5 Forex Day Trading Strategies: How to Stay Ahead of the Market

Forex is a decentralized international market involving the exchange of one currency for another for the purpose of trading pursuits. Forex, which is one of the largest multi-trillion-dollar markets in the world, is popular among retail and institutional investors due to its astronomical liquidity conditions.

Investors employ all sorts of trading strategies, from scalping to swing trading to day trading, to potentially earn profits and limit their losses. Here are some of them:

1. Trend Trading

A common type of forex investment tactic is trend trading. This consists of obtaining gains through an instrument's momentum in a specific direction. So, for example, if the USD/CAD currency pair is heading upward, this would be identified as a trend.

Forex traders who focus on trends will typically engage in a long position when the currency pair is trending upward. Whatever the case may be, traders will buy and sell in the direction of the security's trend.

» Before you start, see the basic forex terms all traders should know

2. Swing Trading

Swing trading is one step removed from day trading. Rather than entering and exiting positions several times a day, swing trading captures short-to-medium-term gains in a currency pair over a few trading sessions.

So, if the EUR/USD is seen rising over the course of four sessions, investors will take advantage of that and buy or sell the position to attain potential profits. Ultimately, swing trading is about short-term price patterns, deducing that prices do not travel in one direction in a trend.

3. Mean Reversion

Mean reversion might sound like a technical strategy, but it is quite simple. Mean reversion trading takes advantage of the movements in the pricing of a currency pair, anticipating that the price, and the broad array of measurements, will revert to the previous "average" state. This is a strategy for either buying or selling since it will potentially profit from unanticipated upswings.

4. Scalping

Scalping is another popular trading style, but it requires intense scrutiny of charts. Scalping involves taking small but frequent potential profits while also homing in on the objective of potentially accomplishing a high win rate.

Forex traders who utilize the scalping style typically finish their positions before the end of the trading session. This allows them to cushion their smaller potential profit margins from being eroded by overnight funding charges.

» Find out more about trading forex currencies with Fortrade

5. Money Flows

Money flow trading is a technical indicator that allows investors to monitor the future movement of prices by using supply and demand. The money flow indicator (MFI)—inflows and outflows—highlights the present volumes of supply or demand by establishing the difference between the uptick and downtick dollar trading volume.

Put simply, by incorporating MFI into your arsenal, you can figure out if the instrument is in the overbought or oversold territory.

» Learn more about cross-currency pairs in forex

Key Takeaway

Like any other corner of the global financial markets, forex trading offers possibilities. And, of course, considering how enormous it is, from the dollar value to the number of traders, there are many ways to assess the marketplace, currency pairs, and direction. Whether it is swing trading or scalping, you can always use any system to bolster your potential profits or limit your losses.