There are dozens of forex trading strategies, each with its own distinct characteristics. With so many options available, choosing the right one can be challenging, even for experienced traders. To save you time and effort, we've analyzed the top forex trading strategies. Each strategy is analyzed based on three criteria: portfolio volatility, analytical complexity, and preferred financial instruments. Read below to begin exploring the best strategy for you in 2023.
Trading strategies
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What factors should be considered when choosing the right strategy?
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Day Trading Strategies
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Scalping
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News Trading
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Long-term trading strategies
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Algorithmic trading strategies
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Crypto Trading Strategies
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Stock Trading Strategies
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What tools can strengthen your strategy?
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hedging transactions
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Grid Trading
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Martingale Trading
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How to Choose the Best Forex Trading Strategy?
What differentiating factors should you consider when choosing the right strategy?
Trading instruments. Available financial instruments include forex, cryptocurrencies, indices, stock CFDs, and commodities. For example, some trading strategies may be more suitable for currency pairs, while others may be more suitable for commodities or stocks.
Timeframes. These typically include long-term, medium-term, and short-term. Some strategies require you to use a one-minute timeframe, while others are more suitable for a one-month timeframe.
Analytical methods. Trading strategies may be based on technical analysis, fundamental analysis, or a combination of both. You can learn more about these through our training and webinars.
Volatility. This measures the magnitude of price changes over a given period of time. For example, a currency pair may have high volatility and wide spreads, making it more suitable for trend trading strategies.
It is crucial that traders carefully consider the characteristics of their trading instruments and choose an appropriate strategy based on this. You must first decide whether a short-term or long-term trading strategy is more suitable for you.
Day Trading
Portfolio Volatility: ⚡️⚡️⚡️
Analysis Complexity: ⏳⏳⏳
Analytical Objects: Charts, macroeconomic factors.
Preferred Financial Instruments: Currencies, cryptocurrencies, commodities, equity derivatives, and indices.
Primary Objective: Profit within a single trading day.
How it works: Traders open and close orders throughout the day.
Day trading is a popular short-term trading strategy. In the forex market, day trading involves opening and closing orders within the same day with the goal of capitalizing on short-term price movements. Day trading strategies can be based on a variety of technical and fundamental analysis tools, such as chart patterns, price action, and news events. It's important to understand that day trading can be risky, and traders must carefully manage risk and make informed decisions using a variety of analytical tools and indicators.
What are the most commonly used indicators by day traders?
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Relative Strength Index (RSI)
What is the best timeframe for day trading?
One thing you can be sure of is that the timeframe you choose must provide sufficient data. Some traders recommend using 5-minute and 15-minute timeframes, while others suggest 1-minute and 30-minute charts. Some even use 30-minute and 1-hour timeframes. Therefore, you should experiment to see which timeframe works best for you.
Profit opportunities depend on the amount of information
What are special day trading strategies?
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Buy the dip. This is when you buy an asset during a downtrend in the hope that the price will rebound within the same day.
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Buy and sell on rallies. This occurs when an asset's price rises rapidly in a short period of time due to increased demand. Price rallies can occur during unexpected economic events, and this strategy is often employed around the Christmas and New Year holidays. Rallies offer traders increased volatility and more profit opportunities.
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Look for breakouts and reversals. This requires you to pay close attention to the charts and study the technicals.
Below we will introduce you to the two main day trading strategies in detail.
Scalping
Portfolio Volatility: ⚡️⚡️⚡️
Analyzing complexity: ⏳⏳⏳
Analysis object: chart.
Preferred financial instruments: currencies, cryptocurrencies and commodities.
Main goal: to accumulate small continuous profits.
How it works: Traders open and close multiple orders within a short period of time (usually within minutes or even seconds).
The most important indicators used by scalpers are the Exponential Moving Average (EMA) and the Simple Moving Average (SMA). These indicators display short-term price changes that indicate a currency pair's trend. The SMA is popular among scalpers because it responds to price changes more quickly than other indicators.
News Trading
Portfolio Volatility: ⚡️⚡️⚡️
Analyzing complexity: ⏳⏳⏳
Analysis object: asset-related news.
Preferred financial instruments: currencies, stocks, equity derivatives and indices.
Main goal: predict market trends based on news and profit.
How it works: Traders monitor news to predict market reactions and execute orders based on their predictions.
One of the most important tools for news traders is our Economic Calendar . This tool helps traders track upcoming economic events and predict their impact on the market. Traders can even filter future events by category. A good practice is to track relevant news for each currency pair you're considering trading.
Our economic calendar provides you with the latest news on specific events from top economists around the world. You can use these two tools to understand and learn from different patterns.
News events affecting USD/JPY prices (December 21, 2022)
The above is an example of a news strategy. It shows how the Bank of Japan's decision to change its yield curve policy affected the price of the yen against the dollar in less than 10 minutes. Our introduction to fundamental analysis will provide further insights into how to trade the news.
Read articles on fundamental analysis and economic indicators
Long-term trading strategies
Portfolio Volatility: ⚡️
Analyzing complexity: ⏳⏳⏳
Preferred financial instruments: Stocks, ETFs, and indices.
Analysis objects: macroeconomics, sectors and industries, and corporate financial statements.
Main goal: to profit outside of market hours or from highly volatile assets.
How it works: Traders trade cryptocurrencies.
Long-term trading is often referred to as position trading. It's the opposite of scalping; position traders are often very patient and have strong fundamental analysis.
Long-term or position trading versus swing trading
What is the best timeframe for position trading?
The best timeframes are the 50-day and 200-day EMAs. Position traders need to wait for the moving averages to start crossing over.
Which financial instruments do position traders prefer?
One of the preferred instruments for position traders is stocks or indices. This is because economic decisions or adjustments made by governments or central banks can gradually impact the economy over time. These policy decisions can generate profits over periods of six months or longer if the position trader is able to predict price triggers and trends.
Algorithmic Trading
When to use: No specific occasion.
Analyzed objects: charts, trading robot reviews and testing results.
Main goal: Create a trading robot to trade for you.
How it works: A trader installs a trading robot, tests it, and then lets it trade on their behalf.
With an algorithmic trading strategy, you use code and robots to trade for you. One of the benefits of this strategy is that it removes the influence of trading emotions. Eliminating emotions is a key factor in risk management. Furthermore, you don't need to be a coding expert to benefit from algorithmic trading strategies.
Where can I get algorithmic trading programs?
Some programs and services can write code based on the requirements you input. You can also search and buy robots that suit your style through the MQL5 Market.
How to judge whether a trading program is reliable?
There are many different robots available on the market, but not every one of them will make you profitable. Testing can help you understand whether a trading robot or program can bring you profits. There are generally two types of tests you can run to find out if a program is suitable for you:
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Backtesting, i.e. backtesting simulated orders based on historical data
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Forward testing, which simulates trading in real market conditions by using a demo account or tracking the results yourself, without the risk of losing money.
Once you've backtested your trading strategy and fine-tuned your program, you can start using your robot. Another advantage of algorithmic trading is that it requires minimal maintenance. However, while the program can run autonomously, it still requires human oversight.
Crypto Trading
Portfolio Volatility: ⚡️⚡️⚡️
Analyzing complexity: ⏳⏳⏳
Analyzed: Charts, cryptocurrency exchange news, and hash rate.
Main goal: to profit outside of market hours or from highly volatile assets.
How it works: Traders trade cryptocurrencies.
Cryptocurrency trading strategies differ from other types of strategies due to its high volatility, market participant characteristics, size, and other factors. Despite this, cryptocurrencies remain popular as forex traders benefit from highly volatile markets.
Why is trading cryptocurrencies different from trading other assets?
Cryptocurrency market participants are generally categorized into three types: miners, exchanges, and traders. In contrast, currency market participants include commercial banks, central banks, fund managers, and hedge funds. This means that individuals holding large amounts of cryptocurrency or collective holdings can have a far greater influence on the market than in currency markets.
The cryptocurrency market is known for its volatility, making it an attractive trading tool for experienced forex traders. The highly speculative nature of cryptocurrencies is one of the main causes of their instability. Unlike government-backed currencies, cryptocurrencies trade almost entirely based on supply and demand. Furthermore, there are scalability issues. If smart contracts fail to validate within a specific timeframe, downward pressure will be generated.
What indicators do cryptocurrency traders prefer?
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Moving Average (MA) Crossover Tool. Using this tool, you will get a clearer picture of the market by removing some of the randomness of price changes.
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Relative Strength Index (RSI). This tool, used by day traders, can identify momentum in either direction and help you understand whether a crypto asset is overbought or oversold. At its core, the RSI is a simple formula that calculates the highest-profit closing order and the next highest.
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News. It's important to utilize not only the tools day traders use to profit, such as the RSI, but also the strategies favored by news traders. News coverage surrounding cryptocurrencies can significantly influence the direction of asset prices. Furthermore, experienced traders will notice media attention surrounding a particular asset and interpret it as a signal of a potential price trend change. Trading crypto news is also a popular strategy among novice traders.
Stock Trading
Portfolio Volatility: ⚡️
Analyzing complexity: ⏳⏳⏳
Analysis objects: macroeconomics, sectors and industries, and corporate financial statements.
Primary goal: to profit from stock trading, either in the short or long term.
How it works: Traders use both fundamental and technical analysis to trade stocks.
This strategy involves buying and selling shares of publicly listed companies on a stock exchange. When you trade stocks with us, you're trading based on your predictions of stock price fluctuations. Stock prices are influenced by a variety of factors, including the company's financial performance, industry trends, and the overall market environment. This is why stock traders need to consider all details related to the listed company, the market environment, and other industry information.
What factors can help you create a strong stock trading strategy?
The main advantage your broker can offer you is stock diversification. When using a stock trading strategy, it's important to analyze the sector before placing any orders. Additionally, reviewing recent news can help you understand the overall environment surrounding your asset. Some traders prefer to invest in green companies, where diversification is key to supporting profitability. We offer stocks from 16 stock exchanges, allowing you to choose the asset that best suits your style.
What are the returns from stock investing?
Another advantage that may attract you to stock trading is the potential for dividends. Dividends are a portion of a company's profits distributed to shareholders. When you open a position in any of our 230 stocks, you automatically become a shareholder in that company for the duration of your holding period. Best of all, if you use leverage, you'll earn dividends on every share in your leveraged position.
To summarize, when trading Forex, traders must understand each currency in the pair they are trading, which means they need to research and understand the economic and fiscal policies of each country, whereas in stock trading, you have a narrower search pattern to gauge a company's potential performance.
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stock |
currency |
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Number of assets |
150 |
35 |
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Trading Hours |
Depends on the exchange, see full list |
24/5 |
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lever |
Up to 50 |
Up to 500 |
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dividends |
You will receive dividends for every share you hold |
What tools can strengthen your strategy?
When considering which tools and strategies to use, whether you're scalping or prefer to hold a position for the long term, you must evaluate which tools will help you succeed. You might use the same indicators for all of your strategies, but it's important to understand how they differ.
Other indicators that traders find useful:
Besides profiting from trading, traders should consider other aspects. Savvy investors also incorporate risk management into their trading strategies. Adopting basic risk management rules can protect you from the risk of excessive losses. Notably, we offer negative balance protection, so even if your account balance goes negative, we'll automatically return it to zero free of charge.
5 Risk Management Rules
Forex traders often use a variety of risk management tools to help them manage and mitigate risk. Which are the most popular tools?
Stop-loss orders are tools you use to buy or sell an asset when it reaches a specified price level, with the goal of closing the position and preventing losses before the price continues to fall. Stop-loss orders can help traders limit potential risk by automatically selling positions at a specified loss level.
Take Profit. This is a tool you use to buy or sell an asset when it reaches a specified price level, with the goal of closing the position and locking in a profit. Experienced traders advise against expecting further profits without properly analyzing the asset. Therefore, only readjust your take-profit level if you can clearly explain why the price will continue to move in your favor.
Risk-Reward Ratio . This is a measure of an order's potential reward relative to its potential risk. By setting a risk-reward ratio, traders can determine the maximum amount they are willing to lose in order to profit, as well as the minimum amount they expect to profit.
Position sizing. This refers to the size of an order, calculated based on the amount of money a trader is willing to risk. For example, if you have $500 in capital and are only willing to risk 1% of it at a time, then the maximum loss you're willing to take on a single order is $5.
Diversification. This refers to a trader spreading the risk of their portfolio across different assets, such as diversifying across different asset classes, trading other currency pairs, or investing in different sectors or industries to reduce overall risk.
hedging transactions
When to use: Before a period of high volatility.
Main goal: Reduce risk and choose the right trading direction.
Implementation: Traders open two positions in opposite directions simultaneously.
Hedging is an option for traders seeking to diversify and mitigate risk. Traders can reduce the impact of adverse price movements by limiting their exposure. Hedging is accomplished by opening a second order, but in the opposite direction of your primary position. Your margin will be divided between these two orders.
It's important to note that using this risk management strategy doesn't completely protect you from losses. Regardless of whether you're holding a long or short position, the spread plays a significant role in determining whether you'll profit when hedging, as a buy order closes at the bid price, while a sell order closes at the opposite price.
How does hedging avoid losses?
Grid Trading
When to use: The price is good but could be better.
Main goal: Minimize risk and buy at the best price.
How it works: Traders place multiple buy or sell orders at different price levels.
When using grid trading, traders do not need to make traditional market predictions about the direction of an instrument when there is no significant market trend. A grid trading strategy involves placing pending orders at prices below and above specific price levels within a specified time interval.
Martingale Trading
When to use: You expect the price to reverse after a floating loss.
Main goal: turn losses into profits.
How it works: Traders double their order size and take a floating loss, waiting for the asset price to recover.
This type of strategy involves first accumulating losses and then increasing your main position. Specifically, the trader doubles the size of their order after a loss. This may sound strange, but it's a mathematically proven strategy.
The goal of this strategy is to recover your losses. On the one hand, you won't make any profit, but you might also end up with no losses. On the other hand, if the order continues to lose money, the strategy requires you to double your investment. Of course, this strategy is suitable for risk-averse traders who can handle the emotional and financial impact of this strategy.
How to use Martingale strategy to turn losses into profits?
How to Choose the Best Forex Trading Strategy
Before choosing a trading strategy, you should consider the following factors:
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Your trading style and goals. Different trading strategies are suitable for different trading goals. For example, if you are a long-term investor, you may prefer a strategy that allows you to hold positions for the long term. On the other hand, if you are a day trader, you may prefer a strategy that allows you to capitalize on short-term price movements.
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Your experience level. Different forex trading strategies require different levels of experience and expertise. If you're a beginner, you may want to start with a simpler strategy that's easier to understand and implement.
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Your risk tolerance. Your risk tolerance refers to your willingness to take on risk in order to achieve your investment goals. Because some strategies involve higher levels of risk than others, your risk tolerance should be considered when choosing a trading strategy.
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Market environment. Different strategies perform differently in different market environments. For example, some strategies perform well in trending markets, while others are more effective in range-bound markets.
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The amount of time you're willing to invest. Different strategies require different amounts of time and effort. If you don't have a lot of time to devote to trading, you might prefer a strategy that takes less time.
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Your capital. The amount of money you have available for trading will also influence your choice of strategy. Some strategies require a large amount of capital, while others can be implemented with less.
It is important to carefully consider the above factors before choosing a trading strategy. The right strategy can help you achieve your investment goals, while the wrong strategy may cause you to lose money.
