Top 8 Forex Trading Strategies and their Pros and Cons

The examples show varying techniques to trade these strategies to show just how diverse trading can be, along with a variety of bespoke options for traders to choose from. Day trading refers to the process of trading currencies in one trading day. Although applicable in all markets, day trading strategy is mostly used in Forex.

Investors are looking for markets where the price action is moving constantly to capitalize on fluctuations in small increments. For example, if your account is worth $30,000, you should risk up to $300 on a single trade if the risk limit is set at 1%. Depending on your risk sentiment, forex weekly trading strategy you can move this limit to 0.5% or 2%. Join thousands of traders who choose a mobile-first broker for trading the markets. Harness the market intelligence you need to build your trading strategies. From beginners to experts, all traders need to know a wide range of technical terms.

What is trade size in forex?

A bearish engulfing is a reversal pattern that forms when the larger red candle follows the small green candle. The body of the green candle completely engulfs the previous day candle. This pattern indicates the market hits the top, and now the sellers are going for the brand new lower low. The image below represents a couple of buying trades in the GBPUSD forex pair.

• For example, if your account is worth $30,000, you should risk up to $300 on a single trade if the risk limit is set at 1%.
• Forex day traders buy and sell multiple currency pairs within the same day, or even multiple times within a day, to take advantage of small market movements.
• In August 2008, the short-term moving average (blue) on the chart below turned down, indicating a potential change in trend although the long-term average (red) had not yet done so.

A back-test equity curve of this strategy using weekly moves from open to close greater than 2% in value trading 16 Forex currency pairs and crosses from 2001 to 2020 is shown below. Trades were hypothetically entered at the end of a qualifying week and held until the next week’s close. Forex trading is all about trading with the trend, so a weekly trading system is likely to produce better results.

Support

But it had been ahead as much as 25% and was closed after giving back a significant portion of the profits. The results detailed below are from back tests conducted on sixteen major and minor Forex currency pairs over a very long period of almost 20 years, from 2001 to 2020. Thousands of samples were taken, increasing the statistical validity of the back test. Minor market fluctuations are not considered in this strategy as they don’t affect the broader market picture.

• It is possible for two skilled practitioners to look at the same charts and disagree on the signals.
• Yes, you could take short term trades on the weekly charts but you would need lots of good trades to make the same amount of pips as you could from riding a big trend until the end.
• Successful position traders may open just a few trades over the entire year.
• In order to make profit, traders should focus on eliminating the losing trades and achieving more winning ones.

Much like the range bound strategy, oscillators and indicators can be used to select optimal entry/exit positions and times. The only difference being that swing trading applies to both trending and range bound markets. Using the (CCI) as a tool to time entries, https://g-markets.net/ notice how each time CCI dipped below -100 (highlighted in blue), prices responded with a rally. Not all trades will work out this way, but because the trend is being followed, each dip caused more buyers to come into the market and push prices higher.

Forex weekly chart strategy example

Volume in trading represents the number of shares, contracts, or lots traded in a security or an entire market during a given period. It measures the strength and interest in a particular price move;… The law clearly states that an object in motion stays in motion until an external force is applied.

The weekly timeframe has so many trading advantages as compared to the lower timeframes. The higher timeframes move slowly, so there is no chance of any noise on the higher timeframe. Most of the technical indicators work very well on the higher timeframes because you are not going to see any fake or odd signals on a higher timeframe.

Trading With Multiple-Indicator Charts

While you are in the direction of a larger market, you need to take only stochastic signals. The reverse signals from stochastic or RSI are generally used for taking profits. The candlestick pattern or other methods can confirm the stochastic or RSI signals. This strategy will consistently be on the right side of all the big moves in a market. The other trades are usually small losses, which occur while the market consolidates with choppy price action.

This is achieved by opening and closing multiple positions throughout the day. This can be done manually or via an algorithm which uses predefined guidelines as to when/where to enter and exit positions. The most liquid forex pairs are preferred as spreads are generally tighter, making the short-term nature of the strategy fitting.

Managing risk is an integral part of this method as breakouts can occur. Consequently, a range trader would like to close any current range bound positions. Within price action, there is range, trend, day, scalping, swing and position trading. These strategies adhere to different forms of trading requirements which will be outlined in detail below.

They attempt to spot these reversals ahead of time, and trade to make profits from smaller market movements. The EUR/USD 10 minute above shows a typical example of a scalping strategy. The long-term trend is confirmed by the moving average (price above 200 MA). Timing of entry points are featured by the red rectangle in the bias of the trader (long).