Last Updated: July 7, 2020
Starting your journey as a forex trader can be somewhat difficult for those who are new and don’t know much about it.
If you ask any successful veteran trader who likes to trade currencies about their approach to coming up with strong strategies then you’ll probably get an answer that tells you to be patient about it.
Selecting a strategy that suits your trading style and works the best for you is indeed a time-consuming process. It takes months or even years to perfect any strategy using trial and error.
However, you don't need to give up years of your life just to research this subject. Traders have many options to gain this knowledge quickly thanks to the internet.
You can also find books and other forms of educational materials to research viable forex trading strategies.
Using that knowledge, you can save time and devise profitable forex trading strategies that are sure to fit your trading style.
With that said, with a little research, it is possible to find the best profitable forex strategy and implement it into your trading life.
In this article, we shall discuss five such tried and tested profitable forex strategies that have been tried by newcomers and perfected by veterans.
In simple terms, position trading refers to the strategy where a trader holds his trades for a significant period. This can last anywhere from a week to months!
How long someone decides to hold on to their trade positions entirely depends on the trader’s strategy. Of course, holding on to trades to make the maximum profit is the most logical thing to do.
That being said, we shall take a look at the pros and cons of position trading.
Pros: With position trading, a trader can save a lot of time as it does not require your constant attention.
Consequently, this creates a stress-free environment for the trader as they don’t have to be concerned with the volatile fluctuations of the market every day.
Furthermore, this strategy has a good risk to reward of roughly 1 to 5 on your trades.
Cons: You will need a bigger capital for this tactic to work because you are running with a much bigger stop loss.
Furthermore, you will have to gather sufficient knowledge about the market and learn what makes it tick.
Almost similar to position trading in a sense, swing trading refers to a strategy that is categorized as a medium-term trading strategy.
In this profitable forex strategy, the trader aims to capture a singular move in the market such as selling resistance, buying support, trading pullbacks or breakouts as well as the bounce of the moving average.
This strategy is somewhat complicated than position trading so you will have to get familiar with a lot of technical terms on top of learning everything about the market
Swing traders have to employ the use of fundamental analysis into their strategy to be successful at their trades.
This may include carefully analyzing price patterns of the market for a certain period as well as all the necessary patterns that they can identify to strengthen their strategy.
Pros: More trading opportunities and profits and you won’t have to invest too much time into trading which leaves you with ample time to do more research.
Cons: If you’re a swing trader then it can be somewhat difficult for you to cash in on big trends.
Furthermore, swing trading has overnight risks attached to it which can be a turn off for some traders.
Scalping is another tried and tested as well as a profitable forex strategy in which the trader makes numerous small trades to make small profits from them.
The goal is to have a snowball effect on your profits and turn your small earnings into a large amount by using trade instruments with the lowest possible spread.
Furthermore, another peculiar feature of scalping is that they can be ridiculously fast. Traders sometimes close their trades instantaneously even if they made zero profit from it.
With that being said, scalp trading can be a very profitable trading strategy as there was a trader called Paul Rotter who made as much as $78 million a year using the principles of scalp trading.
However, traders should also note that a singular bad trade has the capability of derailing your entire plan causing a cascade of failures if recklessness is practised.
Pros: You get a lot of trading opportunities every day that adds to your experience.
Consequently, you also get a chance to make some quick profit.
Cons: This strategy can be very stressful as it does not have the upside of saving you time as position trading does.
Furthermore, you will have to use a few tools and have the proper software etc to run it smoothly which can be costly.
The transition trading strategy is the result of expert traders using their knowledge to come up with new trading strategies to keep up with the ever-changing market conditions.
In transition trading, a trader will enter any trade of his choosing on the lower time-frame. The trick is to dash and stop your loss on the higher timeframe or increase your profit.
What you do entirely depends on the market conditions. If the market trend is in your favour then try to make as much profit as you can.
If the market is not in your favour then, by all means, stop your loss and cut loose.
Experienced traders plan their exit strategies to counter a negative trend and cut their losses immediately.
Pros: Transition trading has a very enticing risk to reward which attracts traders who are looking to make a quick profit.
On top of that, entering the trade on a lower timeframe lowers your risk.
Cons: You need to have a keen understanding of multiple timeframes.
This is another short term trading strategy where the trader’s strategy is to hold on to his trades for a few hours only. The trader can also choose to exit within minutes.
The trick to day trading is identifying and trading the most volatile instance of any instrument available for trade.
If properly done, day trading can turn out to be very lucrative but you have to gain some experience in forex trading before adopting the day trading strategy.
Furthermore, you have to be very attentive to your positions as this strategy is extremely short-term and time-sensitive.
Pros: The short time period eliminates the overnight risk entirely and you don’t have to be well-versed in the long term economic consequences as day traders are not concerned with any long term issue.
Cons: Can be time exhausting as it requires your constant attention and it can be difficult for inexperienced traders to execute.
Everyone agrees that time is money yet many new traders often waste valuable time on trading strategies that are not fit for them.
Choosing the correct trading strategies requires you to sit down and think hard about your options.
The most important thing to consider is what you expect to get out of trading in the long as well as in the short run.
If making a monthly income is your goal then you will find short term trading strategies to be more beneficial.
Time, as we said is an important factor when it comes to trading and those who cannot invest their undivided time into it can also opt for strategies such as position trading.
Ultimately, you should also consider the various risk factors of each trading strategy as each one of them has some risk attached to them.
Find out what level of risk you are willing to take with your trades as well as your capital.
You can choose to trade with low risk and low reward strategies if you are new to forex and work your way up.
After gathering sufficient knowledge and experience, you can start for a higher reward to risk strategies to make more profit all depending on your requirements.