When it comes to forex trading, one of the first steps that a trader needs to take is to set up a trading strategy. Typically, a forex trading strategy should help traders to determine the best entry as well as exit points. While there are many trading strategies that one can opt for, novice traders usually experiment with one or more strategies to determine what suits them best. In this article, discover more about the advanced strategies for trading forex.
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1. Forex Scalping
The first and most popular advanced forex trading strategy is better known as scalping. Forex trading is both dynamic and complex. It requires traders to acquire exact information about the intricacies and complexities of the forex market to be able to earn attractive returns. As a forex trader, you need to realize that there is no absolute technique for success and every method comes with some sort of risk. So, if you intend to make profits through forex trading then forex scalping is definitely a good strategy to follow and implement. This strategy aims at earning quick profits and is performed at regular time periods with profits earned frequently after only a few moves in the market.
In order to use this strategy, traders must analyze the forex market extensively even before entering into a trade. This trading style works well for those who believe in day trading and averse to risks. Thus, scalping takes place once a trader is able to eliminate positions for brief time periods. And, how long this period lasts may vary from one trader to another.
This strategy basically involves taking a position out for any time which is lesser than 5 minutes. However, it is important to understand that this is also one of the drawbacks of the strategy. When you are trading within short time frames, you cannot earn decent returns on your funds that you may have invested. This happens because pairs go down and up by one or more pips. As is already evident, the higher the number of pips, the greater is the profit. This is precisely why forex scalpers trade in huge quantities.
Also, scalping is a technique that is widely used by seasoned or experienced traders. This technique is based on the fluctuations in the value of the currency, which takes place within the forex market at regular intervals each day.
Typically, the time period between the opening and closing positions is short, lasting only for a couple of minutes. Although profits earned from such this type of position is low, the overall gain achieved through huge positions could be significant. In fact, there are many forex traders who trade almost 200 positions on certain days. This is exactly why at the time of scalping; traders must place a stop-loss order closer to the position’s opening price. This is helpful in minimizing losses when one witnesses fluctuations in the market’s direction.
Traders should do the following when using scalping and stop-loss technique:
- Never hold an open position for a longer duration. Typically, the maximum time for holding the position shouldn’t exceed 5 minutes.
- The trade size should be large because the amount of pips gained for every trade is very small.
- When the number of trades places on a daily basis is high, the chances of succeeding with scalping automatically increases.
This technique is ideal for those who prefer day trading. As a result, you won’t have to spend a great deal of time to achieve the desired results.
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2. Positional Trading
This strategy is used by traders who earn big in the forex market. One of the biggest benefits of this strategy is that traders don’t have to spend a great deal of time and attention on using it on a daily basis. In order to implement this strategy, traders simply need to conduct market analysis for a long term period. In positional trading when traders behind trading positions, they must hold positions for a long time period. This time period is dependent on his/her market overview as well as the number of pips acquired.
Thus, traders must ensure that the size of the trade is small when compared with the capital used for trading. With positional trading, traders aim to gather over 100 pips, which helps to make your trade position much safer during market fluctuations. In order to avoid any risks, traders are advised to trade only a small portion or 2% of their trading funds. Also, in positional trading, traders must break even right at the conclusion of their trade.
In a nutshell, to ensure success with a positional trading strategy, a trader must have an excellent understanding of the existing economic condition in the currencies that he/she is looking to trade. Traders must also gather knowledge about the existing geopolitical issues and much of their analysis should happen right before they open a trade position. Thereafter, any further analysis must happen for identifying the exit points.
3. NFP Trading
NFP or Nonfarm Payrolls is related to the economic news published in the United States once in a month. This type of major market news impacts the day traders severely since it can result in the fluctuation of the USD currency pairs for fifty or more pips. Hence, NFP is basically an advanced forex scalping strategy. A couple of hours before the NFP outcomes are to be announced, the forex market starts fluctuating. Thus, the primary aim of the trader in such a scenario is to analyze the possible outcomes of the NFPs.
Thereafter, they must judge how these results would be different from the previous as well as the forecasted values. These values can be easily observed with the help of a forex calendar. Apart from this, traders must also ensure that they have sufficient margin in order to withhold any market fluctuations right before the release of the NFP figures. After the news is announced, the prices of pairs may witness drastic changes in their direction. If this change in the direction is exactly as you had expected, then you could gain many pips in only a couple of hours and vice-versa. NFP trading strategy is basically about making several pips from a profitable trade and later restricting the losses when your prediction goes wrong.
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