Forex trading strategy

The trading strategy often is the only thing that determined your success — or failure — on the Forex market. Not only must it be successful on its own, but it also must fit your trading style and experience level. Which makes choosing your strategy extremely important.

The absolute majority of trading strategies can be divided into two sections: Price Action and scalping. Both are equally viable and can be easily recommended to the Forex newcomers.

Price Action

Developed by the ForexFactory community, Price Action is a methodical, long-term strategy that is designed around market pattern recognition. The idea is that the market will react to the events in the future the same way it did to the similar past events.

There are two equally important parts of Price Action — candlestick patterns and chart patterns.

  • Candlestick patterns are formed by one-to-three neighbouring candlesticks. They determine the state of the market for the next couple of candlesticks and are used as a signal to open or close the orders. The most notable candlestick patterns are the pin bar, the inverted bar, the fake breakout and the DHDL.
  • Chart patterns are formed by the support and resistance levels on the charts. They indicate the mood of the market, as well as provide a form of a long-term forecast. The most notable patterns are flags and triangles.

Overall, Price Action is mostly used by the high-capital traders that prefer long timeframes (1H+). It doesn’t bring as much income as the scalping strategies, but it is also a lot less demanding when it comes to time spent trading.

Scalping

Scalping is fundamentally different from Price Action. It is a high-speed strategy that depends on a large number of transactions on short timeframes. Scalping is designed around using the market indicators for short-term predictions and closely following the swing of the price.

The more advanced scaping strategies are made for 1M or even real-time timeframes. This makes them very hard to follow for the beginner traders and causes a sense of emotional burnout among them. Which is why the newcomers to the market should start with something simpler — like “Lazy River” scalping for 5M timeframes.

Overall, scalping is better suited for the small-volume traders that are willing to put in work in return for the profits. Successful scalpers sometimes multiply their starting capital by 150% monthly — which is a lot even for Forex.

Conclusion

Having a good trading strategy is the only sure way to succeed on Forex. However, which strategy to use is completely up to you. Scalping is a difficult, but rewarding technique, while Price Action is more reliable yet less profitable.