Forex Trading Strategies Forex Trading Strategies

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Forex Trading Strategies For Beginners Free PDF Download

I know that it can be incredibly time-consuming, frustrating and just annoying researching Forex trading strategies and different trading styles.

The huge problem is that it is often hard to know if you should use a strategy, if that strategy suits you and your lifestyle, and if it is worth your precious time learning and trading with it.

These are all pretty important to know before you begin devoting your time to learning, trading and mastering them.

In today’s lesson I go through four Forex trading strategies you can learn and use in your trading now.

A quick note before you go through them; I highly recommend you find one strategy that you like, suits you best and your lifestyle and personality. Master the heck out of that one strategy first and become profitable with it.

It is far faster to learn, master and become profitable with one strategy, than trying to learn a whole bunch at the same time. You can always add more and more strategies when you are profitable, but profits are the key.

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This is an in-depth guide, so I have added a table of contents for ease of use below;

Swing Trading

Swing trading is looking to profit from the next swing the markets make.

As a swing trader you will often be using the higher time frames such as the 4 hour and daily charts and looking to capture large market swings and moves.

As a swing trader you don’t just have to use higher time frames, but you are not breakout trading, false breakout trading or scalping. You are looking to profit from larger swings.

When breakout trading you are looking for really fast price movement and to profit from explosive breaks of important support and resistance levels. If you miss crucial moments, it will often mean you miss the trading opportunity you were waiting for.

Swing trading is not as stressful and you will often have the levels you want to find and then enter your trades at pre-marked so you know when price moves into a level to look for a trade setup.

Because price is not breaking out and making explosive breakout moves, and is often moving over longer periods, you have more time to make your trading decisions and is a less stressful way to trade.

I have attached an example swing trade on the chart below. If price is in an uptrend you would look to identify where the next swing low is going to occur and where you would like to hunt for long trades.

If price moved into this level you would be watching for bullish price action trigger signals to get long and for price to make its next swing higher for you to make profits.

See chart example of this below;

Why You Should Swing Trade

– You have to study full-time or have a job, but still want to trade

– You want to trade higher time frames like 4hr, daily and weekly charts

– You don’t want to use the smaller paced time frames

– You are happy to make less trades that are higher in quality

Why You Shouldn’t Swing Trade

– It does not involve entering fast-paced intraday breakout trades hunting for quick wins

– Whether on the smaller or higher time frames it can take time to play out

– You are not moving in and out of your trades quickly

Swing trading can suit a wide variety of traders who are looking to make quality trades and enter into the next swing in the market.

If however, you are looking for a strategy that is fast paced, you are in and out of your trades quickly and you can make many trades in a short period, you may want to use another strategy.

I have an in-depth guide you can use to learn more about swing trading at; Swing Trading Price Action Quick Guide

False Breakout Trading Strategy

A false break can be a very high probability trading setup when you have mastered it and play it at the best areas.

The false break occurs when price looks to breakout of a support or resistance level, but then quickly snaps back in the other direction, false breaking a large portion of the market out.

When the first breakout begins price is looking to breakout and through a support or resistance. In this example we will say price is looking to breakout and through a resistance level.

When price begins to breakout higher a large portion of the market begin to look for the resistance to break and will enter long trades, often setting their stop loss just on the other side of the resistance.

When price begins to move back lower, the market participants who were long and looking for the resistance to break begin to get stopped out of their long trades. As price gains momentum back lower more and more stops are eaten and price completes the false break.

The false break trading strategy opens a lot of potential high probability trading opportunities for you because it can be used on many different markets, many time frames and can be used at the major support and resistance levels.

I have attached an example Bearish Engulfing Bar = BEEB false break of a major level below;

Why You Should Use False Breakout Trading

– Can be traded on many time frames

– Can be used in many markets and pairs

– Can be traded with many triggers as the major entry

– Often entering when the majority of the market has been stopped out entering in the wrong direction

Why You Shouldn’t Use False Breakout Trading

– Can be stopped out quickly if you get it wrong

– Moves can be explosive and quickly lead to a loss

Once you have mastered false break trading it can be incredibly high probability. You will be looking to enter the market when the majority have been false broken in the wrong direction and you can often enter into explosive moves.

You can also use this strategy on many markets and time frames with many triggers for entry.

You can read an introduction guide to using the false break at; False Break Forex Trading Quick Guide

Scalping

As a scalper you are looking to get in and out of your trades quickly and profit from smaller moves in the price action.

Whilst you are looking to make far smaller pip targets, you are looking to do it in far shorter amounts of time than other strategies.

As a scalper you are capitalizing on the bigger markets volatility and quick price movements to make your profits.

A swing trader is looking to enter trades on the 4 hour or daily charts and then hold those trades for hours or days. When scalping you are generally holding your trades for minutes at a time, depending on how small the time frame.

Some traders love scalping as it offers them more potential trading opportunities, they do not have to hold for extended periods and they can close their trades and finish for the session.

Below I have included an example 5 minute chart showing price testing a key level and then forming a huge false break pin bar reversal to get short.

You can learn how to scalp the market with price action and two simple strategies at; Price Action Scalping: Quick Guide

Why You Should be a Scalper

– Fast-paced movements firing off more trading opportunities

– In and out of the markets quickly with little trade hold time

Why You Shouldn’t be a Scalper

– A lot less time to make good trading decisions

– Often leads to more trader errors

– Things can blow out and go wrong very quickly

– Trade costs such as spreads will affect bottom line more heavily

Scalping is not for everyone and is not for the faint of heart.

Whilst most traders start out on the smaller time frames and looking for as many trades as they can humanly find, this does NOT mean it suits them or that it is what they should be doing.

If you are going to scalp trade you need to have every part of your trading style locked down and be ready for all market circumstances that will come your way.

Longer Term Position Trading

Position trading is a trading style where you are looking to hold trades over much longer periods and take a ‘position’ in the market.

This style of trading is normally carried out on the daily, weekly and monthly charts.

As a position trader, you will often be trying to use the overall larger trend to gain the best positions and capture long running trades.

The key to position trading is knowing how to cut your losses relatively soon, whilst maximizing the times you make large running winners. This will often involve pyramiding into your winning positions adding further positions as price moves in your favor.

The best markets for position traders are the clearly trending markets where price is making a clear move in one direction. The weekly chart example I have added below shows an obvious trend higher that is perfect for a position trader.

This is the type of market that is making regular higher highs and higher lows. This gives the position trader a chance to not only add to their position, but use the swing points as areas to move their stop as a trail to lock in profits as the market moves.

Why You Should be a Position Trader

– Requires far less time because not always watching charts

– Less stress because not always watching the markets and the short-term moves don’t affect your outcome as much

Why You Shouldn’t be a Position Trader

– Long trade hold times

– Large stop sizes to hold trades

– Using portion of account for days and weeks on end whilst other opportunities are happening

– Far less trading opportunities

If you don’t have the time to monitor the markets as frequently and are happy to let your trades ride for longer periods of time, then position trading may be for you.

If however; you don’t want to wait long periods for your trades to play out, use huge stops or make smaller amounts of trades, then I would suggest another strategy.

What Forex Trading Strategies Should You Use?

Each trading strategy and style comes with its pros and cons. Some strategies you simply will not be able to use either because they don’t suit your time frame and lifestyle or because they are not suited to your personality.

To see what Forex trading strategies suit you best, a nswer these three questions;

How Much Time do You Have?

This is probably the most crucial question you need to consider.

You need to think about how much time you have to first learn the strategy and then implement it.

If you only have a few minutes each day to monitor the markets, then scalping is not going to be suitable for you at all as you simply will not have the time to make the trades. You could look at position trading or swing trading.

You also need to think about how much time you are willing or able to invest in learning your chosen strategy.

What Personality Style do You Have?

Different personalities are suited to different trading strategies.

You may be a trader who wants to be in the markets, making trades and who is happy to stare at your screen for hours on end.

Or, you may want to use trading to make money, but not spend all of your time watching screens and monitoring every pip movement.

Every trader is different and this is something you need to take into account when you choose your strategy. Don’t choose a strategy that will have you watching every pip movement if you are far more suited to making a trade, setting your stop and profit orders and then coming back later.

What Are You Trying to Achieve?

Are you trying to create a lifestyle with more free time, possibly more time with your family and choosing what you do and when?

Or, are you trying to make as much money as possible and are happy to spend all of your time in the markets day in and day out?

Most traders come to trading for money and lifestyle. When choosing your strategy, think about what you are trying to set up and achieve with your trading.

Lastly

Yes, there is a lot to learn, and there are a lot of other Forex trading strategies such as breakout trading, price flip trading and trend or momentum trading, but you only need to start with one strategy.

Find the one strategy that suits you the best, practice the heck out of it on your demo and then become profitable with it.

Once you have become profitable with your first strategy you can add more and more. After becoming profitable and successful learning the first strategy, adding the second, third and fourth becomes a lot quicker as you are using the same base methods.

I hope this in-depth lesson helps you find a strategy to find success with.

Let me know your thoughts on this lesson and any questions in comments section below;

Top 8 Forex Trading Strategies and their Pros and Cons

Main talking points:

  • What is a Forex Trading Strategy?
  • Forex Strategies: A Top-level Overview
  • Price Action Trading
  • Range Trading Strategy
  • Trend Trading Strategy
  • Position Trading
  • Day Trading Strategy
  • Forex Scalping Strategy
  • Swing Trading
  • Carry Trade Strategy

Discover what type of forex trader is buried within your DNA with our interactive DNA FX Quiz

What is a Forex Trading Strategy?

A forex trading strategy defines a system that a forex trader uses to determine when to buy or sell a currency pair. There are various forex strategies that traders can use including technical analysis or fundamental analysis . A good forex trading strategy allows for a trader to analyse the market and confidently execute trades with sound risk management techniques.

Forex Strategies: A Top-level Overview

Forex strategies can be divided into a distinct organisational structure which can assist traders in locating the most applicable strategy. The diagram below illustrates how each strategy falls into the overall structure and the relationship between the forex strategies.

Forex Trading Strategies That Work

Forex trading requires putting together multiple factors to formulate a trading strategy that works for you. There are countless strategies that can be followed, however, understanding and being comfortable with the strategy is essential. Every trader has unique goals and resources, which must be taken into consideration when selecting the suitable strategy.

There are three criteria traders can use to compare different strategies on their suitability:

  1. Time resource required
  2. Frequency of trading opportunities
  3. Typical distance to target

To easily compare the forex strategies on the three criteria, we’ve laid them out in a bubble chart. On the vertical axis is ‘Risk-Reward Ratio’ with strategies at the top of the graph having higher reward for the risk taken on each trade. Position trading typically is the strategy with the highest risk reward ratio. On the horizontal axis is time investment that represents how much time is required to actively monitor the trades. The strategy that demands the most in terms of your time resource is scalp trading due to the high frequency of trades being placed on a regular basis.

1. Price Action Trading

Price action trading involves the study of historical prices to formulate technical trading strategies. Price action can be used as a stand-alone technique or in conjunction with an indicator. Fundamentals are seldom used; however, it is not unheard of to incorporate economic events as a substantiating factor. There are several other strategies that fall within the price action bracket as outlined above.

Length of trade:

Price action trading can be utilised over varying time periods (long, medium and short-term). The ability to use multiple time frames for analysis makes price action trading valued by many traders.

There are many methods to determine support/resistance levels which are generally used as entry/exit points:

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. 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.

2. Range Trading Strategy

Range trading includes identifying support and resistance points whereby traders will place trades around these key levels. This strategy works well in market without significant volatility and no discernible trend. Technical analysis is the primary tool used with this strategy.

Length of trade:

There is no set length per trade as range bound strategies can work for any time frame. 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.

Oscillators are most commonly used as timing tools. Relative Strength Index (RSI ) , Commodity Channel Index (CCI) and stochastics are a few of the more popular oscillators. Price action is sometimes used in conjunction with oscillators to further validate range bound signals or breakouts.

Example 1 : USD/JPY Range Trading

USD/JPY has been exhibiting a prolonged range bound price level over the past few years. The chart above illustrates a clear support and resistance band which traders use as entry/exit points. The RSI oscillator demonstrates timing of entry/exit points as highlighted by the shaded blue and red boxes – blue: overbought and red: oversold .

Range trading can result in fruitful risk-reward ratios however, this comes along with lengthy time investment per trade. Use the pros and cons below to align your goals as a trader and how much resources you have.

  • Substantial number of trading opportunities
  • Favourable risk-to reward ratio
  • Requires lengthy periods of time investment
  • Entails strong appreciation of technical analysis

3. Trend Trading Strategy

Trend trading is a simple forex strategy used by many traders of all experience levels. Trend trading attempts to yield positive returns by exploiting a markets directional momentum.

Length of trade:

Trend trading generally takes place over the medium to long-term time horizon as trends themselves fluctuate in length. As with price action, multiple time frame analysis can be adopted in trend trading.

Entry points are usually designated by an oscillator (RSI, CCI etc) and exit points are calculated based on a positive risk-reward ratio. Using stop level distances, traders can either equal that distance or exceed it to maintain a positive risk-reward ratio e.g. If the stop level was placed 50 pips away, the take profit level wold be set at 50 pips or more away from the entry point.

Example 2: Identifying the Trend

In the simple example above, EUR/USD exhibits an upward trend validated by higher highs and higher lows . The opposite would be true for a downward trend.

EUR/USD Trading the Trend

When you see a strong trend in the market, trade it in the direction of the trend. For example, the strong uptrend in EUR/USD above.

Using the (CCI) as a tool to time entries, 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. In conclusion, identifying a strong trend is important for a fruitful trend trading strategy.

Trend trading can be reasonably labour intensive with many variables to consider. The list of pros and cons may assist you in identifying if trend trading is for you.

  • Substantial number of trading opportunities
  • Favourable risk-to reward ratio
  • Requires lengthy periods of time investment
  • Entails strong appreciation of technical analysis

4. Position Trading

Position trading is a long-term strategy primarily focused on fundamental factors however, technical methods can be used such as Elliot Wave Theory. Smaller more minor market fluctuations are not considered in this strategy as they do not affect the broader market picture. This strategy can be employed on all markets from stocks to forex.

Length of trade:

As mentioned above, position trades have a long-term outlook (weeks, months or even years!) reserved for the more persevering trader. Understanding how economic factors affect markets or thorough technical predispositions, is essential in forecasting trade ideas.

Key levels on longer time frame charts (weekly/monthly) hold valuable information for position traders due to the comprehensive view of the market. Entry and exit points can be judged using technical analysis as per the other strategies.

Example 3 : Germany 30 (DAX) Position Trading

The Germany 30 chart above depicts an approximate two year head and shoulders pattern , which aligns with a probable fall below the neckline (horizontal red line) subsequent to the right-hand shoulder. In this selected example, the downward fall of the Germany 30 played out as planned technically as well as fundamentally. Towards the end of 2020, Germany went through a technical recession along with the US/China trade war hurting the automotive industry. Brexit negotiations did not help matters as the possibility of the UK leaving the EU would most likely negatively impact the German economy as well. In this case, understanding technical patterns as well as having strong fundamental foundations allowed for combining technical and fundamental analysis to structure a strong trade idea.

List of Pros and Cons based on your goals as a trader and how much resources you have.

  • Requires minimal time investment
  • Highly positive risk-to reward ratio
  • Very few trading opportunities
  • Entails strong appreciation of technical and fundamental analysis

5. Day Trading Strategy

Day trading is a strategy designed to trade financial instruments within the same trading day. That is, all positions are closed before market close. This can be a single trade or multiple trades throughout the day.

Length of trade:

Trade times range from very short-term (matter of minutes) or short-term (hours), as long as the trade is opened and closed within the trading day.

Traders in the example below will look to enter positions at the when the price breaks through the 8 period EMA in the direction of the trend (blue circle) and exit using a 1:1 risk-reward ratio.

Example 4 : EUR/USD Day Trading

The chart above shows a representative day trading setup using moving averages to identify the trend which is long in this case as the price is above the MA lines (red and black). Entry positions are highlighted in blue with stop levels placed at the previous price break. Take profit levels will equate to the stop distance in the direction of the trend.

The pros and cons listed below should be considered before pursuing this strategy. Day trading involves much time and effort for little reward, as seen from the EUR/USD example above.

  • Substantial number of trading opportunities
  • Median risk-to reward ratio
  • Requires lengthy periods of time investment
  • Entails strong appreciation of technical analysis

6. Forex Scalping Strategy

Scalping in forex is a common term used to describe the process of taking small profits on a frequent basis. 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.

Length of trade:

Scalping entails short-term trades with minimal return, usually operating on smaller time frame charts (30 min – 1min).

Like most technical strategies, identifying the trend is step 1. Many scalpers use indicators such as the moving average to verify the trend. Using these key levels of the trend on longer time frames allows the trader to see the bigger picture. These levels will create support and resistance bands. Scalping within this band can then be attempted on smaller time frames using oscillators such as the RSI. Stops are placed a few pips away to avoid large movements against the trade. The MACD indicator is another useful tool that can be exercised by the trader to enter/exit trades.

Example 5 : EUR/USD Scalping Strategy

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). The smaller time frame is then used to target entry/exit points. Timing of entry points are featured by the red rectangle in the bias of the trader (long). Traders can also close long positions using the MACD when the MACD ( blue line ) crosses over the signal line ( red line ) highlighted by the blue rectangles.

Traders use the same theory to set up their algorithms however, without the manual execution of the trader.

With this practical scalp trading example above, use the list of pros and cons below to select an appropriate trading strategy that best suits you.

  • Greatest number of trading opportunities from all forex strategies
  • Requires lengthy periods of time investment
  • Entails strong appreciation of technical analysis
  • Lowest risk-to reward ratio

7. Swing Trading

Swing trading is a speculative strategy whereby traders look to take advantage of rang bound as well as trending markets. By picking ‘tops’ and ‘bottoms’, traders can enter long and short positions accordingly.

Length of trade:

Swing trades are considered medium-term as positions are generally held anywhere between a few hours to a few days. Longer-term trends are favoured as traders can capitalise on the trend at multiple points along the trend.

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.

Example 6 : GBP/USD Swing Trading Strategy

A combination of the stochastic oscillator, ATR indicator and the moving average was used in the example above to illustrate a typical swing trading strategy. The upward trend was initially identified using the 50-day moving average (price above MA line). In the case of an uptrend, traders will look to enter long positions with the old adage of ‘buy low, sell high’.

Stochastics are then used to identify entry points by looking for oversold signals highlighted by the blue rectangles on the stochastic and chart. Risk management is the final step whereby the ATR gives an indication of stop levels. The ATR figure is highlighted by the red circles. This figure represents the approximate number of pips away the stop level should be set. For example, if the ATR reads 41.8 (reflected in the last ATR reading) the trader would look to place the stop 41.8 pips away from entry. At DailyFX, we recommend trading with a positive risk-reward ratio at a minimum of 1:2. This would mean setting a take profit level (limit) at least 83.6 (41.8 x 2) pips away or further.

After seeing an example of swing trading in action, consider the following list of pros and cons to determine if this strategy would suit your trading style.

  • Substantial number of trading opportunities
  • Median risk-to reward ratio
  • Entails strong appreciation of technical analysis
  • Still requires extensive time investment

8. Carry Trade Strategy

Carry trades include borrowing one currency at lower rate, followed by investing in another currency at a higher yielding rate. This will ultimately result in a positive carry of the trade. This strategy is primarily used in the forex market.

Length of trade:

Carry trades are dependent on interest rate fluctuations between the associated currencies therefore, length of trade supports the medium to long-term (weeks, months and possibly years).

Strong trending markets work best for carry trades as the strategy involves a lengthier time horizon. Confirmation of the trend should be the first step prior to placing the trade (higher highs and higher lows and vice versa) – refer to Example 1 above . There are two aspects to a carry trade namely, exchange rate risk and interest rate risk. Accordingly, the best time to open the positions is at the start of a trend to capitalise fully on the exchange rate fluctuation. Regarding the interest rate component, this will remain the same regardless of the trend as the trader will still receive the interest rate differential if the first named currency has a higher interest rate against the second named currency e.g. AUD/JPY .

Could carry trading work for you? Consider the following pros and cons and see if it is a forex strategy that suits your trading style.

  • Little time investment needed
  • Median risk-to reward ratio
  • Entails strong appreciation of forex market
  • Infrequent trading opportunities

Forex Strategies: A Summary

This article outlines 8 types of forex strategies with practical trading examples. When considering a trading strategy to pursue, it can be useful to compare how much time investment is required behind the monitor, the risk-reward ratio and regularity of total trading opportunities. Each trading strategy will appeal to different traders depending on personal attributes. Matching trading personality with the appropriate strategy will ultimately allow traders to take the first step in the right direction.

Enhance your forex trading

  • If you’re new to forex trading, download our Forex for Beginners Trading guide .
  • Register for free to view our live trading webinars which cover various topics related to the Forex market like central bank movements, currency news, and technical chart patterns.
  • Stay up to date with major news events and economic releases by viewing our economic calendar .
  • Successful trading requires sound risk management and self-discipline. Find out how much capital you should risk on your open trades.
  • We also recommend viewing our Traits of Successful Traders guide to discover the secrets of successful forex traders.

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