3 Profitable Forex Strategies: Scalping, Positional, NFP
Trading strategies are a basic requirement for making money in active markets like Forex or any investment market. These strategies detail a set of rules for opening buy and sell trades, and ultimately generate profits. While everyone has a strategy, increasing the profits is what is always desired.
So this article highlights 3 advanced Forex strategies that can help in achieving the objectives.
Advanced does not mean, it is for experienced traders. In fact, these strategies can be implemented by beginners or anyone with basic knowledge of Forex.
It is important to remember that Forex trading can be complex and fast-paced, and that to be successful you need accurate price information. Also keep in mind that although the following techniques can be profitable, they are not 100% infallible, so you will inevitably have some loss making trades. However, these advanced Forex trading strategies can result in very satisfactory results.
1) Forex Scalping
The scalping strategy consists of generating a large amount of small profits in the shortest possible time. This is one of the most complex methods to implement, but also one of the most profitable.
In order to carry out the scalping strategy, it is necessary to operate in short time periods (from 1 to 15 minutes) and to carry out all the operations that the trading strategy allows. This approach is undoubtedly exciting, making it more suitable for investors with a lot of available time and little risk aversion.
Applying Forex Scalping
To apply this strategy, you have to open orders that have a maximum duration of 5 minutes. The lifespan of each position is very short, which does not give many opportunities to accumulate profits. In fact, every trade in the scalping strategy accumulates only between 1 or 2 pips of profit. Considering this fact, the strategy is to open as many orders in the shortest possible time.
Another important aspect to keep in mind is trading volumes. While in traditional strategies it is common to trade with 2 or 3 lots, in scalping you should use 5 to 50 lots. As there is not much time to accumulate profits, it is recommended to make each trade worthwhile.
Whenever possible, try to set a stop loss close to the opening price of the order. However, due to the fast nature of the strategy, it is often not possible.
This is one of the advanced Forex trading techniques preferred by the more experienced traders who have earned good profit. Even though each position reports little profit, in general it is possible to earn a considerable sum of money. Please note that some traders may open up to 200 orders a day.
Here’s the summary of what the scalping strategy is all about and how to start using it to make money in currency market:
- The maximum duration of each position should be 5 minutes. If you keep an order open for a long time, you expose yourself to market risk.
- The volumes in each trade should be considerable. Since you would earn a few pips on each order, you will have to make each one worthwhile.
- You have to carry out a large number of trades (approximately 200) for the strategy to give the desired results.
- The scalping strategy is best suited for people with ample time available to spend in the currency market. Due to its rapid nature, scalping requires a great deal of time and effort.
2) Positional Trading Strategy
Positional trading is undoubtedly the most profitable advanced Forex strategy of all, as it brings the greatest profits to the people who use it. This method has a wide variety of advantages, such as requiring little attention and providing good results. Unfortunately, its disadvantage is that it requires a deep analysis of the market and a lot of time to accumulate profits.
Positional trading, unlike many other trading strategies, is executed in the longest time periods of the market. It can be said that this method is the opposite of scalping, as traders must maintain their positions for several weeks or months (and in some cases years).
How to implement positional trading strategy?
This is opposite of scalping. In this advanced Forex strategy, trader needs to hold position for a long time and profits tend to be around 100 pips, the trading volume can be more reduced. The greatest risk comes from fluctuations occurring temporarily. So it is recommended to not invest more than 2% of the capital in each order. That way, you can have floating losses of up to 30 pips without leaving the market.
Swaps and carry trading
Positional trading is a phenomenon that can become a blessing or worst nightmare. Swaps refers to the interest rates paid (or received) for leaving a position open for more than 1 day. Swaps are based on fixed interest rates for each currency and in the long term can be an additional benefit or seriously affect the profits.
This is a fundamental aspect to take into account when applying the positional trading strategy.
Consider following scenario: If long term trade is opened for the currency pair USD/EUR on May 1 and closed it a month later. If with this trade, you gain 80 pips, but discover that you still lose money by concept of swaps. This is a situation that can happen if you don’t pay attention to this factor.
There is an advanced Forex trading strategy called “carry trading”, which takes advantage of positive swaps. In this case, instead of accumulating pips, goal is to make money by keeping a currency with good interest rates.
Finally, it is important to mention that the positional trading strategy requires fundamental analysis, i.e. an in-depth study of the economic factors that affect countries such as employment figures, inflation, interest rates, GDP, etc.
3) NFP Trading Strategy
NFP refers to the U.S. monthly Non-Farm Payroll report. This is one of the most important economic reports because it significantly influences the U.S. dollar. Following the release of this report, the prices of USD pairs may fluctuate more than 50 pips, presenting interesting trading opportunities.
Unfortunately, operations with this strategy are very limited due to the fact that the report is published only once a month.
How to Apply NFP Trading?
NFP trading is like an advanced level of news scalping. In this case, you should consult a Forex calendar a few hours before the release of the report in order to know the previous and expected figures. Now all you have to do is try to predict the actual figures in the report and open a position.
For this strategy, a large capital which is enough to withstand the price fluctuations that occur after the report is released. If the actual figures in the report are similar to what was expected, there is a good potential to earn a lot of pips in a very short time. However, do not rule out the possibility of the market moving very opposite, so it is very important to set stop loss levels to reduce the losses.
Although the above 3 strategies are advanced, there is nothing that limits a beginner to implement and practice them on a demo account.
Hi, I am Nikesh Mehta owner and writer of this site.
I’m an analytics professional and also love writing on finance and related industry. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business.