5 Proven Forex Trading Strategies for Online Success

A part of the collective imagination refers to Forex as a murky environment, where the dynamics of gambling prevail, a perfect lure for the common people who, attracted by easy gains, end up losing their capital instead. It's a wrong vision, which perhaps corresponds to a type of approach that beginners often put into practice: trading without a strategy, relying on improvisation. This is where Forex strategies represent the necessary weapon for those who want to invest in this highly competitive market and come out as winners. It's not easy to draft a strategy, and it's even harder to follow it in a disciplined manner. Some, however, are surprisingly effective and relatively simple to adopt. Below is a focus on five Forex strategies to consider.

Trend Following

It's the most widely used strategy of all. The one that, by virtue of abundant literature and established practice, is defined as the most balanced and profitable, albeit often in the long run. It's based on a simple assumption: "the trend is your friend". This phrase implies the belief that prices tend to arrange themselves in a trend most of the time. At that point, it's sufficient to understand the direction and magnitude of the trend, and the game is on. Is trend following really that effective? Under certain conditions, yes. It should be noted that there is no one-size-fits-all strategy for all actions, but rather one that is suitable for specific contingencies and the investor's style. In this case, the effectiveness is high in situations where the market is clear, while it falters in periods of volatility or laterality. When the market offers no guarantees, the following trader is called to stand by, avoid trades, and wait for more favorable moments. For beginners, given its simplicity, trend following is excellent. The direction and extent of the direction, in fact, are studied through technical analysis, which in this case takes on the role of the true protagonist. In general, therefore, it's sufficient to learn how to use the indicators.

Mechanical Trading

From a certain point of view, mechanical trading is the most exasperated version of "following" trading. The basic principle is the same: to predict market movements and trade consistently with them. The "mechanical" type, however, is characterized by an almost total rigidity. Trades are boxed into predefined schemes, models that are the result of careful study and are reproposed regardless. The trader just has to apply the models almost mnemonically. The advantage of this approach is that the space for human, and therefore fallible, decisions is reduced. It's therefore a strategy that makes objectivity its strong point. The biggest disadvantage, however, lies in the difficulty of the schematization process to keep pace with the market. In a nutshell, the creation of reference models takes place at a slower pace than the changes - even of a systemic nature - that occur in trading. This implies that a scheme can become obsolete and not give the desired results. It should also be noted that, among all the Forex strategies in circulation, it's the one that most of all is based on the assumption: "the market repeats itself". This is true, but only up to a certain point. And it's precisely in this last expression that mechanical trading shows all its limitations.

Spread Trading

It's a highly speculative technique, originally used for hedge funds. It works, however, for any type of asset, including currencies. It should be noted, however, that among the strategies listed here, it's one of the most difficult to master. The element of greatest difficulty, in truth, does not concern the operation in the strict sense, but the preliminary activities. Spread trading in Forex means the strategy that involves investing in two exchange rates, which are positively correlated. This means that when the first exchange rate rises, so does the second. For spread trading to work, however, one exchange rate must rise with more force than the other. In short, you position yourself "market neutral" and profit from the difference. Let's give an example. Let's imagine that the euro-dollar exchange rate is positively correlated with the Australian dollar-franc exchange rate, but that the former rises or falls with more intensity. If we see a positive trend, we will go long (buy) on the euro-dollar, and short (sell) on the Australian dollar-franc. The real difficulty of this technique lies in choosing the pairs of exchange rates. Correlations are not always so evident.

Scalping

Scalping is one of the most exciting strategies, or rather approaches. It's, among the strategies considered "canonical", and therefore most widely used, the one that comes closest to gambling. Not so much for a lack of planning, which in this case makes no sense to exist, but rather for the emotional dynamics that come into play. The basic principle of scalping consists in operating in the very short term, with maturities that can go down to the minute, in order to accumulate small but numerous gains. In theory, scalping pays a lot. However, it's one of the most difficult strategies, if not the most difficult of all. The reason is almost trivial: trading in a frenetic way requires a remarkable presence of mind and resistance to stress. It's not a matter of riding the wave but of riding the tiger. Scalping is particularly suited to volatile markets or those going through a period of high volatility.

Non-Directional Trading

It's the latest frontier of trading. Its peculiarity, which is then its greatest asset, consists in allowing profits regardless of market conditions, even if the market is perfectly linear. It's a radically different vision from the classic one, which takes as reference the famous assumption "the trend is your friend". This means putting aside, at least formally, technical analysis. It's not necessary to use indicators and study charts, since it's not necessary to predict in which direction the price will go. Very simply, any direction is fine. In this perspective, what counts is the present or, in the worst case, the immediate future. Depending on the mixture with technical analysis, and therefore the horizon (present or very short term), we speak respectively of pure or cyclical non-directional trading. The only real limitation of this strategy - for those who know how to use it - consists in one fact: prices tend to return to a certain starting point. In that case, the gains would equate to the losses and it would have been all wasted effort. An advantage, however, is given by the fact that it lends itself to the use of robots, mitigating their limitations, and that it requires a commitment that, although intense, is limited in time (for example, a few minutes a day are enough).