forex trading

Top 4 Forex Trading Strategies and Their Pros and Cons

Forex trading is one of the most popular alternatives to stock market trading. The average Forex market cap is $5.1 billion per day, which makes it the most liquid market in the world.

You’ve likely heard the stats that nearly everyone loses money in the Forex market. According to Earn2Trade, the problem is that most ordinary traders don’t really know what they’re doing. That’s why they lose money. They get lured into the market by promises of quick and easy riches.

These are the top strategies you should consider.

  1. Position Trading

Position trading is a more conservative form of trading. Positions are often held for months or years at a time. You mainly use fundamental analysis to determine where the market is going. This is not day trading and it relies less on meticulously studying graphs.

You do need to be aware that stop losses must be wide and you may not make a profit every year if you use this strategy. Most position traders make less than 10 trades per year.

For more conservative traders, this is a solid strategy.

  • Swing Trading

This is a medium-term strategy for trading. Swing trading is where you attempt to capture the market movements. In other words, you buy and sell when the market makes a significant drop or a significant rise. You’re capturing the trends that follow the market.

For this, you need a solid understanding of support and resistance. You also need to understand candlestick graphs.

Trades tend to be held for a few days to a few weeks. The capacity for profit is higher, but the capacity for loss is also higher.

  • Day Trading

Day trading is what most people think of when they think about Forex trading. Around 96% of Forex traders lose money and most of these are day traders.

All trades are opened and closed within the course of a single day. Profits can be huge. But you need to be aware that you need a strong knowledge of the charts. You’re trading almost exclusively on technical analysis.

It’s a stressful way to trade and the market often moves inexplicably, so you must have a strong stomach for this.

You will need to make use of a popular trading platform, since this strategy is so chart heavy.

  • Scalping

Scalping is only recommended for automatic trading. You need to be as fast as any machine because scalping is all about holding trades for minutes, or even seconds. You also need to typically play with huge amounts of money to cover your transaction costs.

This is about as close to gambling as you can get, but some traders do make money from this. You get lots of trading opportunities, but it’s a highly stressful strategy to employ.

Last Word – What’s the Right Strategy for You?

The right strategy for you depends on how you want to implement day trading into your portfolio. Some people don’t want to sit in front of the computer all day. Others don’t want any overnight trades. Still, there are traders who prefer to focus on fundamental analysis over technical analysis, and vice-versa.

Ask yourself what you want then make a decision.

Leave a Reply

Your email address will not be published. Required fields are marked *