Success in Forex trading requires a certain amount of education and a high level of planning and practice. You need to understand how the Forex market works, and you need to get yourself familiar with trading strategies. There are several types of strategies that can be adapted to Forex trading, each comes with a different level of risk.
What Forex strategy works best for you, depends on your personal skills, needs and risk appetite, but also on current market conditions. We will share with you the most common trading techniques and their pros and cons.
Day Trading is a very popular investment method for Forex traders as it doesn’t really require any special skills or knowledge. Its principle is to carry out a large number of small transactions in one day and close all positions before the end of the day. Thus by accumulating a large quantity of small gains this investment method becomes profitable.
To succeed in your Day Trading strategy, you will need to use significant leverage. It is essential to know how to cut your losses at the right time so that the total of your gains exceeds your losses. The level of risk is rather high though, so you have to be cautious and, above all, proactive.
Ideally, you should take your profits to less than 2 or 3% of maximum profit and especially cut your losses before reaching 10%.
The Carry Trade
The Carry Trade method is reserved for a more informed audience since it is a little more complex. This trading strategy uses the difference in interest rates between currencies to carry out a profitable trade. In practice, this strategy is most used for buying a currency with a low interest rate and selling it for a currency with a higher interest rate.
Before embarking on this trading strategy, you should therefore identify currencies with high and low interest rates, but you should also take into account the amount of spread your broker is using so that your profits are not swallowed up by your broker’s fees. You also need to be aware that the Carry Trade requires a substantial investment.
The Swing Trading strategy is an ideal investment method for novice traders as it requires no specific knowledge or in-depth market analysis. Its principle is very simple and consists of speculating only on trends.
To do this, the most important thing is to know how to spot the most obvious and secure trends in the Forex market. Then, take a position in line with this trend as quickly as possible and close it when it starts to weaken.
To carry out a successful swing trade, it is necessary to keep a close eye on the supports and resistances of the currency.
The Forex Scalping strategy is similar in every way to the Day Trading strategy, except that traders do not close all of their positions at the end of the day.
But the general principle remains the same, trade in line with the trend and compound small but numerous gains. Again, the amount of your investment must be sufficient to ensure your earnings and you will have to use a significant leverage. Act prudently though by cutting your losses in time.
In short, the various strategies presented above are all suitable for Forex trading. But nothing prevents you from developing your own strategy by using a mix of these methods. Remember that training and practice make you a successful trader.