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 can you 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 are described below, from trading short time frames to trading long frames, which have been widely used in recent years and still remain 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 commonly used, such as those found in the MetaTrader 4 Supreme Edition.
- Intraday trading – these are trades that remain 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 a selected period of time are most often used to determine 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 approaches 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 contribute to the development of 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 the trend following: they involve selling when there is a new high and buying when there is a new low.