Introduction to Advanced Forex Trading Strategies – 5 Strategies to Try
Your introduction to Advanced Forex Trading Strategies that actually work. If you want to take your trading to the next level, then any of these 5 strategies are a perfect place to start.
If you’re searching for an advanced forex trading strategy, then we’ve got you covered.
In order to become a consistently profitable forex trader, you’re going to need to be realistic and find a strategy that works for you and your own particular trading personality.
We all have one.
It’s certainly nothing to be ashamed of if a particular strategy doesn’t work for you.
No matter which type of forex trader you are, you must have the following:
- Forex trading strategy.
- Money management plan.
We’ve gone over each below and from there, the trading strategy you choose to develop is entirely up to you!
Advanced Forex Trading Strategies
A forex trading strategy is a plan developed by you as an individual trader, outlining a set of rules for when to buy and sell.
There are a whole range of different ways to trade, but we’ve highlighted a comprehensive list of advanced strategies for your consideration.
No matter which strategy you choose to develop into your own, ensure you both back and forward-test it before trading it on a live account.
Below are 5 advanced forex trading strategies for you to take, test and hopefully develop into your own consistently profitable strategy.
Scalping is an advanced forex trading strategy in which traders enter and exit the market in a lightning-fast manner.
While there’s no exact definition of the time a trader using a scalping strategy should spend within a trade, it’s usually measured in seconds rather than minutes.
Because a scalper is trading short term and only in a position for a matter of seconds, they are after only small market moves.
Depending on the exact scalping strategy’s rules, profit targets per trade are usually only two to five pips.
In order for a scalper to make satisfactory profit using such small targets, scalpers must use high levels of leverage to make up for the small movements in price.
Taking advantage of their forex broker’s highest leverage on offer, a scalper will buy and sell multiple times an hour, trying to take advantage of every tick that they’re presented with.
Scalpers are highly tuned into the market, often sitting in front of their charts for hours on end and for this reason, burnout is often an issue.
If you’re going to become a scalper, you must have self-awareness and high levels of discipline in order to take the breaks required to stay fresh and mistake free.
Another way scalpers overcome burnout, is by automating their trading strategies.
Using the MT4 trading platform, forex traders have a plethora of out of the box or custom-built Expert Advisors at their disposal.
If you choose to become a scalper, then just remember discipline, discipline, discipline!
News trading is one of the most popular advanced forex trading strategies that every trader should, to a certain point at least, be aware of.
Forex markets move orderly between technical support/resistance zones, but the catalyst for these moves is almost always economic news releases.
Throughout every trading session, a forex calendar will be full of news releases – Some are highly important, while some are less meaningful.
To become a good news trader, you must understand which, amongst this seemingly endless stream of economic data, is actually important enough to move markets.
Your calendar will break the day’s releases down by expected impact and the currencies that release is most likely to impact.
When it comes to economic news, everything revolves around central banks and whether any news release will have an effect on monetary policy sometime in the future.
For this reason, the actual number released is not the most important aspect of any news release.
It’s all about how the actual number compares to the market’s expected number!
For example, if an unemployment number is low, but it’s not as low as expected, then that market can in fact fall.
This may seem like a crazy concept on the surface, but forex markets are all forward looking and are a reflection of future expected prices.
To trade news profitably, you must consider a number of scenarios surrounding the actual and expected prices, then be quick enough to process and trade fast moving markets.
The advanced forex trading strategy of forex arbitrage, allows you to take advantage of the decentralised nature of the forex market.
While all stock market trades must be executed through one centralised exchange, the forex market is too large and globally dispersed for this to work.
The decentralised nature of the forex markets means you have an opportunity to trade multiple prices, quoted by a number of different sources.
It’s in this differentiation between prices that opportunities for arbitrage arise.
One forex broker may be quoting prices sourced from one liquidity provider, while another may be quoting their own market made quotes.
If there is enough of a price mismatch between the two, then it’s possible for an arbitrage trade to buy and sell the same market on both simultaneously and immediately lock in a small profit.
While the most popular arbitrage trades involve two different currencies, mostly taking advantage of how each broker differently quotes their spreads, arbitrage opportunities can also be found between three currencies.
This truly advanced forex trading strategy, is known as triangular arbitrage and is in no way for beginners.
The biggest risk a forex trader will face when looking for arbitrage opportunities, is execution risk.
This is that you are either too slow to execute one leg of your arbitrage trade and the price is no longer available, or that your broker won’t choose to honour a trade.
As all arbitrage trades require two simultaneous positions to be profitable, if one leg isn’t correctly executed, then you can be left completely exposed.
Successful arbitrage traders must always have a plan for what to do if they’re left with an exposed leg.
Position trading is another of the most popular advanced forex trading strategies in our list.
This particular trading strategy involves holding a position long term, with the expectation of a move on the back of underlying, real world factors within that market.
A position trading strategy is the longest outlook that one can have, while still being classified as a trader rather than a passive investor.
Position trading often means following long term trends.
By long term, we’re talking monthly and yearly trends here, with a position trader seeing intraday price action as nothing more than insignificant noise.
Likewise, the individual news releases of the day aren’t a factor in trading decisions.
A position trader’s view is to look at macro factors at the highest level and make long term trading decisions around how they’d like to be positioned.
When referring to this particular advanced forex trading strategy, we’re talking about multiple entries that make up an overall position.
For example, you may be of the opinion that the ECB’s stance is bearish Euro for the foreseeable future.
As a result, you may have shorted EUR/USD at 1.20, 1.10 and 1.05 to try and ride the pair toward parity.
This makes your average position at 1.10 and even though price is now at 1.07, your position is still in profit overall.
Successful position traders have unwavering conviction, sticking to their guns and ignoring the noise.
Hedging is an advanced forex trading strategy whereby you protect your overall position from short term fluctuations.
You might be in a long-term position, but your short-term analysis is contrary to your longer-term view.
Instead of closing out your position, you can instead hedge it by opening up another trade in the opposite direction.
This will create a short-term hedge against what you consider to be an overall countertrend move, letting you profit from it, but not at the expense of your overall position.
Hedging can also be used during times of uncertainty, such as into a high-impact forex news release.
By taking an opposing position, you’re minimising your risk from that point in time, depending on the size of your hedge, potentially down to net-even.
Hedging allows you the freedom to adjust the size of your position, depending on how much weight you assign to your hedge.
For example, if you believe your analysis is strong, but you’re still a little bit nervous about a counter-trend move, you can apply an underweight hedge to keep the majority of your original position.
By weighting your hedge in this manner, you’re able to manage your risk on the fly, without actually having to close out your overall position.
When trading forex on the MT4 platform, you’re able to hedge your positions.
On the other hand, the MT5 trading platform allows both hedging and netting, which aggregates all of your positions in the same market, into one position.
Money Management Plan
Any of the 5 advanced forex trading strategies outlined above, if applied correctly, can help take your trading to the next level.
The level of a consistently profitable trader.
But it’s true that your forex trading strategy can only take you so far.
The most important aspect to making money on a consistent basis in trading, isn’t the strategy itself – It’s the risk management framework applied around it.
Here are the 2 most important money management principles required to keep you from experiencing a dreaded margin call.
The most important part of any money management principles applied to your forex trading strategy, is having a high risk:reward ratio.
This is in reference to the ratio between your stop loss and take profit levels on any trade you take.
If your maximum risk is 90 pips and your profit target is 90 pips, then your risk:reward ratio is 1:1.
This is a bare minimum you should be aiming for per trade and relies on a win rate above 50% in order for your strategy to remain profitable.
On the other hand, if your maximum risk is 30 pips and your profit target is 90 pips, then your risk:reward ratio becomes 1:3.
By implementing these money management principles into your trading strategy, you now only need a win rate above 33% in order to remain profitable.
When applied with discipline, the risk aspect of the ratio should be fixed, but the reward aspect may be dynamic to take advantage of market momentum.
But as you no doubt know, the market won’t always present you with a clean 30 pip stop loss and 90 pip profit target on every setup.
To overcome this, you’re going to have to adjust your position sizing accordingly.
You simply work out where your stop loss and take profit levels should be in a 1:3 ratio and then adjust your lots traded to match.
To keep things consistent, the money management section of your forex trading strategy should have a consistent percentage of your account risked per trade.
The universally accepted percentage risk per trade is 2%, but some advanced forex trading strategies allow for a higher number.
Don’t worry, you don’t have to be a math whiz in order to work out how much size to put onto each specific trade.
Our forex calculator set does all the work for you.
Final Thoughts on our Advanced Forex Trading Strategies
In order for even a seasoned forex trading professional to succeed, a bulletproof forex trading strategy is imperative.
But while having a profitable trading strategy is one thing, actually making money from it is another thing entirely.
This may sound crazy, but in order to make money from any profitable, back-tested strategy, you have to actually follow it
You can’t see something not in your rules, but take a trade because it looked good at the time.
You can’t let a trade you’re in run that little bit longer because no doubt it’s due to turn, even though your strategy told you to close it for a loss hours ago.
Just remember that making money trading any back-tested strategy is entirely possible.
You just have to stick to the plan.
My name is Phat Fin Ge, but most people just call me Fat Finger or Mr. Finger.
Many years ago, I was a trader on the Hong Kong Stock Exchange. I became so successful that my company moved me to their offices on Wall Street. The bull market was strong, but my trading gains always outperformed market averages, until that fateful day.
On October 28th, 1929, I tried to take some profits after Charles Whitney had propped up the prices of US Steel. I was trying to sell 10,000 shares, but my fat finger pressed an extra key twice. My sell order ended up being for 1,290,000 shares. Before I could tell anyone it was an error, everyone panicked and the whole market starting heading down. The next day was the biggest stock market crash ever. In early 1930, I was banned from trading for 85 years.
I went back to Hong Kong to work at my family's goldfish store. Please come and visit us at Phat Goldfish in Kowloon, only a 3 minute walk from the C2 MTR entrance.
I thought everyone would forget about me and planned to quietly return to trading in 2015. To my horror, any error in quantity or price which cause a problem kept getting blamed on Fat Finger, even when it was a mix up and not an extra key being pressed. For example, an error by a seller on the Tokyo Stock Exchange was to sell 610,000 shares at ¥6 instead of 6 shares at ¥610,000. That had nothing to do with me or with how fat the trader's finger was, but everyone kept yelling, "Fat Finger! Fat Finger!" In 2016, people blamed a fat finger for a 6% drop in the GBP. It really was a combination of many things, none to do with me or anyone else who had a wider than average finger.
Now that I can trade again, I'm finding forex more interesting than stocks. I've been doing some research on trading forex and other instruments and I'll be sharing it here.
If you see any typing errors, you can blame those on my fat finmgert. If you see any strange changes in price, it's not my fault.
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