Summary
Descriptions of a multitude of trading strategies in the financial markets, including Forex, can be found on many open sources. The diversity of trading strategies makes it difficult to choose just one. TU experts conducted a research in order to find out which strategies are used the most by successful traders in Forex trading and which of them are the most profitable. Therefore, the experience of successful colleagues will help other traders, especially the beginners, to make the best choice of a trading strategy. The task of the research is to provide the principal features of a successful Forex trading strategy, which can be considered the best for the majority of traders.
In order to fulfill the task and obtain a trustworthy answer to the question of the research, the team of TU analysts surveyed 2,400 successful traders, trading Forex via the brokers from the Top 10 of the Traders Union rating. As a result, TU experts collected objective data that shows the experience of successful traders and were able to determine the best type of profitable trading strategies for the novice traders.
In addition, TU research provides answers to the following questions:
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Which strategies do successful traders use?
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What are the things to consider when choosing a trading strategy?
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What the vast majority of Forex trading strategies are based on?
The results of the research are based on in-depth analysis of the issues raised and studied in the course of the research by the TU’s analytical team. Therefore, the traders from all across the world will be able to apply them when choosing a successful trading strategy in the Forex market.
Glossary
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Forex is a global financial market for exchanging currencies. The participants of Forex trading include central banks of different countries, companies, top international businesses, commercial banks and private traders.
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Forex broker is a financial services company performing the function of an intermediary between the buyer and the seller of currency in the Forex market.
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Trade deposit means the funds deposited by a trader to his/her account with a Forex broker with the purpose of performing trading transactions.
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Volatility is a term used to describe fluctuations of trading prices within a specified period of time. It is believed that the higher the range of price fluctuations, the higher the volatility.
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Slippage is the difference between the expected price of a trade set by the trader and the price at which the trade is executed.
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Spread is the difference between the best buy price and the best sell price in currency exchange.
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Trading strategy is a set of rules and algorithms used for making decisions when trading in the Forex market. The trading strategies are based on either technical or fundamental analysis, and there are also combined trading strategies.
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Technical analysis is a type of asset evaluation based on the assumption that with similar market conditions the price of the asset will change in the future in the same manner that it had in the past.
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Fundamental analysis is a type of asset price forecasting based on macro- and microeconomic indicators and their changes. It assumes that as a result of the change of the economic indicators, the price of the asset will change accordingly.
Opinions available in open sources
Having reviewed Forex trading strategies published in open sources (forex-ratings.com, sashares.co.za, ig.com, fxtradingrevolution.com, dailyfx.com and others), TU experts came to a conclusion that there is no agreement of opinion on the best Forex trading strategy in the open sources. Some traders are convinced that position or swing trading strategies are worth using. Others believe that scalping and day trading are the best strategies. Some traders build their trading strategies on the basis of technical analysis, while others use fundamental analysis. There are traders who use combined trading strategies. There are supporters of trendline as well as counter trend trading in the Forex market, and those who prefer sideways trend trading.
TU experts have tasked themselves with finding out which opinion of the above and which strategy are the best for trading in the Forex market.
Theoretical part of the research
Having analyzed trading strategies available in open sources, the experts of TU analytical team came to the conclusion that all these strategies can be classified as follows.
By the period of holding an open position:
Day Trading.
Position Trading.
Swing Trading.
Scalping.
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Day Trading (Intraday Trading)
Day trading is a strategy that implies opening and closing of trading positions on the same day, with none of the positions opened overnight or rolled over to the following day.
This Forex trading strategy is one of the most popular strategies among the traders. The reason why it is so popular is because by closing positions daily, a trader can react to the market events more flexibly, rather than when using position trading or swing trading, for example avoiding the gaps when the session opens (passing them) and also react timely to intraday changes of liquidity and volatility of the chosen currency pair.
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Position Trading
Position trading is a trading strategy based on working with large time intervals. Long-term charts are used in the position trading to determine the direction of the market movement – from daily to monthly. Within this strategy, the traders can hold their positions from several days to several weeks and longer, depending on the trend. Traders seek sequences of maximums and minimums of the price in order to determine the direction of its movement. Having ‘caught the wave’, the traders try to earn profit both from the growth and from the decrease of the price of the asset. As a rule, traders open positions after a certain trend has set (for example, the price of the currency pair started to hike), and close the position when the trend ends. This means that it is risky to use the position trading strategy in the periods of high volatility in the market.
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Swing Trading
Swing trading is a trading strategy that involves using the adjustment moments in the process of trend formation for entering the market. Traders using this strategy, as a rule, enter trading at the moment of the trend change.
In this situation, there is usually certain volatility in prices, as the new trend is only beginning to set in. Swing traders buy or sell an asset as the volatility grows. Usually they hold their position for more than one day, but still for a shorter period than position traders. It is not mandatory in swing trading to accurately predict the peak of the price growth or the bottom of the price drop; this strategy can be used on a stable market that has confidently chosen the direction. The market moving within a limited range or in a sideways trend carries a risk for swing traders.
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Scalping
Scalping is one of the trading strategies used by traders for quick gains in the Forex market. It involves skimming profits from the difference between prices of purchase and sale bids, and also the flows of orders within short timeframes. Traders usually make their money from the difference of prices, buying the asset at the supply price and selling at the demand price.
Scalpers try to hold their positions open for a short period of time, thus reducing possible risks. In addition, scalpers do not try to profit from substantial price changes or from buying/selling large volumes of assets; they try to benefit from small, but frequent price changes and sell and buy smaller volumes frequently. As the profit per trade is small, scalpers aim to have as many trades as possible and use the most liquid currency pairs. Unlike swing traders, scalpers prefer ‘calm’ markets that are not prone to sudden fluctuations.
Note:
TU experts note that when using trading strategies that involve scalping, traders need to consider trading conditions of the chosen broker, specifically the speed of order execution, spread and/or commission and also presence of slippages. These trading criteria directly impact success of trading with scalping strategy.
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By the method of applied market analysis:
Strategies based on Fundamental analysis involve monitoring of macroeconomic news (decisions of central banks on key rate, unemployment rates, GDP, inflation, etc.) and the corresponding reaction to them.
Strategies based on Technical analysis involve taking into consideration price indicators of the financial asset in the past (such as volatility, buyer/seller balance, resistance and support levels, price turning point, etc.) and projecting them to the future movement of the price. All strategies built on technical analysis are largely based on the psychology of traders, who, according to the supporters of technical analysis, should act in the future in the same manner they acted in the past with equal market conditions.
Strategies based on combined analysis involve both elements of technical analysis and of fundamental analysis. For example, fundamental factors can serve as the key indicator for opening a position with one of the technical analysis indicators used as a confirming indicator.
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In terms of following the trend, the strategies are divided as follows:
Trendline strategies imply opening trades exclusively in the direction of the trend and closing them after the trend movement seizes.
In counter trend strategies, positions are opened against the movement of the trend (pullback) and closed when the pullback ends.
Strategies chosen by the traders during a sideways trend (flat) are based on the movement of price within a stable price range at the moment of price consolidation and are no longer used as soon as the trend gains new momentum.
Results of the research by TU Research Department (*)
To answer the question of which strategies the most successful traders use the most, the team of TU analysts surveyed 2,400 traders – members of the TU community. The survey was conducted using the CAWI (Computer Assisted Web Interviewing) method. The non-sampling error of the survey with a confidence level of 95% is no more than 2%.
Successful traders from different countries were offered to fill out a structured questionnaire, sent to them via email. All respondents have shown profitable trading for at least one year.
6.1 Surveyed traders by gender:
74% men;
26% women.
Picture 6.1 Respondents by gender, %
6.2 There are the following age groups in the sample:
44% of the respondents are aged 18-30;
37% — aged 30-45;
16% — aged 45-60;
3% of the respondents are older than 60.
Picture 6.2 Respondents by age
6.3 In terms of their trading experience, the composition of the respondents was as follows:
4% of the respondents have been trading on Forex for over 10 years;
23% — more than 5 years;
41% — from 3 to 5 years;
32% — from 1 to 3 years.
Picture 6.3 Respondents by Forex trading experience, %
6.4 In terms of the average monthly deposit growth for the last 12 months the results of the surveyed traders are as follows:
3% of traders — up to 15%;
16% of traders — up to 10%;
32% of traders — up to 5%;
30% of traders — up to 3%;
19% of traders — up to 1%.
Picture 6.4 Average monthly return rate of successful traders, %
6.5 The responses of respondents regarding the trading strategy they use in terms of the period of holding open positions are as follows:
27% of traders prefer intraday trading (Day Trading);
28% of traders follow position trading strategy;
31% of traders use swing trading;
14% of traders are scalpers.
| Period of holding open positions within the strategy | Votes | % |
|---|---|---|
Day Trading |
648 |
27% |
Position Trading |
672 |
28% |
Swing Trading |
744 |
31% |
Scalping |
336 |
14% |
Total |
2,400 |
100% |
Table 1. Distribution of trading strategies by the period of holding open positions
Picture 6.5 Strategies by the period of holding open positions, %
The answers to the question about the method of analysis the surveyed traders use were as follows:
39% of traders use technical analysis in their strategies;
33% of traders use fundamental analysis in their strategies;
28% of traders prefer to use a combined method of analysis.
| Method of analysis | Votes | % |
|---|---|---|
Technical |
936 |
39% |
Fundamental |
792 |
33% |
Combined |
672 |
28% |
Total |
2,400 |
100% |
Table 2. Distribution of traders’ votes by the method of analysis they use
Picture 6.6. Method of analysis, %
6.7 In regards to following the trend in trading strategies, the opinions of the respondents are as follows:
54% of traders use the trendline strategies;
31% of traders use the sideways trend trading;
15% of traders prefer counter trend strategies.
Picture 6.7 Following the trend in trading strategies, %
| Strategy in the context of following the trend | Votes | % |
|---|---|---|
Trendline |
1296 |
54% |
Counter Trend |
360 |
15% |
Sideways Trend |
744 |
31% |
Total |
2,400 |
100% |
Table 3. Distribution of strategies in the context of following the trend
(*) Survey criteria:
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Survey audience: successful Forex traders of the TU community aged 18 and older trading with the brokers from the TOP 10 list of TU.
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The sample is representative in terms of age, gender and Forex trading experience.
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Sample number: 2,400 respondents.
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Survey method: CAWI (Computer Assisted Web Interviewing).
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Non-sampling error of the study with a confidence level 0.95: no more than 2%.
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Period of survey: May 25-26, 2023.
Findings
Based on the results of the research, the TU analysts have reached the following conclusions:
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Nearly equal number of traders use swing trading, position trading and day trading, although the number of traders who prefer swing trading strategy is prevalent. The least number of traders use scalping.
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The majority of the surveyed traders use strategies based on technical analysis (39% of respondents).
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The vast majority of traders use trendline strategies.
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Novice traders use scalping less than experienced traders.
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The results obtained in the course of the research testify that the traders with the highest average deposit increase in the past 12 months most frequently use day trading.
PDF version of the TU research
For more detailed information on the best Forex trading strategy, download the full version of the research conducted by our team.
The Best forex strategy | Expert Opinion
There is an abundance of Forex trading strategies, which makes it very difficult for traders, especially the beginners, to choose the best one. Experienced traders know that there is no perfect trading strategy and something that is good for one trader may be completely unfitting for another. Therefore, when choosing a Forex trading strategy, it is recommended that you determine your acceptable risk level, suitable market analysis algorithms, time and style of trading that fits you. It is also necessary to thoroughly test your chosen strategy on the demo account or a live trading account using minimum lots and leverage. Based on trading results, it is advisable to perform analysis of all trading decisions made within the framework of the strategy you’ve chosen, analyze possible mistakes, thus improving and perfecting your trading strategy continuously. Make sure to check your percentage of profitable trades and maintain it over 50%, and also choose the leverage in correspondence with your strategy and the Forex trading will bring you stable and high profit.
Antony Robertson
Traders Union’s analyst trader
Background info.
TU research is a result of many days of hard work by our experts, who collected, processed and analyzed a huge amount of information and opinions on the use of stop-loss orders. Our data are also largely based on the success stories of real traders, who work with TU, which confirms their objectivity and impartiality.
Our research is of a charitable nature and was created at the expense of Traders Union with the objective of increasing financial literacy of Internet users and increasing the percentage of successful transactions among traders. If you enjoyed our research and found it useful, please share it with others.
