Overall, by knowing the best forex strategies for profits when trading in the forex market, traders can earn significant profits depending on a variety of factors including the forex pair they trade, exchange rates and price fluctuations, the trading strategy they use, and drivers behind the price movements.
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In this in-depth guide, you’ll learn about:
- Day Trading
- Scalping
- Swing Trading
- Position Trading
- Trend Trading or Trend Following
- Range Trading
Best Forex Strategies for Profits – 4 Key Point Quick Overview
- ✅ Importance of Trading Strategies
- ✅ Forex Trading Strategies Categories
- ✅ The Best Forex Strategies for Consistent Profits
- ✅ Frequently asked questions
All traders are urged to develop a well-tested trading strategy before they start trading in the forex market. A well-tested strategy for consistent profits is especially important for professional traders and those who trade forex as a career path.
Even though this seems like a daunting task, it will protect traders from rapidly changing market conditions, ensuring that they can enter and exit trades at appropriate times while minimizing their losses.
According to experts, 33% of forex traders who employ trading strategies can achieve a winning streak of profits for up to 3 months. However, only 7.7% of these market participants can profit sustainably over a year, which indicates that 92% of traders will not be profitable long-term.
Even though the odds of consistent profits may seem astronomical, there are a few ways in which traders can achieve their long-term goals and objectives, and the first step involves ensuring a proper risk-reward ratio and realistic profit targets.
Apart from risk and money management, traders must ensure that they apply the correct leverage and that they never risk more capital than they can afford to lose. Traders must also keep a trading journal in which they note their wins and losses, as this allows them to review their performance and make adaptions to their strategy where necessary.
Making consistent profits in forex is time-consuming and it takes a lot of patience, in-depth research, technical and fundamental analysis, and the use of updated indicators and economic information to keep updated with the movements in the market so that traders can make the right trading decisions.
Traders need to remember that not all complex trading systems are the most profitable as many proven profitable forex trading strategies are straightforward and have basic principles and that rely on the right timing, indicating a smaller learning curve than complex systems.
Importance of Trading Strategies
Advanced and experienced forex traders know that planning is an important part of being able to earn consistent profits in forex trading, especially when determining entry and exit points. Without a trading strategy, traders will be guessing in which direction the market will be going, a venture that will lead to significant losses.
Without using tested trading systems, the likelihood that traders will be successful is very slim. When using a trading strategy, traders will have a clear idea of the direction that the market could go towards.
This is determined by conducting a thorough and detailed technical analysis that will identify specific indications of movements and/or trends. Traders can also use fundamental analysis of news and report to determine the factors that may send the market in a certain direction.
One important consideration is that trading strategies cannot guarantee the ability to predict the exact direction of the market, as they can change rapidly, but trading strategies can provide traders with a strong likelihood concerning the directional bias of the market.
In addition to this, trading strategies and systems also keep traders in check, and they enforce discipline. They ensure that traders only enter and exit at certain points and that traders keep their emotions in check despite what happens in the forex market.
Forex Trading Strategies Categories
There are several different types of trading strategies, but these are the main categories:
- Day Trading
- Scalping
- Swing Trading
- Position Trading
- Trend Trading or Trend Following
- Range Trading
Day Trading
Day trading is a simple, profitable forex trading strategy that has several different strategies that form a part of it as an umbrella term. Day trading refers to all strategies that take place within a single trading day, from when the markets open, until they close, in one trading session.
Day traders consider trading opportunities early in the trading day, or during the day, and they close all their positions by the time a certain session ends. Day trading is a very simple and profitable forex trading strategy that offers a plethora of different trading opportunities.
Day trading is one of the most accurate forex trading strategies because of the timeframe according to which it works. However, day trading requires a significant amount of discipline, skill, and patience in knowing when the right entry/exit is and being able to wait to harness the opportunity.
Scalping
Scalping is a day trading strategy that is short-term and extremely fast-paced that involves forex traders opening and closing their trades in a matter of seconds or minutes within a trading day, depending on the specific scalping strategy they employ.
Scalpers take advantage of small, short-term movements in the forex market, especially if there are breakouts that appear. Breakouts occur when the price breaks a crucial technical level, either a support or resistance line. There is often a cluster of stop-loss and pending orders which can cause the market to accelerate in the direction of the breakout.
Scalping is a very active trading strategy that requires traders to commit themselves to their trading terminals so that they can actively manage their trades. However, many forex trading bots have made it possible for traders to use scalping without demanding as much attention.
Swing Trading
Swing trading is a forex trading style that is used over longer terms than day trading. When traders use swing trading strategies, they are likely to keep their positions open for a few days and even up to weeks.
When using swing trading, it is important that traders use back-tested forex strategies and that they know when to take advantage of swings in the market, especially when there are clear strong moves in long-term charts.
Despite its demands and requirements, swing trading is a simple, profitable forex trading strategy that gives traders more freedom as they do not have to actively manage their trades. Traders must, however, ensure that they have wider stop-loss orders in place that can accommodate market volatility, resulting in returns of hundreds of pips when done correctly.
Swing trading is typically used in forex trading but can also be used in several other financial markets. When using this trading strategy, traders must use adequate risk management protocols to protect their positions from rapid fluctuations.
Position Trading
Position trading is another long-term trading style in which forex traders keep their positions open for months and even for years. Even though it resembles long-term investing, position trading is a trading style on its own.
Traders can either hold short or long positions and they can use stop-loss and take-profit orders, they can also apply several different indicators while they hold their positions, allowing them to keep an eye on the market.
Position trading is heavily influenced by several different market fundamentals which consist of economic cycles, credit cycles, the balance of payments, and several others.
Trend Trading/Following
Trend following creates the perfect trading opportunities in a mid-term direction of a specific financial market, and the idea behind them rests on the fact that the market will always continue in a certain direction for a specific time, depending on the factors that keep the trend strength.
When using trend trading or trend-following strategies, traders open positions at the start of the trend, and close them once the trend peaks before it turns to go in the opposite direction.
Range Trading
Range trading extracts profits from different financial markets either when there is a lull, or when the market moves without a bias in a specific direction. When this happens, the financial instrument oscillates between the higher and lower barriers, letting the trader catch either the top or the bottom of a certain move.
The Best Forex Strategies for Consistent Profits
Bollinger Bounce
Bollinger Bands are one of the most popular and powerful technical analysis tools and indicators, creating a channel around certain market movements on a specific price chart. If the price touches the lower boundary, the lower band can act as a support level which could subsequently lead to a reversal.
Pinbar Strategy
This type of strategy uses a specific element found in Japanese Candlesticks that can be used to predict future price movements in the forex market. The theory surrounds the fact that the Pinbar indicates that the market is about to change direction, much like an arrow created through the behaviors of certain market participants.
The Pinbar strategy is often used alongside several others like Support and Resistance strategies that ensure a higher likelihood of success when using the strategy.
EMA Crossover Strategy
Exponential Moving Average, or EMA, is a popular and widely used technical indicator, especially in forex trading. The EMA indicator offers traders a certain directional bias on all chart types and does not require a specific timeframe.
The EMA crossover strategy uses two different EMAs which both have different values, and they take a position in the forex market according to the crossing’s direction.
When traders use this strategy, they can initiate a sell position if the lower EMA value crosses the higher value from the top to the bottom, which shows a downward trend. Traders can initiate a buy position when the lower value EMA crosses the higher value from the bottom when it shows an upward trend.
Gann Trend Following Strategy
The Gann Trend Following Strategy uses a technical indicator that was developed according to William Delbert Gann’s angles. These decide the next possible direction of the market and traders who want to use this strategy can download the indicator for it, often free of charge, especially on MetaTrader 4.
Bollinger Breakout
The Bollinger Breakout uses Bollinger Bands, and the strategy is designed to help traders identify the start of a new trend before it begins. Before the strand begins, the Bollinger Bands will squeeze and break in a direction that will indicate the start of a trend.
Carry Trade
This trading strategy allows traders to profit from interest rate differentials between countries. This strategy is especially used when traders hold currencies overnight, allowing them to be paid the interbank interest rate.
Support and resistance strategy
This is a popular range trading strategy that tries to identify where the market is likely to turn. The logic involves the theory that the market will always become bearish at a resistance level while becoming bullish at a support level.
This means that traders must initiate a sell position at the resistance level and a buy position at the support level.
Moving average crossover
Moving average (MA) is a simple and straightforward technical indicator and analysis tool used in profitable moving average forex strategies, especially to smooth out price data by providing an average price that is consistently updated.
The average can be viewed across different timeframes and the trading strategy has gained popularity among different forex traders, despite their experience levels.
For a very easy and profitable trading strategy, MT4 offers a wide range of Moving Average indicators, among several others that can be used to get insight into market movements.
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Frequently asked questions
What is the difference between swing and day trading?
Day trading aims to open and close trades within a single trading day while swing traders can hold positions for weeks and even months.
How do I choose a trading strategy as a beginner forex trader?
There are many different strategies, and you must first identify which trading style fits your lifestyle, whether short-term or long-term will suit you best. Once you have determined this, you can choose a trading strategy and adapt it to your trading goals.
How much time must I devote to trading forex?
This will depend on whether you want to trade as a hobby, side hustle, or full-time. To become a successful trader, you must dedicate a lot of time to learning the theory while gaining a significant amount of experience in the forex market.
Why is risk management important?
If you use risk management effectively, you can protect yourself, your capital, and your profits, thus ensuring that you incur less loss.
Why should I test my trading strategies?
Because you need to make sure that your trading strategies will work in a live trading environment where your capital is at risk.
Which are the best day trading indicators?
RSI, Moving Averages, and several others.
Which is the best forex trading strategy?
There is no holy grail of strategies that all traders can use for consistent profits. Different strategies will suit different traders depending on their trading needs, objectives, and different styles of trading.
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