Advanced Forex Trading Strategies
Reading time: 8 minutes
The first place to begin for anyone starting out in Forex trading, is to implement a trading setup which includes entry and exit signals. This setup is know as a Forex trading strategy. There are numerous trading strategies you can try, and most beginners will usually try to implement a few strategies, so that they can see which ones are suited to their skills the most.
In this article we are going to cover three advanced Forex trading strategies that can be adopted by beginners. These trading strategies have been designed for beginners that are aiming to develop advanced skills.
Forex trading can be a tough and dynamic investment area, where only precise information of complexities and intricacies of the market can make your funds soar each day. It's important to remember that there is no foolproof currency trading technique which guarantees absolute success. Every technique involves risks, and no trading system is immune to losses.
Nonetheless, there are a few advanced Forex trading strategies which can help you to achieve satisfactory trading profits, one of which is Forex scalping. The aim of this strategy is to achieve a potential profit quickly. Regarded as one of the most advanced trading strategies, the idea of this technique is that trading is performed in brief time frames with profits gained frequently after slight moves in the Forex market.
It's an impressive and innovative Forex strategy, but it does require a detailed analysis of the market before a trade is offered. This type of currency trading sits well with day traders who are risk averse. That being said, many people online are still at opposite ends with regards to Forex scalping. However, everyone agrees with the fundamental idea. The conflict comes in the detail – no-one can agree on it.
After copious analysis, some specifics have been reached about the most common ideas surrounding the methodology. Everyone seems to be in agreement that scalping happens once traders get rid of positions for a brief period of time. How long the period of time lasts is where people don't agree. This Forex trading strategy has the potential to help you make significant profits quickly and efficiently. The question is, how do you scalp Forex?
Basically, it involves taking out a position for any time less than five minutes. Please note that this tends to be the main drawback to this Forex trading strategy. If you trade in a short time frame, you cannot make a decent return on your investment. This is because pairs only go up or down by one or two pips. As you may already be aware, making more pips means more profit. For this reason, Forex scalpers tend to trade in mass quantities.
Usually, the more advanced Forex trading skills you have, the larger your capital and the larger your volumes are. Scalping is a widely used technique among seasoned Forex traders. The tactic is dependent on fluctuations in currency value, taking place in the market at certain intervals every day.
Usually, the time between the closing and opening position is short and lasts only a matter of minutes. Profits gained from this position tend to be low, however, the total gain achieved by huge positions can be significant. Some Forex traders trade up to 200 positions in a day. Granted, not all positions opened by traders can make profits for them, but the definitive goal is to have an overall profit by combining all positions.
One tip is that when scalping, you should place a stop-loss order very near to the opening price of the position for reducing the losses, when there is fluctuation in the direction of the market. It is always recommended that you use a stop-loss on your scalping trades. As this is one of the advanced Forex trading techniques, let's summarise this strategy and the rules a trader should comply with:
- Don't hold a position open for a long time, preferably the maximum holding time should not exceed five minutes.
- The size of the trade should be rather large, as the amount of gained pips per trade is quite small.
- The higher the number of daily trades is, the higher the chances are of being successful with Forex scalping.
- This strategy is only valid for day traders, meaning that you would most probably need to spend a lot of time trading to achieve results with it.
This is certainly an advanced Forex strategy, as it is employed by the top earning traders. The main advantage of this strategy is that it requires a lot less daily attention, however, it can only be completed successfully with a careful long-term market analysis. Most Forex trading strategies are performed on small time frames, meaning that the majority of them are actually day trading strategies.
Positional trading is something completely different from day trading – and it's especially different from scalping. When a trader starts trading positions, they are expected to hold a position for quite a long period of time. It is hard to identify the minimum recommended holding time as it mainly depends on the trader's overview of the market, and the amount of pips gained.
When using positional trading, one of the most advanced Forex techniques, a trader has to do everything in completely the opposite way compared to Forex scalping. The trade size tends to be rather small in comparison with the trading capital. While scalping, you attempt to open large positions, as you are expecting to make a few pips per trade. During positional trading you are aiming to get more than 100 pips, which can actually make your position safer when the market fluctuates.
To avoid extensive risk, a trader is recommended to trade only on a small scale, putting no more than 2% of their funds at the trade margin. This way you can easily afford going down for 20-30 pips without closing your position. One of the main features of positional trading is to ensure that you break even at the end of your trade. Sometimes you may gain some pips per trade, but then still lose the funds.
How is that possible? This happens because the positions are held for a few weeks or even months, and therefore are a subject to swaps. Swaps are also known as the fee for transferring your position overnight. You may also find swaps being referred to as rollovers or rollover fees. In other words, a trader may open a long position on the EUR/USD currency pair on 1 May, and then get rid of their position on 1 July, with a total gain of 50 pips.
However, the swaps on this currency pair could be so high that a 50 pip gain will not be enough to compensate for a 60 day rollover fee. That being said, it is important to note that rollovers are not always a disadvantage. On some trading instruments there are positive rollovers. This means that by actually holding a position you are profiting too. There is even another advanced Forex trading strategy known as 'carry trading', which is based on earning through rollovers.
To perform positional trading successfully, you certainly need to have a great overview of the current economic situation in the countries of the currencies you are planning to trade, along with current geopolitical issues. Most of your analysis should occur before you open a position, while further analysis should mostly be used for the identification of the exit point.
Generally, NFP (or Nonfarm Payrolls) is the major economic news released in the US once every month. Usually this type of market news has a severe impact on day traders, as it can easily fluctuate a price of USD pairs for 50 or more pips. The main disadvantage of this trading strategy is that it is tight to the NFP releases, so you can only employ NFP trading once a month.
NFP is like a Forex advanced level of scalping. A few hours before NFP results are set to be released, the market begins to fluctuate. Your main aim here is to identify the possible results of the NFPs, and then judge how different they will be from both the previous and forecasted values. You can observe these values using the Forex Calendar page. You also have to make sure that you have enough margin to withhold any possible market fluctuations before the NFP results are released.
Once the news is out, the price of the pair may change its direction drastically. If the direction of the change is the way you expected, you may gain a high number of pips in just a few hours. Conversely, if the change happens in the opposite direction, then your stop-loss is triggered. In other words, NFP trading is all about making many pips out of a winning trade, and then restricting your losses if the prediction doesn't work out.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.