Forex Trading Strategies
The most effective Forex trading strategies
Looking for the most effective Forex strategies? In this article, we will discuss the main Forex strategies that can improve your trading.
But first, let’s take a look at the basic trading strategies that are used in the Forex market.
You may already know that discipline is the most important thing in trading. The question is how to be a disciplined trader and follow the rules.
One of the ways to help maintain discipline in Forex is to have a clear strategy that you follow.
If this Forex trading strategy has worked well, you can rest assured that you are using one of the successful Forex trading strategies. This confidence will make it easier to follow the rules of your strategy and help you be more disciplined.
Very often, when people talk about Forex trading strategies, they mean specific Forex trading methods, which are usually only part of a trading plan. Coordinated successful Forex trading strategies provide good entry signals, but it is also important to consider:
- Main trend direction
- Management of risks
- Exit points
How to choose the best Forex strategies
What is the best Forex strategy – there is no single answer.
Each trader chooses a strategy for himself based on his free time and appetite for risk. This means you need to consider your personality and come up with a strategy that suits you.
What may work very well for one trader may be totally unacceptable for another. Conversely, a trading strategy that has been underestimated by others may be right for you.
Therefore, only in the course of testing various strategies and approaches will you be able to find the one that suits you and reject those that do not suit you.
One of the key aspects to consider is how much time you can devote to trading.
The different trading styles, from trading short timeframes to trading long timeframes, have been widely used in recent years and are still a popular choice from the list of the best Forex trading strategies in 2020.
- Scalping is a very short-term trades that take a few minutes to open. The scalper strives to quickly make a profit of several points. Tick charts are usually used.
- Intraday trading is trading that remains open throughout the day, as the name suggests. This eliminates the potential for adverse effects from large pulses. Daily Forex strategies (or intraday Forex strategies) imply that trades can only last a few hours and the timeframe can be set to one or two minutes.
- Swing trading is positions held for several days in order to profit from short-term price formations.
- Positional trading is when a long-term trader usually looks at the charts at the end of the day.
Forex Strategies and Applying Price Patterns
Almost all traders use Forex price models in their trading to one degree or another.
This approach is also known as technical analysis.
When it comes to strategies based on technical analysis, there are two main styles: trend trading and counter-trend trading. Both of these forex trading strategies are focused on making a profit while joining the price movement.
When it comes to price patterns, support, and resistance levels are the most important.
In simple terms, these conditions represent the direction of the market; the minimum and maximum prices for the selected time period are most often used to determine the support and resistance levels. A support level is a price level that is below the current price, a resistance level is above.
This is because market participants tend to judge subsequent prices based on recent highs and lows.
What happens when the market approaches recent lows? Buyers will be attracted by the low price of the asset, and sellers will be attracted by the opportunity to take profits.
What happens when the market is nearing recent highs? Sellers will be interested in opening short positions at the highest prices, buyers at these levels fix their profits.
Thus, recent highs and lows are a criterion for assessing the current market situation.
There is also an aspect of support and resistance. This is because market participants anticipate a certain price movement at these points and act accordingly.
As a result, their actions can help develop the market as they expected.
However, three things are worth noting:
- Support and resistance are not 100% the rule, they are simply a general consequence of the natural behavior of market participants
- Trend-based systems take profits into account when support and resistance levels break
- Countertrend trading styles are the opposite of trend following: they involve selling when there is a new high and buying when there is a new low.
Forex trending strategies
Sometimes the market goes out of the range, moving below the support level or above the resistance level, in which case a trend begins. How does this happen?
When support breaks and the market moves to new lows, buyers begin to hold. This is due to the fact that buyers constantly see that lower prices are being set and want to wait until the minimum is reached.
At the same time, there will be traders who open trades in panic or simply have to close their positions. The trend continues until the sale is exhausted and the confidence returns to buyers that prices will not decline further.
Trading with a trend involves opening a position after prices have overcome resistance levels and sell after they have fallen from support. Trends can be dramatic and long-lasting.
Due to the scale of the movements involved, this type of system may be the most successful Forex trading strategy. Trend-based systems use indicators to tell when a new trend might start, but of course, there is no surefire way to know.
Advantages of the Forex indicator – if the indicator can tell the time when there is a possibility that a trend will start, you increase the odds in your favor. A situation that can show us that a trend is starting to form is called a breakout.
A breakout is when the price moves above the highest high or lowest low in a specified number of days. For example, a 20-day upside breakout is when price moves above the highest high in the last 20 days.
Trend-driven systems require special thinking. Due to the long duration – during this time, profits can disappear as the market fluctuates – these trades can be more stressful.
When markets are unstable, trends will be difficult to track and price fluctuations will be greater. This means that a trend-driven system is the best trading strategy for Forex markets that are calm and trending.
Forex counter-trend strategies
Counter-trend strategies are based on the fact that most breakouts do not develop into long-term trends. Therefore, a trader using such a strategy seeks to take advantage of the trend in prices to move away from previously set highs and lows.
On paper, counter-trend strategies seem to be the best Forex trading strategies as they have a high rate of return.
However, it is important to note that more stringent rules are required on the risk management side. These Forex trading strategies are based on support and resistance levels. But there is a risk of big losses when these levels are broken.
Constant market monitoring is a good idea. The market condition that best suits this type of strategy is stable and volatile. This market environment offers healthy price fluctuations that are limited within a range.
Remember, however, that the market can switch states. For example, a stable and quiet market may start a trend while remaining stable and then become volatile as the trend develops.
How the market conditions can change is unknown.
Advanced Forex Strategy – Positional Trading
You cannot predict which strategy will bring you the greatest success or profit in forex. However, position trading is by far one of the most potentially profitable Forex strategies.
This advanced Forex strategy is used by leading traders, whose experience has made it possible to effectively make money in the foreign exchange market. Its advantage is that you do not need to pay constant attention to it. However, you will only be able to close a trade after thorough market analysis. Next, let’s talk about position trading in detail.
Positional trading involves holding positions for a long time – usually from one month to a year.
However, this requires a long-term plan and the ability to predict the future direction of the market.
To get started with position trading, you must select an asset. There are three factors to consider when deciding which currency pair to use.
- High long-term volatility
Volatility is critical to making a profit. Every day, a SWAP can be held from your trading, so a tool that doesn’t move may not be interesting.
One way to increase your chances of success is to select currency pairs that can be influenced by:
- Upcoming political events
- Economic events
- Low short-term volatility
A currency pair with low short-term volatility is more likely to move slowly in the direction of your position, rather than experiencing sharp fluctuations that could force you to close your position.
- Use low margins
Although forex traders often trade with very high leverage, this approach is not optimal for positional trading. To determine what margin to use for a profitable Forex strategy, consider the following variables:
- the number of funds you have outside your trading account – remember to trade only with risk capital
- what leverage will provide the best risk-reward ratio?
When it comes to positional trading, consider this: the less leverage, the better.
Each of the strategies discussed below has been designed specifically for novice traders who have the potential to become professionals. So, let’s take a closer look at each of these strategies.
Forex scalping strategies
To become a successful trader, you need to know about all the nuances of working in the foreign exchange market. Working in this area presupposes a successful investment, which will ultimately result in a decent income.
Understand that a reliable trading method that guarantees 100% success is nothing more than a myth. Any strategy is a risk, and none of them can ensure you against losses. And yet, there are a number of advanced Forex trading strategies that can help you earn enough profits. Let’s take a look at the first of them – the Forex scalping strategy.
The task of the Forex scalping strategy is to make a profit in the shortest possible time. This is its advantage: trading is carried out in the short term, so you will receive your income at the first market fluctuation, even if it is minimal. In order to learn how to extract the maximum possible profit, you need to analyze the Forex market very accurately before trading. Traders using Forex strategies on daily charts shared their experience of using this method
Many participants in the foreign exchange market have a double impression of this strategy. You need to understand how well it suits you. However, all of them agree on the main idea of the method. After extensive analysis, many functions were combined into a general methodological idea.
After that, all traders who had different opinions about scalping efficiency came to a common conclusion. They decided that scalping is a strategy using which a trader can exit a trade as soon as possible. At the same time, the duration of these terms was not specifically defined.
Forex scalping strategy can bring you considerable income very quickly. At the same time, you need to know how you can most profitably apply it in practice. Let’s take a closer look at this issue.
The most important point is that the position must be kept open for no more than 5 minutes. This can be seen as an advantage and at the same time a disadvantage of scalping. The fact is that in 5 minutes the market will not advance too much and your profit will be a very small amount. Currency pairs move in only one direction by 1 or 2 points.
A small number of pips will not bring you much profit. Thus, this system will only be as effective as possible if you are moving substantial assets. Even a small fluctuation in the market will bring you a large profit if the starting amount was considerable. Remember, trading volume and income will grow with your skills and experience.
Considering advanced methods of Forex trading, let’s look at the results of using the strategy:
- Exit a trade just a few minutes after opening it. The maximum time is 5 minutes.
- The profit from one trade will be small, so make as many trades as possible. This will generate significant income in one day.
- A large number of transactions per day will make it possible to succeed in a scalping strategy on Forex
- Scalping efficiency applies only to day traders. You will have to spend a lot of time trading in order to make a profit.
As we mentioned earlier, you should never neglect the stop loss indicator. The best Forex scalping strategy can make your trading very efficient. With its help, you can study the market from the inside, understand all its nuances and learn to predict the outcome.
Forex scalping benefits
Positional trading as one of the types of trading is not suitable for everyone.
Many novice traders see trading as something more active when you need to constantly be behind the monitor and make a large number of transactions per day. Scalping, as a form of trading approach, can give you this.
The idea of a scalping strategy is to make a large number of trades, each of which generates small profits – from five to ten points each.
To develop your own unique and profitable Forex trading strategy, consider the key variables:
- The desired risk to reward ratio
- Your attitude to stress
- How much time per day can you devote to trading?
The most important thing is to use the methods that you understand to improve your strategy every day. The free demo account is perfect for testing new ideas and working on your overall performance.
Best Forex Strategies – Forex Breakout Strategy
Trading breakouts is a great example of a simple forex strategy that does not require a lot of time and effort but can be too tough for beginners who cannot boast of patience.
Setting – our everything. It is by choosing the right setting that you will save yourself time and nerves. If the eye knows what it is looking for, the study of charts is reduced to a second scan of the situation. If the setting is not the right one, move on.
Setting for breakout trading, this is the horizontal movement of the market – a relatively narrow, relatively weakly volatile horizontal corridor where bulls and bears are equal in strength for a while.
We use a 200-period moving average on the daily chart. 200 days because there are about so many trading days a year. Simply put, this is the annual average price. Depending on the volatility of the instrument, draw a corridor of about 50 points in each direction from the average. The close of the daily candle outside the channel signals a breakout.
The entrance is simple. Every time a candlestick opened on one side of the middle and closed on the other side, and even beyond the corridor, we enter in the direction of the breakout. This would be a good 60-point low candlestick.
Also, be prepared to keep the drawdown. The movement is often followed by a quickdraw.
The way out – no less important thing in trading strategies for newcomers to the Forex market – is also simple. A hard stop is one hundred percent, we don’t move it anywhere under any circumstances – we set it on the moving average itself. If the price returns, it means there was a false entry, they lost a little more than the length of the signal candle. As the price moves, we set the Trailing Stop, which follows the price at a distance of 60 points.
The strength of this strategy is simplicity and simplicity in execution. The candle is drawn once a day around midnight. Before going to bed, we scanned at least 50 pairs and went to bed. You don’t have to look at the market all day. The next evening they checked again.
Carry trade – simple Forex strategy
Carry trade is a fairly simple forex strategy that is quite understandable for beginners. It has an official translation but roughly means “postponed trading”.
The secret to successfully using this strategy is to find pairs with low volatility and pairs with large interest rate differentials. Especially if interest rates have changed recently. The fact is that high-interest rates attract investors, and if capital flows into the country, then its currency will rise in value.
Carry trade is also interesting because a large differential of nominal interest rates means large swaps. Thus, by purchasing a currency with a high-interest rate, one can not only sit on a fundamental trend but also collect profits simply for holding a position.
Technical calculations are used to enter the market using this strategy. Classically, a bull market is entered when the chart is at the bottom. Bearish – when the market is near the ceiling.
Even as a novice trader, you should see how these two simple Forex strategies follow completely different logic and follow almost opposite entry/exit rules.
Break-Even Forex Strategy
If you are a novice trader, you have probably already tried to find a system that would allow you to trade in the Forex market without losses.
You are not the only one looking for such a strategy.
Thousands of traders are looking for an easy trading system that explains how to trade forex without losses. Some traders even claim to have uncovered the secret.
Is there such a perfect strategy?
Profitable Forex strategies without losses – truth or myth?
We will immediately open the cards. There is no trading strategy that never results in losses. It’s not that no one has ever thought about it – the truth is that a Forex-focused strategy cannot be a loss-free strategy.
On the internet, many say that there is a win-win Forex strategy for free.
The only reason you haven’t been able to find such a strategy is that it simply doesn’t exist. Even if any trader had invented a win-win Forex strategy, he would have kept it a secret.
The essence of any strategy is to make a profit that exceeds the total amount of losses. The frequency and volume of profit depend on your own skills, knowledge, and tactics, while losses are inevitable.
Some of the tools that professional traders use as indicators or oscillators can increase the chances of making a profit, but they never provide guarantees.
Lossless Forex Strategy – How To Create It
While there is no such thing as a win-win Forex strategy, it might seem like some traders have discovered the secret. There are traders who have a high rate of return. You may be tempted to copy their methods in the hopes of getting similar results. However, these results are the result of hard work, skills, and experience gained over the years.
Even if you made good trades by copying expert traders, you would not learn anything new.
As a beginner, you should be ready to try new things and plan your own trading strategies. First of all, it will help determine what is right for you.
There are at least three questions you should consider:
- How well do you handle losses?
- Do you trust your own opinion?
- Do you know how to admit your own mistakes?
How to know which Forex trading strategy is right for you
Many technical indicators have been developed over the years. The big leaps forward made with the use of online trading technologies made them much more accessible to people, it became possible to create your own indicators and systems.
If you want to be successful in the Forex market, you need to keep one thing in mind: there is no easy alternative to discipline and patience.
If you keep thinking of Forex trading as a leisure activity or a fast track to wealth, you will not be successful. Forex trading can be profitable, but your results will always come with risk.
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