There are a lot of popular forex strategies that you hear about while entering the forex market and a vast majority of traders simply follow the well-known strategies like scalping, day trading and swing trading. However, success is not guaranteed when you implement a tested and proven strategy. Just because it worked for other traders does not mean that it will work for everyone. For example, some traders get good results by using high leverage for trading. But if you copy this approach without considering the risks, you will encounter huge losses in the end. You need to be very careful with leverage. Place a strict stop loss to avoid losing big in case the trade goes in the opposite direction.
So, your trading approach and strategy should be well-aligned with your personal trading goals and risk tolerance. Moreover, you should be skilled enough to execute it with perfection. Hence, you should not select any random strategy solely on the basis of its popularity. Sometimes the not-so-popular strategies can work wonders for you.
In this article, I will share some lesser-known forex strategies that you can follow as a forex trader. There is no holy grail in forex trading that can give the same results to everyone but these hidden gems are surely worth a try if you want to try out something different.
A Fundamental Approach: The Long-Term Trading Strategy
This strategy is suitable for those who are not very fond of fast-paced strategies that are focused on shorter timeframes. The purpose of strategies like scalping and day trading is to capture a few pips from small fluctuations in currency pair prices. Traders trade multiple times a day to consolidate the pips, which they convert into their own currency using a pip calculator. Traders change pips into their own currency to find out the exact profit a trader has made. Even swing trading is a medium-term strategy where the duration of trades is from a few days to a few weeks. These strategies are primarily focused on technical analysis as you will be analysing the market situation by interpreting the chart patterns.
But when you trade with longer timeframes, you will prioritise fundamental analysis to know more about the long-term trends. You will also be looking at the price charts to find trading opportunities but the planning of trades is done by considering economic factors that influence the prices in the long run. Your profit potential will be higher when you keep the trade open for a longer duration which can be several weeks, months or even years.
Pair Trading For Managing The Risk
Pair trading is another lesser-known strategy that is based on the correlation of currency pairs. For pair trading, you need to choose two different currency pairs that are correlated. Pair trading is perfect for offsetting the risk of one position by opening another position with a correlated currency pair. The prices of positively correlated currency pairs tend to rise or fall together whereas the negatively correlated pairs move in opposite directions to one another.
You need to plan your trades after studying the type of correlation that exists between two pairs and then place buy or sell pairs waiting for a convergence or divergence to happen. You will be making profits with the assumption that the prices of correlated pairs will eventually converge or diverge at a point and thus you get to reduce the risk to a great extent by following this strategy. When you are trading with different pairs, you can use a currency calculator to find the real-time forex rate of different currencies in your preferred currency.
Contrarian Trading Strategy
Trend-following strategies are very popular among forex traders but in contrarian strategy, you will be waiting for a trend reversal and will trade against the prevailing market sentiment. When the market sentiment is very bullish, most traders will go long on the pair but those who follow contrarian strategy will short the pair by identifying the potential reversal point.
When everyone is following the crowd, you will be using sentiment analysis tools to trade against the crowd psychology. But this strategy is a bit tricky as you need to make sure that a trend reversal is on the way before making a trading decision and that way you can make significant profits.
Harmonic Trading Strategy
This is another strategy that is not very popular in the forex market but can yield good results when you master it. Harmonic trading is done by identifying specific patterns and you will be using Fibonacci ratios to find potential reversal points. Harmonic trading is done by utilising technical analysis as you focus on pattern recognition to find ideal trading opportunities.
You just need to study harmonic patterns and learn how you can use them to predict price reversals with precision. This strategy is very effective for those who are good at technical analysis and beginners can also try it after gaining knowledge about Fibonacci ratios that are highly accurate.
Carry Trading Strategy
In simple words, carry trading is done to make profits from the interest rate differential between two currencies in a pair. You will be focusing on the interest rates of currencies instead of the currency price movements. In carry trading, you buy and sell a currency with higher and lower interest rates respectively. So, you are using a low-yielding currency to purchase a high-yielding currency.
You will keep the trade open for a longer duration and since the swap is applied to all overnight trade positions, the positive swap will be credited to your account, which is your profit. You just need to choose currency pairs that are ideal for carry trading and this is more like a passive strategy as you will be earning from the interest rate difference alone.
Algo Trading Strategy
Many traders are still not aware of the scope of algo trading strategies and how they can solve a lot of problems that you face while trading manually. Algo trading is a strategy used for automating the trading process by using Expert Advisor robots that execute trades on your behalf. They work using algorithms and will be monitoring the market to look for trading opportunities based on the pre-set criteria.
The trading robot or EA will also execute and manage the trade positions with little to no human intervention. Trading automation makes the trading process easier and more efficient as the EAs are superior in terms of speed and accuracy.
ATR-Based Trading Strategy
The last strategy that I want to talk about is the ATR-based trading strategy which is executed with the help of the technical indicator named Average True Range. This indicator measures the market volatility and you can rely on it for finding trading opportunities during volatile hours.
ATR-based strategies are suitable for making profits from sudden market fluctuations as you can identify potential entry and exit points after considering the volatility level. If you want to trade with volatile pairs, you can surely consider this strategy.
In The End
To conclude, finding the best strategy for yourself is important to make profits in the dynamic forex market. You don’t need to limit your options by only considering popular strategies. You need to find as many options as possible and make a wise choice based on your requirements and the lesser-known strategies listed above can also lead you to trading success.