HYCM: Top 5 Forex Trading Strategies


Successful forex traders always have a portfolio of Forex trading strategies which they use in different situations. Today, we will discuss Top 5 Forex Trading Strategies.

AtoZForex – Knowing how to apply and adapt a trading strategy according to market conditions is a key factor in becoming a potentially profitable trader, together with a basic understanding of the fundamentals of economics. There are many Forex trading strategies in existence which differ in terms of complexity.

Top 5 Forex Trading Strategies

Some of these rely on the use of technical charts while others rely on a fundamental understanding of the market in relation to current events. Here are 5 of the most popular forex trading strategies, as recommended by HYCM.

Support & Resistance Trading Strategy

All Forex traders should know how to identify support and resistance levels on the charts, regardless of the asset they are trading. As the name suggests, support and resistance act as barriers within Forex markets and are easily spotted on price charts.

Moreover, they prevent the price from moving either higher or lower and can be seen on any Forex chart across all time frames. Trading Forex using support and resistance can be one of the most effective ways to successfully predict future price movements.

Top 5 Forex Trading Strategies

Not only do areas of support and resistance show traders the sentiment of the market as a whole, they can also highlight where not to enter a trade. Support and resistance thus creates a map of the price chart, indicating where the price has previously reversed or bounced. Having the ability to predict future price movements is a powerful tool which can be mastered using the simple analysis of any Forex chart.

Trend Trading Strategy

The basis of this trading strategy is that price historically tends to move in a trend and the idea behind it is choosing a top or a bottom. A typical trend trading strategy involves identifying pairs that are trending either up or down so the trader knows which direction he should be looking to trade. The next step is to find trade entries using a trending indicator of which there are a large number to choose from.

Top 5 Forex Trading Strategies

A popular one is the RSI (Relative Strength Index) which moves up and down between a scale of 0 and 100, tracking the strength of a currency pair’s movement. If the RSI reaches above 70 or falls below 30, it may be set for a price reversal. The exit plan for this strategy is setting a stop and limit with support and resistance. Learning the trend trading strategy is a must for every trader as it can be potentially one of the most financially lucrative of all strategies.

Fibonacci Trading Strategy

One of the most well-known Forex trading strategies is Fibonacci, so called after the famous Italian mathematician. Considered as a medium to long term trading strategy, it is used to follow repeating support and resistance levels. As already noted, the markets historically move in trends and the Fibonacci tool works best when the market is trending.

Top 5 Forex Trading Strategies GBP/USD, M30 Fibonacci Wave trading strategy (click to view)

The idea behind using this strategy is to go long (buy) on a retracement at a Fibonacci support level when the market is trending up and to go short (sell) on a retracement at a Fibonacci resistance level when the market is trending down. If the price is moving in the Fibonacci patterns, traders will find that it will be supported by key 0.328, 0.5 or the 0.618 levels and this is usually where they can take their trades waiting for reversal.

Whilst the Fibonacci trading strategy is one which is used by many HYCM traders, is should be noted that grasping this technique can take practice.

Scalping Trading Strategy

Scalping is a very useful technique, especially for novice traders as it is a low-risk strategy. Nevertheless, strong traders still have the potential to make attractive profits. Scalping is basically a trading strategy which specializes in taking profits on small price changes soon after a trade has been entered into and becomes profitable. Scalping achieves results by increasing the number of winners and sacrificing the size of the wins.

Top 5 Forex Trading Strategies GBPUSD Chart (Click to zoom in)

It is not uncommon for a trader of a longer time frame to achieve positive results by winning only half or even less of their trades but the wins are much bigger than the losses. Successful scalpers have a much higher ratio of winning compared with losing trades whilst keeping profits about equal or slightly larger than losses.

This strategy requires traders to have a strict exit strategy as one large loss could eliminate the many small gains that they have achieved. Scalping requires a great amount of patience and awareness but it can be highly effective.

Candlestick Trading Strategy

Candlestick charts are the most common chart types used by Forex traders. There are other kinds of charts such as line charts and bar charts. However, they don’t reveal as much about past price action as candlesticks.  Also, when trading is based on technical analysis, the decisions for future price action are made based on how the price has reacted in the past.

Candlesticks are the price movement/action for a certain period of time, from as little as 1 minute to a week or a month and candlestick formations are a very useful tool for indicating possibilities for entries and exits. For this reason, they are many traders’ favourite indicators. They work almost perfectly during times of volatility but are still effective in less volatile times, if used in combination with one or more other indicators.

Top 5 Forex Trading Strategies AUDUSD Chart (Click to zoom in)

In summary, there are many Forex trading strategies that traders can consider utilizing. Trying out one or more of the Top 5 Forex Trading Strategies is an ideal way of familiarizing yourself with some of the most effective techniques available. Why not take this opportunity to find out more by checking out the HYCM Education Suite.

About HYCM

HYCM is a leading provider of online FX and CFD trading services to retail and institutional investors. With a 40 year operational history and a strong focus on client satisfaction and technological advancement, HYCM has become the online broker of choice for investors across the globe.

HYCM is part of the Henyep Group, an international conglomerate with businesses in financial services, property, education and charity. It is providing access to a range of asset classes including currencies, commodities, metals, shares and indices.Moreover, HYCM is represented globally with offices in United Kingdom, Hong Kong, Cyprus and Dubai.

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