The Best Forex Trading Strategies That Work
One of the key aspects to ensure success in forex trading is maintaining your discipline. It is easier said than done because enforcing discipline while in a trade is not easy. However, it is very much possible if you have some strategies to follow.
Well-established and tested strategies can make your forex trading performance a remarkable one. Every time you make a successful trade you will add on to your confidence, which, in turn, gives you the impetus to maintain your discipline.
But before you can successfully make a trade, you will have to establish some strategies. Generally, in the forex trading context, people use the word strategy interchangeably with trading methods. However, the trading methods are just parts of a trading plan. You need a strategy to implement the plan successfully to achieve profits.
Forex Trading Strategies To Consider
There are various strategies you can consider using for your forex trading. However, before we delve into the details of those, you need to remember the following key aspects:
- Position sizing
- Risk management
- Exit strategy
It is also important to understand that there is no single solution or answer to arrive at the best and most profitable Forex trading strategy. What is best for you may not be the best for another forex trader. It means that your personality and ways of work influence the strategies and you must find the right mix of strategies to suit you. Don’t blindly copy someone else’s strategy because it could backfire on you.
Here are some of the best forex trading strategies you can try individually or in combination:
Limited pips a day
One of the common Forex trading strategies used by traders recently is to restrict to a limited number of pips, say 50-pips, a day. If offers an early market move leverage of certain highly liquid currency pairs such as the GBPUSD or EURUSD currency pairs. In this, you will place two positions or opposite pending orders as early as 7 am GMT candlestick is formed. As one of them activates through price movements, the other gets cancelled automatically. The profit target is put at 50 pips with the stop-loss order is placed somewhere between 5 and 10 pips above or below the 7 am GMT candlestick, after its creation. This strategy helps to manage risk.
Forex daily charts
According to expert Forex traders, daily charts are more effective than short-term strategies. This is because daily trade signals will be more reliable than shorter timeframes, and the potential profits are greater too. Although there are no profit guarantees in trading, you don't have to be concerned about daily news and random price fluctuations.
Forex daily charts are based on three main principles:
- Identifying the trend
- Staying focused
- Less leverage and larger stop losses
Forex 1-hour trading
In this strategy, you take advantage of a 60-minute time frame. You can use this strategy best to trade in currency pairs such as the EUR/USD, USD/JPY, GBP/USD as well as the AUD/USD. You can use a combination of buy trade rules or sell trade rules according to the indicators.
Forex weekly trading
Several forex traders prefer intraday trading because of the market volatility which offers more opportunities in narrower timeframes. However, forex weekly trading strategies are more flexible and stable. A weekly candlestick arms you with extensive market information based on which you can make decisions. Weekly Forex trading strategies are usually based on smaller position sizes and avoiding excessive risks.
Forex Strategies Based On Price Action
As mentioned elsewhere, the strategies are personal to the trader and hence they vary from one trader to another. However, regardless of what strategy you use, you will invariably use price action. Also known as technical analysis, these are divided mainly into two:
- trend following
- counter-trend trading
Both aim to generate profit by recognising and exploiting price patterns. In this context, you must be aware of the most important concepts - support and resistance. These terms are used to indicate the tendency of a market to bounce back from previous lows and highs.
- Support indicates a market's tendency to rise from a previously established low
- Resistance indicates a market's tendency to fall from a previously established high
Generally, the support and resistance can contribute to the market behaving in a certain expected manner. However, you should remember the three following key points:
- Support and resistance levels do not mean rigid rules, they are just indicators of a common effect of the behaviour of the participants
- Trend-following systems try to profit from the situation where support and resistance levels break down.
- The counter-trending style aims to sell when there's a new high, and buy when there's a new low
Trend-following forex strategies
Sometimes the market breaks out of a range and move below the support or above the resistance, setting off a trend. This happens naturally when support collapses and the market plunges into new lows, where buyers begin to hold off as they wait for a bottom to be reached. Meanwhile, some traders resort to panic selling or force out of their positions or build short positions because they believe it can go lower. This trend will continue until selling depletes and buyers gain confidence that the prices will not decline further.
In short, trend-following strategies inspire traders to buy once the market breaks through resistance and sell once they have fallen through support.
4-hour forex trading strategy
Another potentially profitable Forex trading strategy is the 4-hour trend following strategy which also doubles up as a swing trading strategy. Here, you can use a 4-hour base chart to check for potential trading signal locations. You can use a 1-hour chart as the signal chart to find out where the actual positions will be. Don’t forget that the timeframe for the signal chart must be at least an hour lower than the base chart.
Counter-trend forex strategies
These strategies assume that most breakouts do not develop into long-term trends. Therefore, you can use this strategy to profit from the tendency of prices to bounce off previously set highs and lows. Theoretically, counter-trend strategies are one of the best Forex trading strategies for building confidence as they have a high success ratio. However, it also needs better risk management.
Forex trading is about winning and losing. It means there is always a certain degree of risk involved. You might have understood by now that there are no easy forex trading strategies to make you rich overnight. Forex trading is not a 'get rich quick' scheme. On the contrary, you can lose more than your initial investment on a trade. So, proceed cautiously and use a demo forex trading account to gain confidence and to learn the ropes of forex trading performance. You can put some of the strategies mentioned above and get expertise.
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