Have you ever been in a position where you feel lost because of so many forex strategies to choose from? The forex market is free for all regions where you could be making a killing in a day or lose your entire portfolio in less than an hour. You can say it’s a no man’s land, and you’ll still be correct. There are many strategies involved that look more tempting than the other, but every one of them has its pros and cons.
Although sticking to one strategy and mastering it is advised, it is good to switch between processes from time to time. This confusion is quite common, and so here is a list of the six most popular forex trading strategies, as well as their pros and cons.
- Positional Trading
The first strategy to consider is positional trading. If you’re the type that does not have much time to spend in front of a trading screen, this strategy is perfect for you. All you need is a few hours to trade and rake in good profits. This strategy can make you hold a position for days, weeks, and even months. You analyze and place trades using either the daily or weekly timeframes.
The significant advantages of this strategy are that you spend less time trading, and the risk to reward ratio is favorable for you. The disadvantages are that this strategy is not suitable for newbies. Only experts can predict a market in the long term, need a sizable trading capital, and your profits may not be regular.
- Day Trading
Day trading is similar to swing trading. The difference is that you hold trades with this strategy for longer periods (usually 24 hours). It is generally used by people who decide to take forex trading as a full-time gig. Here, you’ll take note of the opening and closing times of the market and speculate what will happen only during the day. With this strategy, you can open more than one trade for a particular market, and it usually works with a trading plan in place.
Like swing trading, traders must understand support and resistance; with candlestick patterns, trades are analyzed using the 24-hour timeframe, and a good broker like Robomarkets.
The pros of day trading:
- You can determine your daily profits because you can predict the markets
- Trading is highly flexible because you choose the number of trading positions you hold for a market
- You will be tied to the trading screens all-day
- Taking trading as a full-time job may be detrimental because there are days when the markets are not favorable.
- Swing Trading
The swing trading strategy allows a trader to trade both sides of a market. This type is not held for more extended periods like positional trading as it is valid for an hour to four at most.
To be a swing trader, you’ll have to be good at trading positions at:
- Support buys
- Resistance sells
- Consolidation markets
To successfully use this strategy, a working technical knowledge is desired, especially moving average, support, resistance, and candlestick patterns.
The advantages of swing trading are juicy:
- Your profits can come in every day, as you can determine your desired earnings for the day because of many opportunities to trade
- Just like positional trading, you do not have to face the trading screens all-day
The disadvantages include:
- A trend can turn against you when you’re not available to monitor the markets
- You need a significant stop loss to control losses
- You’re limited to small trends
- Transition Trading
This strategy involves you starting from a lower time frame and moving to higher time frames as the trade moves in your favor. Short-term trading involves monitoring markets and trends to predict their outcome within the next hour or two. For instance, if you enter a market within the 30 minutes time frame, and the market is going well, you can check the one-hour timeframe and adjust your stop loss in anticipation of a higher ride.
If the market begins to turn, your profits will still be locked when it hits your stop loss.
The pros of transition trading:
- A higher risk to reward ratio is possible (about 1 to 10)
- If the market moves in the opposite direction, you exit the market with-profits
- You need to study all the time frames to enjoy this strategy
- You can spend all day on the trading markets
- Scalp Trading
Scalp trading is a short-term strategy where you only place trades based on quick changes in price movements. A scalper can place more than 20 trades in a day, and it is believed that short-term trades are more profitable than long-term trades.
The pros include:
- A healthy profit can be made from trading
- You can determine the amount you want daily
- It is stressful and time-consuming
- It is expensive to use because you’re constantly monitoring the news for relevant events that can cause a change, software fees, and connection.
- Price Action Trading
Price action trading strategy allows you to predict and place trades using just price action. You can use indicators, Fibonacci retracement, oscillators together, or just standalone. Many people prefer this form of trading because the screen is clear, and you can go back to study patterns to predict future trends.
- You can analyze on a clean screen, devoid of indicators.
- Your profits are big and steady
- The risk to reward ratio is not big enough
- You cannot predict a pullback or breakout using this strategy
While there are many trading strategies, this article has discussed six powerful tips that can help guide you to success as you proceed with your trading career.