easily manipulated forex trading strategy, as news sources can publish fake news or governments can withhold information from the public.

Finding the Trading Strategy for You

You are probably asking yourself - What is the most successful forex trading strategy? Well, unfortunately, that is the one question we cannot answer for you, as it depends on your win rate and risk-reward ratio.

Are you trading for excitement and some extra cash? Go for scalping or day trading. On the other hand, if you want to invest to increase your wealth, choose position or swing trading. News trading is not for those who are not interested in macroeconomics and global politics.

At the end of the day, you need to explore according to your personal style and motivation. But once you choose your style be disciplined and know when to exit. That is the easiest way to reduce the risk of forex trading.

US First Exchange Can Help You

Now that you know all about forex trading strategies, we might be able to help you start. Trading with exotic currencies is popular, but many new traders don’t know how to start. US First Exchange buys and sells popular currencies (GBP, USD, AUD, etc). as well as over 20 exotic currencies and delivers them to your doorstep.

You can buy or sell any currency in just four easy steps.

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