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You will be identified from other traders by your portfolio of forex trading strategies. Seasoned forex traders also understand that focusing on a single strategy will not always result in the greatest number of profitable trades.

As we enter the year 2021, we’d like to highlight 6 of the most profitable forex trading strategies. Remember that you’ll only be able to become a successful trader if you can apply and adapt these strategies to the current market conditions.

1. Price Action Trading

One of the most popular forex trading strategies is price action trading. It’s also a simple and effective way to gain an advantage in the forex market.

After studying historical forex price movements, the trader formulates a technical strategy in the price action trading system. The most commonly used indicators are price bars. Price movements, as well as support and resistance levels, can often provide important clues as to where the market is likely to go.

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Jesse Livermore, a legendary trader who was worth more than $100 million in 1929, used price action. “When it comes to markets, something that happened in the past is bound to happen again,” Livermore says, “because humans drive the market, and human nature never changes.”

To analysis and predict forex market trends, all price action traders use raw price data. However, there are a variety of price action strategies to choose from, each with its own set of advantages and disadvantages.

Pros

  • It’s a tested strategy.
  • For trending and range-bound markets, it provides near-accurate, profitable, and relevant signals.
  • It’s simple. As a result, understanding when to enter the market is simple, and you won’t have to deal with several technical indicators.

Cons

  • It takes time and patience to wait for proof of support/resistance status.
  • 2. Range Trading Strategy

    The forex market does not always show a clear trend. Forex markets trade in a range about 70% of the time. When the market moves consistently between two prices over a set period of time, this is known as a range trading strategy in forex. It can occur in all time frames, both long-term (e.g., daily and monthly charts) and short-term (e.g., intraday and daily charts) (e.g., five-minute charts)

    As a result, depending on the current price position within the range, a trader can go long or short in range trading. To trade, a trader must first increase the value in which they want to trade. This is best achieved by identifying areas of support and resistance.

    The trader then searches for an ideal entry position based on whether they want to go long or short. To confirm market conditions, other indicators such as the RSI (Relative Strength Index), CCI (Commodity Chanel Index), Stochastics, oscillators, and others can be used.

    Pros

  • Trading in a range can result in multiple profitable trades before a breakout.
  • Because some currency pairs have been trading in a range for years, using range forex trading strategies may pay off when such currencies are trading in a range.
  • Cons

  • Ranges that last a long time are unexpected. And when they do, it’s possible that they’ll be crowded.
  • Not all trading ranges are useful; some are simply too narrow to make considerable profits.
  • 3. Trend Trading in forex

    In forex, the trend is your friend as long as you use it to your advantage. The overall direction (up or down) during which the price is moving is referred to as trend trading in the forex market.

    Uptrends, according to Dow theory, occur when a series of higher highs precedes a series of higher lows. A downtrend, on the other hand, is classified by a series of lower lows followed by lower highs.

    All markets, including currency markets, can be predicted to some degree. As a result, experienced trend traders apply a number of indicators to determine and analyses the direction of forex market momentum.

    These traders can then forecast what is most likely to happen and change their forex trading strategies accordingly.

    It’s simple to identify a trend, and the size of the trend doesn’t always matter. To profit from trend trading, however, it’s best to enter right at the start of a trend or shortly after it begins, rather than when the trend is about to end.

    Pros

  • Strong trends are often characterized by large profits.
  • As long as your forex trading strategies are in the trend’s direction, the forces driving the trend will often work in your favor.
  • Cons

  • News and financial activities can easily send trend traders into a downward spiral.
  • Before you can confidently trust a trend, there is usually a steep learning curve.
  • 4. Position Trading Strategy

    One of the forex trading strategies that only works for super-patient, long-sighted traders is the position trading strategy.

    A position forex trader keeps his or her position for a longer length of time. It’s possible that the holding period will last several weeks or even years. The trader hopes to profit from any strong pricing trends that occur by entering and remaining in the market for extended periods of time.

    Position traders look for long-term trends that can last weeks or months. Minor, transient price fluctuations or pullbacks are unimportant to them. Instead, they concentrate on the majority of a current trend.

    Position trading in forex can be approached in a number of ways. While some traders prefer currencies with a strong trend, others prefer currencies that haven’t yet started trending but have the potential to trend strongly.

    As a result, for the most part, position trading entails detecting and anticipating trends. A position trader may use chart patterns, fundamental ratios, technical indicators, news catalysts, and other indicators to achieve this.

    Pros

  • Position traders don’t have to actively monitor their open positions on a daily basis, unlike other forex trading strategies, because they’ll be often playing the long game.
  • There’s really nothing left to do but wait after the initial research is completed and the trader has entered the trade. The position should only be checked on a regular basis.
  • Position traders aren’t concerned with short-term market volatility, so there’s less “noise” in the market.
  • Position trading allows a trader to profit from strong trends.
  • Cons

  • Because of the lack of compounding, a position trader will only see profits once their position is closed, which could take weeks, months, or even years. This limits a trader’s ability to compound returns for the duration of his or her position.
  • Account liquidity refers to a trader’s ability to use the funds invested in open positions. As a result, until the position is closed, that money is unavailable to pursue other opportunities or forex trading strategies.
  • 5. Forex Day Trading Strategy

    The majority of newbies to forex trading gravitate toward intraday trading. Opening and closing positions on the same trading day is what a forex day trading strategy is all about.

    A day trader can use a wide range of other forex trading strategies to maximize profits from price fluctuations that take place during intraday forex trading. As a result, day trading isn’t the only type of trading. A day trader can switch between hundreds of different day trading strategies, such as scalping and position trading.

    Day traders must invest a large proportion of their capital in addition to having a detailed analysis of the product and the currencies they trade if they are to be successful.

    Besides this, because of their high trade volumes, major currency pairs are commonly the best markets for day traders.

    Pros

  • Reduces the need to pay Swaps, which is a fee charged for holding a forex position overnight.
  • Day trading allows you to show a range of forex trading strategies that, in the long run, may provide you with a strategic edge.
  • Cons

  • In a single day, intraday currency markets can only move so far. Profits can thus be limited.
  • It is possible that the trader will be required to be present throughout the trading session.
  • 6. Scalping in forex

    Take into account scalping to be a quick, action-packed thriller that keeps you on the edge of your seat! Forex scalping is just as intense. Scalping is one of the few forex trading strategies that allows you to remain profitable at all times by benefitting small profits whenever the market is beneficial.

    Also during forex trading day, a scalping trader tries to grab a small number of pips as many times as possible. He/she fulfils this by opening and closing several times throughout the day. Because a scalping trader only holds a position for a few seconds or minutes, this is possible.

    Scalping requires quick thinking as well as deep focus. During the trading period, for example, one must remain glued to their charts and closely monitor their scalping indicators.

    Pros

  • Scalping strategies aim to minimise losses while increasing profits.
  • These non-directional forex trading strategies can be used whether the market is moving up or down.
  • Scalping strategies are among the most straightforward to automate.
  • Cons

  • To participate in scalp trading, you’ll need higher minimums.
  • Transaction costs for scalping trades are also significantly higher than for other forex trading strategies.