What Are The Most Profitable Forex Trading Strategies?
Forex, the world’s fastest-growing market, has reached a size of 5 trillion USD as of April 2016 according to the Bank for International Settlements (BIS) (Bank for International Settlements 4 / 2016). The development process of the Forex market aimed to meet the needs of those who trade to protect against foreign exchange risks.
However, today the Forex market has become a market dominated by speculators. While institutions such as commercial banks and pension funds perform risk protection (hedging) transactions without leverage in the Forex market, speculators such as free investment funds (hedge funds) perform transactions with leverages of up to 400% in countries with weak regulations such as Southern Cyprus, Poland, and the United Kingdom.
Of course, there are some profitable strategies in such a large-scale and popular investment model. Today, we will explore the most profitable forex strategies together.
What Are Forex Trading Strategies?
The most common strategy in forex markets is to use analysis methods. Financial analysis methods are divided into two fundamental analysis and technical analysis. While fundamental analysis is explained as examining the general economy, sector, and company with a general to specific examination approach, technical analysis is trying to determine the prices of future stocks based on past stock price data.
Today, amateur and professional investors trading in forex markets try to see the future based on economic data, political developments, news, and past closing, opening, lowest, and highest prices. Neither of these two analysis methods has the power to show the future price to a decimal point.
For example, if the US Dollar gains value against the Euro when employment data is announced in the US, this does not always mean that it will be like this, or if prices break a resistance price level upwards after the second push, this may not always be repeated.
The valuation approach based on examining the graphs of the trading volumes and prices of stocks, futures contracts, commodities, and currencies traded in the markets shown on a time axis is called technical analysis. The shapes used in technical analysis; It is divided into three groups: charts, formations, and indicators.
Why Is Day Trading Profitable in Forex?
Since the values of different currencies in forex markets constantly change, this volatility risk is minimized with day trading. Day trading is estimating the value of any currency exchange rate in the short term and generating income from this estimation.
Here are a few reasons why making forex investments with day trading is more profitable than other types of investments:
Since the forex market is one of the most liquid among today’s economic ecosystems, it is practical to trade in large amounts. Therefore, it is suitable for day trading.
The values of different currency exchange rates fluctuate frequently in forex markets. This volatile structure is more suitable for day trading, i.e. short-term forex investments.
The fact that all transactions can be made online makes short-term forex investments easier.
How Can You Implement Swing Trading in Forex?
Swing trading is a short-term stock buying/selling method based on technical analysis. The period between buying and selling can vary from 1 day to 2 weeks. The aim is to make a profit in the short term by using technical details.
As the name suggests, the investor tries to benefit from swings (short-term ups and downs) in the stock. Therefore, the profit margin is low.
Day trading is similar in this regard, but swing periods are much shorter for day traders. Sometimes even second-long ups and downs are important. The profit margin will be much smaller in day trading for this reason.
Some people buy when companies are going to announce earnings, organize conferences, make a press release, or approach the result of a major lawsuit, thinking that the company’s shares will increase as a result of these events. This is not swing trading, it is directly gambling.
Especially in such cases, both the profit and the loss can be very high. This is another proof that such investments are not swing trading. For the reasons above, the first thing a swing trader should do is to neutralize the effects of fundamental analysis elements. That is, none of the situations in the previous paragraph should exist, or the risk of occurrence should be very low.
The second should naturally be to catch the right swing. The last detail is to predict when to sell or, in other words when the positive swing will end. As a note, it is impossible to apply in economies such as Turkey, which do not have a stable agenda and are also very dependent on foreign countries.
What Is The Role of Scalping in Forex Trading?
It is one of the most used strategies in the forex market. When the position becomes profitable, the scalper immediately closes the position. It is a strategy that can be repeated many times, with small profits.
This situation is not prohibited in most forex companies with ECN. It is not a problem since they earn from both commissions and spreads. It is also not prohibited in some of the best digit brokers.
In addition, it is questionable how far you can trade in forex with the scalp method. Because the investor who makes scalp transactions takes advantage of the excessive purchases or sales of the indicators when entering the transaction.
Naturally, most brokerage firms do not like it, because it is an action taken to make a profit by taking advantage of technical problems. Otherwise, we can say that there is no financial strategy called scalping.
(Or let’s say that no profit other than technical problems can be obtained this way) Brokerage firms do not like winning traders, but this is not the reason why they are against scalping. The problem here is that no financial knowledge or experience is used as a method of winning.
Well, if there is no technical problem on the price-making side, can you make money with scalping without taking advantage of a situation such as a delay in prices? In my opinion, the answer to this question is “no”.
Because this method essentially means repeating a very classic novice trader mistake. The novice trader usually takes his profit (for fear of losing that profit) immediately (i.e. tends to close the position that is in profit immediately), while in the opposite case, he does not want to accept the loss and waits with the hope that the market will come back.
How long? Most of the time, until he runs out of money. A person who exhibits this behavior will eventually come out of this business with a loss, even if most of his decisions turn out to be correct.
How Can You Use Position Trading For Long-Term Gains?
Position trading is a trading style that aims to buy a stock for a longer period than normal, usually months, and to benefit from that big wave of rise (or fall) in the stock. When considered as the holding period, it can often be called investing rather than trading.
In other words, it is a kind of investment. Buying a stock for fundamental analysis reasons (good balance sheet, investment, merger, high profitability, new product, etc.) and selling it when it appreciates is also a position trader.
However, if I were to interpret it from my technical perspective, I would say that the logic of position trader is the exact opposite of the Day trading method.
A portfolio of assets is usually created for a long-term financial goal such as retirement and these assets are evaluated in position trade in the forex market. Unlike other forex investment types, portfolio monitoring does not have to constantly monitor the instant screen, it can last for many years.
Position traders can evaluate common strategies such as technical analysis and fundamental analysis to make forex investment decisions. Macroeconomic factors, market trends, and indicators also help.
What Are Some Case Studies of Profitable Forex Trading Strategies?
We can talk about Bernard Arnault, a forex tycoon. Immediately after graduating from university, he joined his father’s construction company Ferret-Savinel. While working as an engineer here, he was also making plans to expand the company. After much effort, he managed to convince his father in 1976 to change the company’s focus and turn to the rapidly developing real estate sector.
For this purpose, the company put all of its assets in the construction sector up for sale. With the 40 million French francs earned from this sale, it invested in real estate, a rapidly developing sector at the time.
The company, which later changed its name to Ferinel, achieved tremendous success by focusing on the holiday and accommodation services sector. Bernard Arnault was appointed Director of the Company’s Development Department in 1974, became CEO three years later, and succeeded his father as Chairman of the Board of Directors in 1979.
When the socialists came to power in France in 1981, things did not go well for him, so Arnault and his family had to move to the USA. Here, Arnault used his sharp business acumen to take the initiative and build luxury complexes in Palm Beach, Florida, officially establishing the US leg of the real estate business.
When the calendar showed 1983, some changes began to occur in French politics; when the socialists in power switched to a more conservative economic model, Arnault decided to return to his homeland.
Meanwhile, when a large textile company called Boussac Saint-Frères went bankrupt, Arnault saw this as a very profitable opportunity. Boussac Saint-Frères, which also included Christian Dior’s design office and sewing workshop, was a true textile empire. Arnault provided the necessary financing by collaborating with Antoine Bernheim, the managing partner of the investment firm Lazard Fréres, and bought Boussac.
Arnault invested $15 million for this transaction, which cost a total of $80 million, and Bernheim provided the remaining $65 million. After buying Boussac, Arnault sold most of the company’s assets, but kept Christian Dior, the favorite brand of the rich, and the Le Bon Marché shopping mall, and became the CEO of Dior in 1985. He continued to evaluate most of his assets with forex investment strategies.
How Can You Use Automated Trading Systems?
It is the general name given to platforms where orders are executed with the help of pre-prepared algorithms that accept timing, price, and quantity as variables in platforms where electronic buy/sell transactions are carried out.
Although it is used in more than one system, investors generally use it when trading in forex. Thus, you do not have to constantly look at the screen like traditional types and you do not get carried away by unnecessary ambitions. These systems will be one of the best methods to develop forex investments in a more stress-free and practical way in the future.
Why Is Backtesting Important in Forex Trading?
It is a testing method based on the historical data of the relevant instrument to evaluate whether the strategy modeled for forex trading is applicable.
The more backtested, the better, but still the result it gives cannot provide 100% confidence for future transactions.
It can be done as manual and auto backtesting. If long time intervals are tested, the manual is not preferred because it will take a lot of time and will be laborious.
It can be automated by writing a robot specific to the platform used. If algorithmic trading is already being done, backtesting is also done automatically, preventing human emotions from affecting the testing phase.
It is the testing of the performance of a buy-sell system designed to be implemented in financial markets on past data. Thanks to this method, instead of directly launching the system into the real market, it is first made to perform transactions in a simulated environment and its possible errors are tested.
Automatic transactions can also be made through systems that can provide sufficient confidence to their users. In this context, backtesting is a must for algorithmic trading and AI systems.
How Can You Manage Risks in Profitable Forex Strategies?
Managing risks is very important in forex strategies. Considering that winning in dollars is good, but losing is also seriously bad, you can always see that entering with the minimum lot and escaping with short targets can earn more.
as follows;
> 25 pips in indices,
> 5 pips in commodities such as gold and silver,
> 200 – 300 pips in parities
> 50 pips in oil and natural gas
If you do not go beyond these, your profit will be higher than your loss. Of course, it is useful to lie in wait at the time of the announcement of important data such as the Fed interest rate and non-farm payrolls and if the transaction is profitable, put it in the safe. You can continue when the market calms down.
Other advice can be listed as follows:
– Do not be greedy, avoid emotional manipulations.
– Stay away from times that can be manipulated. (Fed data, etc.)
– Risk less, earn less, let it drip and drip.
– Follow the graphs of money in certain periods.
What Are The Future Trends in Forex Trading Strategies?
Although forex markets are integrated with many technologies and digital solutions, cryptocurrencies, and artificial intelligence assistants seem to be the two most common forex trends shortly. Forex robots developed using artificial intelligence are especially popular.
Many technology companies have launched robo-forex advisor Smart Robots, which consist of stock recommendations prepared by artificial intelligence. The importance of robo advisors and the advantages they provide are rapidly increasing every day.
It is expected that 30% of all assets in the world will be managed by robots in the next 3 years. Models based on algorithms managed by artificial intelligence are generally used by qualified investors.
See you in the next post,
Anil UZUN