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5 Top Forex Macro Strategies and Their Indicators

September 14, 2022
The 5 Most Used Forex Macro Strategies and Their Respective Indicators
What are the most commonly used Forex macro strategies? How are they used? These are questions that primarily beginner traders ask themselves, especially those who have not yet developed a routine and need to find a setup that suits their trading style. There are many strategies available, and others - mainly variations of existing ones - are developed with a certain regularity. It is therefore useful to know the most important ones, in order to analyze them one by one, perhaps try them out, and finally decide which ones to integrate into your investment activity. In the following article, we will describe some macro strategies, explaining the basic sense and principle behind them, while providing information on the indicators to combine with them.

Why is it important to have a strategy

First of all, it is good to answer a question: why is it good, indeed fundamental, to use a strategy? The reason is simple: strategy is a tool to combat the complexity and uncertainty that dominate the markets. Without a strategy, trading turns into improvisation, into gambling. Worse still, it becomes a victim of emotions, to the point where the psychological sphere takes over the rational one. Strategy provides resources to decide objectively. If created with care and effectiveness, it gives the investment activity an "almost" scientific character, such as to increase the chances of success. Not all strategies are equal. However, there is no one best strategy. Each has its own application, a setup that favors it. This setup can certainly concern market phases and asset characteristics, but also the trading style and risk propensity of the individual investor.

Scalping

Let's start with scalping, which is the strategy that condenses the most intense curiosity. After all, it promises to operate on a very tight schedule, exploiting the smallest price fluctuations. Scalpers open and close positions in the shortest possible time. The goal is obviously to make small but numerous gains. In this way, capital still grows at a fast pace. Scalping, to be clear, is difficult to practice, as it requires strong nerves. Moreover, the asset must be volatile, but also anchored to rational dynamics. It must not be susceptible, at least for the period in which one operates, to external turbulence, such as statements or events coming from the economic, political world, etc. In any case, the best indicators for scalpers are those that can be read quickly, and that can provide realistic evidence. For example, fast moving averages, to be combined two or three at a time (obviously they must have different periods).

Breakout

The Breakout strategy aims to intercept the change in trend. The goal, if the position is long, is to enter when the price is as low as possible and exit when the price is as high as possible. In this way, profits are maximized. It requires a certain timing, but still develops over a fairly large time span, covering medium-term trends. It is not very suitable for those assets that, in the specific period in which one operates, tend to produce many sideways movements. These in fact intensify the unpredictability of the asset, which could degenerate into a specific trend in a sudden manner, and tend to produce false signals. The core of the Breakout strategy lies precisely in identifying the early signals of price contraction or expansion. This is why it is necessary to use indicators that provide mobile supports and resistances, which are updated in real time, such as Bollinger Bands or Ichimoku Clouds.

Pullback

The Pullback strategy is very particular as it focuses on some movements that are generally overlooked. Specifically, corrective movements. These are quite frequent, and occur exclusively during well-formed trends. In essence, and assuming a positive trend, the asset tends to "correct" itself with small bearish movements whenever the increase has been excessive. The most suitable tools for the Pullback strategy are supports and resistances, which suggest the prices reached at which the asset tends to move in the opposite direction. Supports and resistances can be identified in many ways, from the most technical ones (involving indicators) to the more "manual" ones, which take highs and lows as reference.

Swing Trading

Swing trading is a medium-term strategy. In fact, it tries to "capture" the large oscillations, but always within the trend. Generally, positions are held for at least a couple of days and at most for a couple of weeks. It depends, of course, on the asset's volatility. "Swingers" produce a lot of technical analysis, as their goal is to identify signals that announce movements opposite to those currently underway. However, operating over a fairly extended period, they also deal with technical analysis. The probability that an external event will impact prices and disprove previous calculations produced through technical analysis is indeed high. Position Trading Also known as "position trading", it imposes in the vast majority of cases an important time horizon, equal to months or even years. It aims to capture macro-trends, which mainly involve "fundamental" factors, i.e., external ones. For example, changes in monetary policies and economic cycles. The most important tool of the "positional" trader is therefore fundamental analysis itself. The analysis is however meticulous as from it the trader draws indications on the more or less near future. The importance given to study and the extremely dilated horizon of positions make this strategy the least stressful of all. On the other hand, it requires substantial investments, since even in the best-case scenario the number of gains will be low.

An exception to the rule: copy trading

At this point, it is worth mentioning a particular strategy, which we could define as a non-strategy. We are talking about copy trading. Those who practice copy trading literally copy the moves of a trader (obviously aware). Potentially, they earn without doing anything. In reality, the issue is different: the effort shifts from actual trading to analyzing the performance of others. In short, you need to understand who is the winning horse... And get on it. Many brokers offer copy trading, so it enjoys a certain popularity. Some consider it as a training tool, aware that observation allows the acquisition of knowledge.

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