If you are looking to develop your profitable forex trading skills to an expert level. Then here we are to help you to achieve this goal. In this writing, we are going to reveal five strongest trading strategies that guarantee to boost your profitable forex trades. It does not matter that whether you are a dummy trader or the experienced one. These strategies will help you to be a smarter and a professional trader to enhance your returns. From risk management to finding the market trends, we will help you to learn the core elements of forex trading. So, be ready to master the art of profit making in forex trading and dive into the key forex strategies like trend trading, range trading and breakout trading. You will learn here the practical tips that will develop you to unlock the most profitable opportunities in the forex trading world. So, lets start learning the secrets of profitable forex trades.
The Significance of Profitable Trading Strategy
For profitability in the forex market, having a profitable trading strategy is essential. If you do not have a well-developed plan then there is a chance that you will trade on the basis of your impulse not logic. And trades made on impulses often leads to losses. A profitable trading strategy provides you with clear direction and framework of when to take trade and when to stay out of the market. It also tells when to enter the trade and when to exit the trade. Thus, helping you make rational decisions based on market data and analysis. It helps you to identify high probability trading opportunities and managing risk effectively.
A profitable trading strategy should consider numerous factors such as entry and exit points, overall market direction, risk management, and position size. The strategy should work in different market conditions as the financial markets are very volatile in nature and are unpredictable. If you have a profitable trading strategy, you will approach the trade with discipline and logic as you have a plan in hand. The plan will give you the direction in all the market situation and through ups and downs of the market.
Strategy 1: Trend Trading
The most famous and effective trading strategy in forex, stock and other financial markets is the trend trading. It helps the traders to identify overall market direction and how to capitalize the dominant market trend for profitable forex trades. The core methodology of the trend trading is to trade with the direction of the dominant trend. It means when the market is going upward, go for long trades and when the market is going downward go for short trades. You can take considerable profits from the market if you can ride the trend.
The first step in implementing the trend trading strategy is to identify the major trend of the market. This is possible by using the technical analysis such as moving average, trend lines etc. A common practice of identifying the trend in using the exponential moving average of 200-period. In case, the price stays above moving average of 200 periods then the market is in the uptrend. If the price stays below the moving average of 200 periods, then the market is in the downtrend. The other indicators like average directional index provides the information regarding the strength of the trend irrespective of its direction. It tells the trades whether the market is trending or not and how strong the recent trend is. Once you identify the overall trend direction, then the next step is to find the place where you can enter the trend. The best points are the correction or market retracement points when market give you some discount in price to enter the trade. Keep in mind that always enter the trade in the direction of the dominant trend. The third point is to set the stop loss after entering the trade. The stop loss is being set below the swing low in case of uptrend or above the swing high in case of downtrend and short trades.
Strategy 2: Breakout Trading
In breakout trading, we enter the trade when price beaks out from a well-defined range market for profitable forex trades. This range market is depicted with the help of clear support and resistance areas. When price breaks out from a clearly defined support or resistance area, it is expected that it will cover a long distance. This happens because the price stayed in the consolidation or accumulation period for some times which is call range market area. These breakout points are the excellent opportunities to enter the trade as the market sentiments are shift from range bound market to trending market.
The first step in trading breakout is identifying the clear support and resistance area and wait for confirmation of breaking these points. Different kinds of technical indicators can be used for this kind of trading. Some of the indictors are trend lines, chart patterns, average true range (ATR) and Bollinger bands. As the price breaks from the predefined level, you can enter the trader by placing an order in the direction of the breakout. After entering the trade, use proper stop loss strategies to manage the risk.
Strategy 3: Range Trading
As the price is not move in trend all the times. Most of the times, it moves in range bound session within well-defined range. These ranges are identified with the help of support and resistance areas. In this trading strategy, trades buy at support level and sell at resistance level. This kind of trading is suitable when the market is not trending and is moving sideways.
To be successful in this kind of trading, you should be expert in identifying the key support and resistance areas. Different technical analyses are used to identify this area. Some of these technical analyses are price channels, horizontal lines or oscillators such as relative strength index (RSI). Once the support and resistance levels are clear, you can enter the long trade near the support area and enter the short trade near the resistance areas. These areas are also a significant point to exit the trade. Exit the long trade near the resistance area and exist the short trade near the support area. Set your stop loss above the resistance area in case of long trade and below the support area in case of short trade to mange the risk.
Strategy 4: Scalping for Profitable Forex Trades
In scalping trading, traders intend to take profits from the very small movements of price for profitable forex trades. In this strategy, trader enter and exit the trade in a very short amount of time. In this way they earn small profits and repeat this process multiple times in day to make a huge sum at day end. The scalping strategy requires high level of speedy decisions, discipline and precision to earn from this rapid price fluctuations.
Traders use different kinds of technical analysis in scalping strategy such as tick charts, or the indicators like moving average convergence divergence (MACD) or stochastic oscillator. In scalping, tight spreads are required to increase the profitability and minimize the trading cost.
Strategy 5: Carry Trading for Profitable Forex Trades
In carry trading strategy, trades take advantages of the difference of interest rates between different currencies. In this strategy, trades go long in a currency which has higher interest rate and go short in a currency which have lower interest rate. In this way they get profit from the interest rate difference. This kind of trading is usually done in currencies in which one currency has considerably higher interest rate than the other currency.
In carry trading strategy, you first have to identify the currency pairs with considerable interest difference. In the second step, you have to hold the currency till the extended period of time to earn interest. This strategy also has some risks involves. There may be high fluctuations in currency rates and there may be an unexpected change in the interest rate. So, apply proper risk management strategies and evaluate the market conditions closely.
Managing Risk in Profitable Forex Trades
Risk management is the most crucial part profitable forex trades that often separate the profitable traders from the failed ones. In risk management, traders identify the potential risk and mange them to protect their trading capital and enhance their profitability. Risk management can be done with strategies like setting proper stop loss orders, measuring risk to reward ratio, setting their position sizes appropriately, and diversifying their trades. They risk only a small proportion of their capital in a single trade.
The most common type of risk management technique is using the stop loss order. In such orders, the trade automatically closes at a pre-defined price if it does not go in favor. In this way, the trades save themselves from huge drawdown on a single trade. Place your stop loss order logically where it make sense and according to your trading strategy and overall market conditions.
Developing a Trading Plan for Profitable Forex Trades
To be profitable in the forex trading, it is necessary to develop e well-structured trading plan. The trading plan should cover your trading goals, strategies, money management and risk management guidelines. It is better that you have your trading plan in written form and update it with time to time. The trading plan should consider the overall analysis of the market, when to enter the trade and when to exit the trade. It should also consider when to go for trade and when to stay out of the market. The trading plan should have proper guidelines of risk management, and how to evaluate the performance of each trade.
Before developing a trading plan, self-analysis is necessary. The self-analysis should constitute your trading style, risk tolerance, and trading goals. It should also consider that how much time you can give to your trading career. Through this way, you will be able to make your trading plan in a customize and more precise way.
After self-analysis and making your trading plan, regularly review your trading plan and its performance in different market conditions. Update your trading plan as your preferences changes or you get more experience and skills in the trading world.
To master in profitable forex trades, combination of skills, knowledge and discipline is required. With carefully implementing the strategies mentioned above, you can significantly improve your chances of profitability in the forex market. irrespective of the face that you go for trend trading, breakout trading, range market trading, carry trade or scalping, a well-defined trading plan is required. This trading plan should suit your trading style and risk tolerance level. Always mange your risk effectively and keep an eye on the overall market development and sentiments. As you gain more experience with the passage of time, you can enhance your trading skills and market knowledge. Only with proper dedication and commitment, you can become a successful forex trader and unlock the secrets of profitable forex trading opportunities. Happy Trading!