6 simplest & most effective forex trading methods

6 simplest & most effective forex trading methods

EDUCATION

Popular forex trading methods

In general, forex trading strategies are mainly based on 2 main methods: fundamental analysis and technical analysis. Therefore, smart traders always know how to flexibly combine effective trading methods together to find the most attractive profit.

Up to now, there are many investment strategies on the market, but only the following 6 forex trading methods are most used by investors.

Day trading

Day trading is a method of day trading, investors who trade according to this method are called day traders. In it, day traders will not hold any orders overnight but always close all orders before the trading session ends.

 Day trading
Day trading

Day trading investors often use technical analysis more to evaluate and exploit price fluctuations, marking time periods or trading volumes during the day. Usually, day traders hold trades from a few minutes to a few hours.

Advantages:

Avoid risks (price moves in a bad direction due to news) and no need to pay swap fees (overnight fees) because traders have closed their positions at the end of the session.

Monthly profits can be obtained if you know how to manage risks well.

Defect:

Stressful and time consuming because traders have to monitor the market continuously during the day.

It is possible to lose a large amount of money if the market falls into a slide or the movement deviates from your expectations.

Scalping

Scalping is scalping , investors who follow this method are called Scalper. Scalping is a short-term trading strategy because scalpers usually only hold orders for a few tens of seconds, or a few minutes at most. That is, they will buy and sell multiple times a day to take advantage of small fluctuations in short time frames to “eat” small spreads.

Scalping
Scalping

Due to the very short trading time, scalpers execute a lot of orders during the trading session. If you know how to use financial leverage skillfully, on average, each trader can earn 5-10 pips/ 1 trade. However, to maximize the advantages of the scalping strategy, traders need to choose a broker with low spread and commission fees so as not to spend a lot of trading fees.

Advantages:

There are always plenty of profitable trading opportunities every day.

Overall income is quite high.

Defect:

Always have to watch forex charts for hours.

Psychology is always tense and pressured.

Many costs incurred: software fees, newsfeed fees (providing news)…

Note that retail investors with a small amount of capital should not choose this method because transaction costs (especially spread fees) will take up most of your profits. Even if you are an investor with poor capital management, the profit earned is not enough to make up for the transaction fees.

Swing trading

Swing trading means trading according to the oscillation. This is a medium-term trading strategy in which traders can hold positions for several days to weeks, averaging two to four days.

Investors who use swing trading often rely on technical analysis such as candlestick patterns, support and resistance levels, indicator lines, etc., and price action to identify reasonable entry and exit points with little when it comes to the ground rules. Due to the medium-term nature, they often look at forex charts at 1H (1 hour) and 4H (4 hours) time frames.

Swing trading
Swing trading

Advantages:

No need to spend a lot of time “watching” the market all day like scalpers and day traders. Thus, you will have time to complete other important tasks.

Mentally relaxed and not under great pressure.

The overall rate of return is quite attractive.

Defect:

It is not possible to get a large profit when the market has strong fluctuations in a bad trend.

Take the risk for holding orders overnight.

Position trading

Different from the above trading methods, Position trading is a long-term trading strategy, that is, traders will hold orders from a few weeks to months, or even years. Therefore, the timeframes for viewing a position trader’s forex charts are usually days or weeks.

As a Position style trader, they will not focus on technical analysis like scalpers, but will mainly rely on fundamental analysis to make judgments about future price trends, from make a rational decision to buy or sell currency.

Position trading
Position trading

Advantages:

No need to spend a lot of time “watching” the market.

The sentiment is relaxed and not under great pressure because position traders are not affected by short-term price movements.

Profit margins can be huge if the market moves according to your expectations.

Defect:

Requires traders to have a solid background in fundamental analysis and technical analysis, especially when it comes to regularly monitoring economic and political news in the world.

The capital requirement is quite large as the stop loss is usually deeper.

Profit is calculated on an annual basis because the number of trades is very small.

Price action

Price action , also known as price action trading, is a method of making technical trades through the analysis of past price movements. Price action can be used as a standalone strategy or in combination with other technical tools.

Price action traders rarely apply the principles of fundamental analysis. They identify entry and exit points using resistance/support levels, Fibonacci retracement, price patterns, indicators, etc.

Price action
Price action

Price action trading can be applied in different time frames (short term, medium term and long term). Accordingly, investors are also encouraged to use multiple time frames for price analysis to have a more accurate and overview view.

Advantages:

Trading is relatively simple because mainly just using candlestick charts. Therefore, the price action method is very suitable for new traders.

Cultivate analytical thinking ability.

Defect:

For intensive use is very difficult.

It is highly subjective, depending on the assessment and experience of each trader.

There are many risks such as strong price fluctuations or the market being manipulated by the makers.

High-Frequency Trading

High-Frequency Trading means high-frequency trading, is a trading method that uses complex and proprietary algorithms (specialized computer programs) to perform large-scale trading in a very short time, only about a millisecond.

To trade in this method, investors must be experienced, knowledgeable, quick to operate and proficient in computer technology. The most profitable independent traders are often the ones with the fastest order speed. However, standalone commands are often quite difficult to execute and not easy to complete.

Due to its complexity and high technical requirements, the High-Frequency Trading method is no longer commonly used.

Advantages:

Contributing to stabilizing the market to avoid strong price fluctuations.

From there, helping traders limit large losses.

Take full advantage of the price difference and make a profit.

Defect:

Trade with fast speed and large volume, so it is easy to have a strong impact on the market.

No broker involvement due to complex algorithms applied.

Easy to cause virtual transactions.

How to choose the right trading method for you

In addition to the above-mentioned popular trading methods, there are now countless other trading strategies on the market, so it is understandable that you feel confused in the process of choosing an investment method. So, in the next article, we will help you find a way to explain and choose an effective trading strategy that works best for you.

How to choose the right trading method for you
How to choose the right trading method for you

Determine the purpose of forex investment

In terms of forex investment purposes, we can divide it into two main types: income and profit. In which, income is the amount of interest earned monthly; Profit is the percentage of profit earned each year.

About income:

If you want to make a big income, you need to make many trades in a short period of time, corresponding to low time frames (minutes, hours) and spend a lot of time sitting at the computer screen to monitor forex charts . This trading strategy is suitable for short-term investors like Scalper, day trader or swing trader.

About profit:

If you want to get big profits, you need to trade in higher timeframes (weeks, months) and hold positions for long term. Therefore, traders do not need to spend too much time monitoring forex charts every day. This investment strategy is suitable for Swing or Position trading traders.

Determine the transaction time.

If you have an administrative job and consider forex trading as just a second source of income, that is, you cannot spend more than 12 hours a day trading in the market, then it is best to choose the Swing method. trading or Position trading. On the contrary, if you have a lot of free time and like the thrill of short-term trading then scalping and day trading is the perfect choice for you.

Consider some other factors

The size of the trading capital is large or small.

More or less trading experience.

Habits, preferences and risk tolerance. If you choose an investment method with a low return but safe, you should use Swing trading. On the contrary, if you want to get high profits but high risk, you should use Position trading.

In general, if you know how to trade smartly and adhere to the principles of risk management well, the profitability ratios of the above trading methods are similar. Moreover, each trader participating in the market will have different personalities, so it will also be suitable for different investment strategies.

Therefore, the best solution is to choose a trading style that you are most comfortable with and understand the method best.

Note: For the simplest but most effective forex trading, you need to be careful not to change your trading style too often, you should only change your investment method when you feel that this principle is no longer suitable for your conditions. market and trading performance is getting worse and worse.

Conclude

Thus, the above article has outlined the top 6 effective forex trading methods with certain advantages and disadvantages. Hopefully this information can make it easier for you to choose an investment strategy that suits your goals and expectations. In general, each trading method has its own strengths, if skillfully combined, the percentage of successful transactions is very large. Wish you soon achieve your goal on the chosen path!

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