Trading Forex Like A Pro

Reading Time: 15 Min

Experience Level:Beginner

Like all traders at any level, professional Forex traders aim to maximize their wins to gain the most profit. But what sets them apart from beginner and intermediate traders is their knowledge, experience, tactics, and most importantly, emotional discipline. 

Professional Forex traders take advantage of market volatility. Additionally, they skillfully read price charts and make calculated transactions based on fundamental and technical analysis, which offer great value and unique insights.

Professional Forex traders utilize several trading strategies and systems. But in general, they like keeping things simple by resorting to raw price data. As for the primary trading styles, they can be summed as the following: 

Automated / Robot Trading: Forex trading robots are software-based trading systems, which are coded to make use of a set of trading rules and techniques. These trades are done automatically without the trader’s interference.

Technical Trading: This strategy depends largely on technical analysis, which chiefly depends on price charts to make informed decisions. One of the three main assumptions of technical analysis is that all financial and economic variables are factored into the price behavior. The most attractive aspect of technical analysis may be that it defines the important price levels that traders can operate on, as it tells them at what price to get in or out to take profit if things go as expected, thus maximizing their gains. Likewise, it tells them at what price to get out if things go against expectations, consequently keeping their losses to a minimum.

Fundamental Trading: Fundamental analysis, on the other hand, is centered around the evaluation of financial and economic factors, market news, and important events. Although fundamental analysis is a great tool that can help in understanding where the market is going, it does not usually provide the levels at which to get in and out of the market. This is why most traders prefer technical analysis.

Day Trading: This trading strategy stipulates that the trader should close positions within one day, which means that they buy and sell currencies within the same day.

Scalping: It is a similar strategy to day trading, but it is much faster and takes place over a shorter term. When scalping, a trader opens and closes positions a few times a day, making a few pips here and there, while placing stop-loss orders. This strategy is not allowed by many regulatory bodies and is not recommended from a risk/reward point of view, because one loss can take away the profit of several trades.

Swing / Position Trading: This style is characterized as medium-term trading. This is because traders keep the position for days, weeks, or even months. On average, they enter around two to ten trades per month.

Range Trading: This strategy involves trading between obvious support and resistance levels. But what are support and resistance levels? When the price is not trending and is maintaining movement between established levels, these are called support and resistance levels. In an uptrend or a downtrend, the price will continue to break through resistance and support levels. However, in a sideways range, prices tend to bracket between these thresholds. By closely monitoring signals within a specific trading range, the risk and reward allocation becomes more obvious.

The main thing to keep in mind when using this strategy is having to stay on top of the trades.

Timing is all that matters. You want to take advantage of the price action, more than predict it. 

Some traders prefer to wait for a confirmed reversal before entering the position as overbought and oversold levels can continue for a long time on some occasions.

Trend Trading: By using this strategy, traders aim to follow market trends at an early stage and take advantage of their probabilities by holding positions until there is evidence that the trend has changed. The first step is to see where the price is going, how long has it been going, and how strong it is. Knowing these will help identify the possible trading opportunities and when to exit the market.

Market trends can be classified according to their duration as minor (short-term), secondary (medium-term), or primary (long-term). They can also be classified into three categories according to their direction:

Uptrend: Identified by the market as recording higher highs and higher lows.

Downtrend: When we have a series of lower highs and lower lows. 

Consolidation: A phase that some traders refer to as a “pause” between trends, and it happens when there is no clear series of highs and lows pointing in the same direction (no higher highs and higher lows, and no lower highs and lower lows). The highs could be relatively close to each other, and the lows could be close to each other as well, leaving behind a horizontal look, or the progression of the market could leave behind lower highs and higher lows, creating a narrowing look. 

Counter-trend Trading: In this style, a trader will assume that a certain trend will reverse soon and so, they will attempt to make a profit out of the counter move which according to their expectations, should follow shortly. This is referred to sometimes as “fishing” for a bottom or a top, and it is a risky practice because there is always a good chance of the trend-making a higher high or lower low before the final point. 

Retracement Trading: This strategy focuses on short-term price reversals (retracements of corrections) before continuing the general dominant trend.

The key part of retracement trading is to try to determine corrections from actual reversals. Expecting a retracement means holding current positions and then dropping them and going with the new direction in case of finding clues for a reversal.

The main tool traders use for this strategy is called Fibonacci Retracement. Based on the Fibonacci ratio, it stipulates that the correction is most likely to be done once it reaches 61.8% of the dominant trend. The levels around rations of 38.2%, 50%, and 61.8% are used by traders to place their stop loss or take profit orders. That should be coupled with other technical indicators to get ahead of breakouts and price signals. Trend lines, oscillators, and moving averages are among the tools that can be added to this strategy to find confirmation on signals.

Carry Trading: This style of trading usually means holding a position for a long period, while buying a high-interest currency against a low-interest currency. As long as the rate difference is in favor of the trader, they will gain a return on their investments. However, one of the biggest risks associated with this method of trading is the uncertainty of the currency prices, which may result in the bought currency losing the value that exceeds the gains made from interest.

Each one of these strategies has its pros and shortcomings, so it is better to set clear goals before choosing any preferred strategy.

A trader just starting should stay away from strategies that demand constant action and make use of multiple trades at a time, while opting for more basic strategies.

Also, different markets need different strategies. The trader should approach each market state with an appropriate strategy, trending markets and volatile markets have their corresponding strategy and should be considered separately.

Finally, keep in mind that you cannot predict the outcome of the markets 100% of the time. If a strategy fails the first time, do not get rid of it immediately, and maintain a steady approach until you get better at its execution. Our best advice is to take your time in learning the flow of markets and keep to basics at first.