Top strategies for Forex traders

To start investing in the currency market it is essential to know forex trading strategies. Having a plan allows you to trade responsibly by managing risk well and choosing investments that suit your risk profile and goals.

Of course, before starting out, you need  to learn the basics of forex trading and master a number of essential skills such as technical analysis and fundamental analysis. From there you can assess the best Forex trading strategies to invest in currency pairs effectively and in line with your investment needs.

Forex scalping strategies consist of very short-term, low-margin trades that are opened and closed within the same day. The idea is to execute a high volume of trades seeking small but many profits.

Quantity is preferred over quality by trading at high frequency to take advantage of currency pairs’ smallest movements. If you’re interested in scalping you need to choose an intermediary that charges low commissions so that the costs of your trades don’t affect your margin too much.

If you choose to day trade, one strategy to consider is trend following. This approach is based on the use of technical analysis to identify market trends, so traders can open long or short positions depending on the market’s direction. The trading strategy of trend following therefore needs an element of forecasting, trying to understand how currency pairs will move.

You’ll need to be aware of and use certain trading indicators such as the relative strength index (RSI) and moving averages, as they will help you to identify price trends. You also need to have an appropriate risk strategy to allow for any unforeseen events and minimise your potential for losses due to any lapses of judgement or unexpected market movements.

Many Forex traders use a breakout trading strategy. The idea behind this strategy is to open a position before a moment of expected market volatility, taking advantage of the greater investment opportunities available during these periods of high price fluctuations.

Your goal is to place your order before the new trend takes off. You don’t want to wait for the trend to be established but try to anticipate it, to increase the potential profits of your trade in the face of higher risks. It’s important to set up a stop loss order to protect yourself, usually at the consolidated market price’s breaking point.

Whereas the previous strategies mainly require the use of technical analysis, news trading strategies mainly use fundamental analysis. The approach is based on opening positions depending on information and indications, for example a macroeconomic fact or a geopolitical event.

This works because specific events can happen which influence the movements of Forex currency pairs, leading to sudden trends. Examples include a country's general election, conflicts like the one between Ukraine and Russia, or a central bank such as the Bank of England raising interest rates.

A trend is characterised not only by a price’s direction, but also by the intensity of the upward or downward movement. This intensity aspect is exploited in momentum trading. In this strategy, a trader decides to invest in a price trend based on the strength of the trend, as it serves as confirmation that the trend could continue its momentum.

Momentum traders don’t open their positions when a trend first forms, but only when there is evidence that it is a strong trend, whether it’s bullish or bearish. To do this successfully it’s crucial to use trading indicators and establish how much and what confirmation you need from these need before investing.

Not all traders open and close positions on the same day (day trade). Forex trading strategies can include swing trading. This is about taking advantage of medium-length price movements, so those trends that may last a few days or a few weeks. As an approach, it’s halfway between day trading and much longer-term position trading.

You need to apply technical analysis and fundamental analysis to use a Forex swing trading strategy. That’s because you need to study and evaluate historical price movements and macroeconomic factors as well as know what’s happening in the news. Holding positions for longer also involves taking greater risk, so when following a swing trading strategy you should always set stop losses and take profits to protect your capital.