Forex trading strategies: techniques to consider

The forex market is often called the ‘market that never sleeps’ because trading happens somewhere in the world 24 hours a day, five days a week. As of April 2025, the global over-the-counter forex market recorded an average daily trading volume of $1,377.7bn, reflecting its enormous scale and popularity.

Given this size and continuous activity, traders need a clear forex trading strategy to survive in the market. It is like being the captain of a ship about to set sail. You wouldn’t start your voyage without a map, compass, and detailed plan for the journey, would you? Simply sailing without a plan could lead to disaster. In the same way, a forex trader needs a strategy to navigate the market. It is the map and compass that guide your decisions.

To help you build your own forex trading plan, we’ve explained all the important concepts in this guide.

Remember, while trading strategies can help structure decisionmaking, past performance is not a reliable indicator of future results.

What is a forex trading strategy?

A forex trading strategy is a systematic approach used by traders to enter and exit currency pair positions. It outlines what market conditions you will look for, the tools you will use, and the exact rules for entering and exiting a trade. In this way, it provides you a set of rules and guidelines to help you make consistent, objective decisions and avoid emotional trading. This is essential for long-term success in the volatile forex market. But a strategy is just one part of a much larger framework – your forex trading plan.

Strategy vs plan

A forex trading strategy is the ‘how-to’ of your trading. It is the technical and analytical part. For example, a strategy might be that you buy EUR/USD when the 50-period moving average crosses above the 200-period moving average.

A forex trading plan covers every aspect of your trading business. It is the ‘what, why, when, and where’ of your trading. Your plan includes your personal trading goals, your risk tolerance, the currency pairs you will trade, your schedule, and the specific strategies you will use. A plan is your ultimate guide, and your strategy is a component within it.

Discretionary vs systematic approaches

There are 2 main approaches to a forex trading strategy. One is called discretionary trading. This approach involves making real-time judgments on each trade. While a discretionary trader may use rules and indicators, they rely on their own analysis and intuition to decide when to enter or exit the market. This style requires experience and a strong understanding of market dynamics.

The other approach is systematic trading. It relies on a predefined set of rules that are executed without subjective judgment. A systematic strategy can be automated with software. The rules are precise, leaving no room for emotional decisions. This style is often favoured by traders who want to remove human emotion from their trading.

Want to know how the forex market works before building your strategy? Learn more about forex trading.

How to create a forex trading strategy

Building a successful forex trading strategy is a process. It requires self-reflection and careful planning. Here's a step-by-step approach to creating your own.

Step 1: set objectives and define your trader profile

Before you trade, know yourself. Ask these questions:

What are my financial goals?
How much time can I dedicate to trading?
What is my risk tolerance?
What is my personality like? Am I patient or do I seek fast results?

Your answers will determine the best type of strategy for you.

Step 2: choose your trading style

Your trading style is defined by how long you hold trades. For instance, scalping involves holding trades for seconds or minutes, day trading means holding trades for minutes or hours and closing all positions before the day ends, while swing trading involves holding trades for several days or weeks.

Step 3: select markets and timeframes

Choose which currency pairs you will trade. You can start with major pairs like EUR/USD or GBP/USD. They often have high liquidity and relatively tight spreads compared to some other pairs. In fact, the US dollar is the most traded currency in the world, followed by the euro. That’s why this pair tends to enjoy good liquidity. This information is provided for educational purposes only and does not constitute financial advice.

Then, choose the timeframe you will analyse to identify entry positions. Scalpers might use 1-minute charts, while swing traders might use 4-hour or daily charts.

Step 4: identify technical/fundamental tools

Decide whether you will use technical analysis, fundamental analysis, or both. Technical analysis uses chart patterns, indicators, and historical price data. Fundamental analysis focuses on economic news, interest rates, and political events. Both are important because economic news and geopolitical events impact the currencies of the nations involved.

Step 5: develop entry/exit rules

Your strategy needs clear rules for when to buy and sell. Entry rules are the specific conditions that must be met before you open a trade. For example, you could choose to enter a long trade only when the RSI is below 30 and a bullish candlestick pattern appears. Exit rules are the conditions that tell you to close a trade. This includes a target for profit and a limit for losses.

Step 6: include risk/reward parameters

For every trade, you must know your risk/reward ratio. This is the potential profit versus the potential loss expected for a trade. A popular rule is to aim for a ratio of at least 1:2. This means you risk $1 to potentially make $2. This simple rule is crucial for long-term profitability. Risk management strategies are crucial in forex trading since the market can move suddenly due to news breaks.

Learn more about risk management to bolster your forex trading strategy.

Top forex trading strategies

Here are some of the most popular forex trading strategies so that you can choose what’s best for you.

Trend trading

This is one of the most widely used strategies. The core idea is to identify the direction of the market trend and trade in that same direction. You ‘follow the trend’ by using technical indicators, such as moving averages, to confirm the trend.

Range trading

This strategy is used when the market is not trending. Prices move between a defined high (resistance) and a low (support) at this time. A range trader buys near the support level and sells near the resistance level.

News trading

News traders make decisions based on major economic news releases, such as interest rate decisions by central banks or employment data. Such data releases can cause high volatility, offering news traders quick opportunities from sharp price movements.

Scalping

The scalping strategy in forex trading involves taking very small profits from a large number of trades. Scalpers hold positions for only a few minutes or even seconds. It requires quick decision-making and a lot of focus.

Day trading

Day trading strategies in forex involve opening and closing trades within a single day. A day trader does not hold positions open overnight and is not concerned with long-term trends.

Swing trading

Swing trading is a medium-term forex trading strategy. Traders aim to capture ‘swings’ in the market. They hold positions for several days to weeks in an attempt to capture shorter-term trends.

Carry trade

Carry trading focuses on profiting from the interest rate differential between two currencies. A trader borrows a low-interest-rate currency to buy a high-interest-rate currency. The goal is to profit from the interest rate payments, not just the price movements.

Breakout strategy

This strategy involves entering a trade when the price breaks above a resistance level or below a support level. The breakout often signals the beginning of a new trend.

Grid strategy

The grid strategy involves placing multiple buy and sell orders at predetermined intervals above and below the current price. It doesn’t rely on market direction but on volatility.

50-pip strategy

This is a simple strategy where you aim to gain 50 pips per day. It often uses a specific time of day and a particular currency pair.

One-hour strategy

This strategy uses the one-hour chart to identify trading opportunities. It is popular among day and swing traders who don’t have time to monitor the market constantly.

Retracement strategy

This strategy uses Fibonacci retracement levels to identify potential reversal points within a trend. Traders look for the price to ‘retrace’ or pull back to a Fibonacci level before continuing in the direction of the trend.

Advanced forex strategies

These strategies build upon basic concepts and are often more complex. They are better suited to experienced traders.

Bounce strategy

A bounce strategy is a refined version of range trading. Traders wait for the price to ‘bounce’ off a support or resistance level and enter a trade in the opposite direction.

Mean reversion

This strategy is based on the idea that prices and indicators will eventually return to their long-term average. Traders sell when prices are high and buy when they are low, expecting a return to the mean.

Overbought/oversold techniques

Traders use oscillators like the Relative Strength Index (RSI) to identify when a currency pair is overbought (likely to fall) or oversold (likely to rise). They then take a trade expecting a reversal in price direction.

Running out of steam strategy

This strategy looks for signs that a trend is losing momentum. Traders use indicators and price action to spot a potential reversal before it happens.

Price action techniques

Price action trading involves making decisions based on the price chart alone, without using indicators. Traders analyse patterns, highs, lows, and candlestick formations to predict future movements.

Learn more about the different trading strategies in detail before entering the live markets.

Strategy modifiers and enhancers

No forex trading strategy is perfect. The key is to use tools to manage risk and improve performance. Some of the most popular tools are:

Hedging: hedging is a risk management technique that involves taking another position in the opposite direction to the original trade to offset potential losses.
Leverage: leverage allows you to open a much larger position than you could with the capital in your trading account alone. While it can magnify profits by increasing market exposure, it also magnifies losses. Use it with caution.
Risk management tools: stop-loss orders automatically close a losing trade at a predetermined price, while a trailing stop moves with the price, locking in profits. A take-profit order closes a winning trade when it hits a target price to lock in profits before the market reverses.
Indicators to combine: combining indicators can provide better trade signals. RSI, MACD, and Bollinger bands are popular choices. For example, you might look for a buy signal from a MACD crossover that is confirmed by the RSI moving out of oversold territory.

How to build a forex trading plan

A forex trading plan is your personal business plan for trading. Here’s a guide to creating one.

Step 1: evaluate your skill level: be honest about your experience. Are you a beginner or an experienced trader?
Step 2: define goals: what are your specific, measurable, achievable, relevant, and time-bound (SMART) goals?
Step 3: choose trading times: when will you trade? Align your schedule with market sessions that are most active for your chosen pairs.
Step 4: identify preferred currency pairs: stick to a few pairs you know well.
Step 5: plan for rollover, spreads, costs: factor in all trading costs, including spreads, commissions, and rollover interest.
Step 6: keep a trading journal: A trading journal is one of the most valuable tools a trader can have. Write down every trade, including the entry and exit points, the reason for the trade, the outcome, and your emotional state. Reviewing your journal helps you identify patterns and learn from your mistakes.

Beginner forex strategies

If you are a beginner, it is best to start with simple strategies. The goal is to build discipline and understanding, not to get rich quickly. A good forex strategy for beginners must be easy to understand and manage. Here are some popular ones:

Simple moving average crossover

Use 2 moving averages, one fast and one slow. A buy signal is generated when the fast-moving average crosses above the slow one.

MACD signal strategy

MACD is a momentum indicator. A buy signal is generated when the MACD line crosses above the signal line.

Basic breakout approach

This strategy involves identifying a consolidation zone (a trading range) and waiting for the price to break out. This is a classic forex trading strategy that’s simple to spot.

Risk-limited mini-lot strategies

Start with small position sizes. A mini lot is 10,000 units of currency. This minimises your financial risk while you practice and hone your strategy.

Common mistakes to avoid

Even experienced traders can make mistakes. Avoiding the common mistakes can save you a lot of money and stress. Overtrading is possibly one of the most common among them. It means opening too many trades. This leads to higher costs and more emotional decisions. Stick to your plan and only trade when your rules are met.

A stop-loss is your best friend. Ignoring stop-loss rules could mean that a single bad trade wipes out your entire trading account. It is advisable not to trade without a stop-loss. It is also advisable not to trade without a plan. A well-defined plan is the foundation of every successful trader.

Finally, use leverage with caution. Leverage can be dangerous if used improperly. Start with low leverage until you understand the risks completely.

Learn more about leverage in our CFD trading guide.

Risk management techniques

Risk management strategies are crucial in forex trading. They ensure that you can survive a series of losses and help you stay in the game long enough to succeed. Some of the best risk management strategies in forex trading are:

Position sizing

This is the most important risk management technique. It is the art of determining how many units of currency to trade. Never risk more than 1%-2% of your total trading capital on a single trade.

Risk/reward ratio

Always define your potential loss and profit before entering a trade. Aim for a positive risk/reward ratio (such as 1:2 or 1:3).

Stop-loss

Different stop-loss orders can be used, including fixed, trailing, or guaranteed stop-loss. This limits losses if the market moves against your position.

Capital preservation strategies

Your first priority should be to protect your capital. Focus on losing less, and the profits will eventually follow.

Tools & platforms for strategy execution

The right tools make it easier to test and implement your forex trading strategy.

MT4/MT5

MetaTrader 4 (MT4) and MetaTrader 5 (MT5) are the most popular trading platforms globally. They are robust, highly customisable, and support automated trading.

cTrader

cTrader is a platform known for its clean interface and fast execution speeds. It is popular for forex day trading strategies.

TradingView

TradingView is a web-based charting platform. It is widely used for its powerful charting tools and social networking features. You can share and discuss trading ideas with other traders.

Strategy backtesting tools

Before risking real money, you must backtest your strategy. Backtesting is the process of testing a forex trading strategy using historical data to see how it would have performed. Here are some popular backtesting tools

MT4 Strategy Tester: this is a built-in tool in the MT4 platform.
TradingView Pine Script: TradingView has a powerful scripting language, called Pine Script, that allows you to automate and backtest strategies.
Dedicated software: there are many third-party software tools, such as Trading Blox or QuantConnect, designed specifically for backtesting and strategy optimisation.

Backtesting helps you see if your strategy can be profitable over a long period. It helps to build confidence and refine your rules before you risk your own money in the live market.