The Top 5 Advanced Forex Trading Strategies For 2022
Forex trading, in principle, sounds easy enough. You buy a currency pair at a low price and sell high. So with a 50% chance of being right, it should be easy to make money from trading Forex. But the truth is there's a 95% failure rate for Forex traders, and this percentage never seems to improve.
If you're new to Forex, you've probably already experienced the overwhelming amount of stuff there is to learn and master. What timeframe is best for Forex? How do you read Forex charts? What are the best Forex currency pairs to trade, and how do you avoid the effects of economic news?
What Is a Forex Trading Strategy?
One of the secrets to success with trading Forex is to work with a strict set of rules and learn to accept that trading Forex is a game of probability. Those two realisations can help you to maximise the potential for making consistent profits from trading Forex.
We're not going to discuss all the rules of trading Forex in this article, but the classic guidelines that all professional Forex traders abide by are the following:
- Trade Forex at logical levels on the charts (support & resistance, for instance)
- Always have a stop loss
- Manage your risk according to the size of your account (1% risk is typically a good guideline for each trade)
- Learn from the mistakes you make (and you will make many)
Forex trading is a psychological game. If your mindset and emotions are under control, your chance of success dramatically increases. So, when choosing a Forex strategy to work with, make sure it fits your style and personality.
Even the most logical trading strategy will fail if you cannot implement it because you can't pull the trigger at the right time or exit the market when you are supposed to.
For example, if you are naturally impulsive and have a gambling mindset, you might not be best suited to a scalping strategy. If you have little patience and want instant rewards, swing trading would drive you to distraction.
At first, you may not know what type of trader you are. Spend a few months practising with a demo account and then start trading with micro-lots. Within a short period, you will know what strategy and style of trading suits you.
How To Create A Forex Strategy That Works For You
We are going to look at five popular advanced Forex strategies with a brief overview for each one.
1. Price Action Trading
Price action trading is popular with intermediate and professional traders.
One benefit of price action trading is that it isn't timeframe dependent. You can trade equally as well with the daily chart or the five-minute chart. Also, it isn't reliant on technical indicators. It teaches you to read what the price is doing without the influence of a technical indicator, most of which are lagging.
Most Forex traders use candlestick charts for price action trading.
Candlesticks have a language. It's beyond the scope of this article to cover in-depth all the different candlesticks. But we'll briefly explain what to spot on the charts.
Firstly, each candle closes on the timeframe. So, a one-hour candle closes on the hour. By assessing the close of the candle, you can read what is happening with price action.
For instance, a one-hour candle opens and moves above the previous candle for 45-minutes. But, during the last 15-minutes, the candle retracts and closes below the previous candle. It ends with a big wick to the upside, indicating price rejection. If you monitor the next candle, you'll have a good idea of where the price momentum may be heading.
Candlesticks also form patterns and shapes on the charts. For instance, candlesticks can form a descending or ascending triangle or a head and shoulders pattern. As other traders across the globe see these patterns, the price action becomes self-fulfilling because they instinctively react to the candlestick patterns, anticipating the next move.
You can also draw trendlines on price action when the pair is trending.
The Cons of Price Action Trading
If the market is ranging and not trending, you cannot use this strategy. You can, however, monitor the range by drawing a box to indicate the top and bottom of the range.
Monitor the price action, wait for a breakout and a continuation or reversal of the trend. Price often stalls at previous price zones like support and resistance. It's just a matter of being patient.
Trading a price action strategy is simple. Look for a trending market, watch the candlesticks for indication of probable price movement and take your trade when you see a pullback.
2. Ichimoku Cloud Trading Strategy
The Ichimoku Kinko Hyo indicator is freely available on most trading platforms. Although described as an indicator, Ichimoku Cloud is a complete trading strategy.
There are several elements of Ichimoku Kinko Hyo. The Kumo Cloud is a zone. At the top is resistance (Senkou Span A) and at the bottom is support (Senkou Span B).
If the market price is above the cloud, price action is bullish, and if price action is below the cloud, it is bearish. The other two parts – Tenkan Sen and Kijun Sen act as dynamic support and resistance indicators. If the price rejects the trend from either of these, it may indicate the continuation of the trend.
Finally, according to the Ichimoku theory, the Chinkou Span measures the average price of the last twenty-six candles, acting as a cycle.
It doesn't sound easy, and therefore, many new traders avoid using the Ichimoku Cloud trading strategy. But it is a simple strategy to use that can give advanced results. You may find it easier to understand by viewing an image.
The above image is AUD/USD daily chart
Price action is currently below the cloud (pink) and has been for a while. The price is at the last daily low. If the price breaks above the red and the blue line, you would watch and wait to see if it starts to move into the cloud as part of the strategy.
If the price breaks above, the cloud will change to green, indicating a possible trend reversal to the upside.
3. Order Block Trading Strategy
Many banks and institutional traders use the order block trading strategy. It may be one of the most advanced Forex trading strategies in 2022.
What is an order block?
An order block may look like a period of consolidation on the charts.
It's where the 'big boys' are accumulating orders, getting ready to create price movement. Retail Forex traders often fail to observe these order blocks and get caught on the wrong side of the trade.
But, if you learn to spot these areas on the charts, you can follow the 'big boys' taking profits as they do. You can also incorporate order flow, which shows where the money flows into the market based on the previous order block.
The strategy works if you wait for the price to break out of the consolidation zone and retest. If the price then moves away from the zone, you can trade with the price.
The above image is the 1-hour chart for CAD/JPY
The price consolidated for a couple of days (each candle is 1-hour) and dropped below the consolidation box. It retests and gains momentum to the downside.
Spot these zones and catch the moves.
4. Swing Trading
Swing trading is very popular with professional Forex traders.
The idea is you find a trending pair and hold your positions for a few days or weeks, catching hundreds of pips profit. You can catch the larger trends, add to your positions or take some profit during the trade length.
Novice traders find swing trading challenging because they aren't comfortable holding trades. They take profits off the table too soon and miss out on highly profitable returns.
Also, the swing trader may take one or two trades a week or less if they are following a Forex trade for a more extended period.
Novice traders typically overtrade, but you don't need to take many trades to be successful unless you are scalping Forex. It comes back to developing the psychological approach to trading Forex so that you can maintain patience and discipline.
If the price starts moving, you may think you've missed your chance. But there is always a price pullback of sorts. Wait for a better price and take the trade, taking some profits as the trade gains momentum. Move your stop loss to breakeven and allow the trade to play out to its conclusion.
Swing trading can be very profitable. It is one of the best Forex trading strategies for advanced trading in 2022.
5. Position Trading
Position trading is the next step up from swing trading. With this strategy, traders may hold their trades for weeks, months or years, hoping to catch a multi-year long trend, riding the pullbacks and volatility.
Position traders can create their entire profits from one or two trades a year. They may add to their positions when the price pulls back and, for sure, they take some profits off the table.
The upside with this kind of trend is that when you are right, you are spectacularly right. Some trends can carry you for many months, and all you have to do is monitor the trade occasionally.
The downside is that you tie up your money in the trade. And because you are looking at the longer term, you can never be sure if the price action is a temporary pullback or a trend reversal. You can end up wasting a few weeks before you confirm which it is. But it becomes easier to spot with time and experience.
Meanwhile, even if a trade is going well, you may miss out on other, shorter-term trading opportunities that can provide a higher rate of return.
Position trading requires a more significant stop-loss to account for price volatility and pullbacks. You may not be able to pursue other trades because your money is tied into a trade that may take months to complete.
The above image is the weekly chart for AUD/USD.
The position trader had an entire trending year for AUD/USD before the price stalled and started moving back up. The starting price was $0.9414. The final price was $0.6208, representing one heck of a lot of profit.
These position trades are not one-off. Pick a few currency pairs and notice how many opportunities exist for making exceptional profits. Yes, you pay fees for holding the trade, but they are minuscule compared to the profit potential.
Conclusion To The Top 5 Advanced Forex Trading Strategies For 2022
There is no one magic advanced strategy for trading Forex.
The 5 advanced Forex trading strategies offer a variety of different options to suit your trading style. They are mostly more suited to trading Forex on a higher timeframe. With experience, you may be able to adapt the strategies to shorter timeframes.
- Price action
- Ichimoku Cloud
- Order block
- Swing trading
- Position trading
Practice trading Forex with each strategy until you know which one works for you and is the easiest to implement.
No trading strategy works 100% of the time because the Forex market is reactive to economic news, order flow, and global issues. For instance, when the Covid-19 pandemic began impacting society, the Forex market reacted accordingly. The uncertainty of what was to happen next (lockdown, business closures, job losses etc.) influenced market prices because traders were confused and could not rely on market measurements like technical analysis.
Don't give up on a strategy if it fails to return a profit a few times. Make sure you have followed your rules and implemented the strategy correctly. Make notes and see if you can improve your results by tweaking a trading strategy to suit your trading style.
Please note that the above information is not providing advice on tax, investment, or financial services. We provide the above information without consideration for risk tolerance and a specific investor's financial circumstances.
Trading or investing in financial instruments such as Forex may not be suitable for all investors. It does involve risk and the possibility of a loss of capital. There are no guarantees for profiting from trading Forex, and it's advisable only to risk what you can comfortably afford to lose.
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What is the best Forex strategy?
No one strategy is better than another. The success of a Forex strategy is dependent on how effectively you use it
I'm a Forex Beginner. Can I use advanced Forex strategies?
Yes, if you have mastered the basics and have experience of trading consistently. Try practising the strategies first in a demo account to know how to use them on the charts.
Is trading Forex risky?
Yes, all forms of trading carry risk. To minimise your risks, stick to a 1% risk management plan, so if a trade goes wrong, it won't significantly damage your account or your confidence.
What is the best Forex Currency Pair to Trade?
Most of the advanced strategies in this article are better with trending currency pairs. The major currency pairs are generally suitable for trending markets. Open up your charts and look for a currency pair that shows a clear trend and momentum.
What is the best time to trade Forex?
The best time to trade Forex is after the market opens, allowing for 30-60 minutes for the Forex market to settle. Liquidity drops near the end of a trading session, and avoid trading on a Friday afternoon because most traders are closing their positions for the weekend.
Whatever time you decide to trade Forex, it is preferable to stick to a routine. Trade at the same time each day, so you get used to market conditions during that session time.