Forex Trading Strategies

When we hear about a successful Forex trader or anyone who claims to make good returns from trading, the first thing that comes to mind is – what strategy do they use?

There are several very important factors in becoming a successful Forex trader and having good strategies is one of them.

Below we explain the importance of Forex strategies, how to choose them, and what strategies will fit your

Forex Trading strategy
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Do You Need A Strategy?

Most beginners that enter the Forex market trade based on feeling, expectations, wishes, rumours or tips. They sell when the price of a currency pair goes up, they buy when the price of a currency pair goes down.

Working with a Forex trading strategy can help to prevent many of these mistakes and help you potentially make better decisions.

A Forex strategy will have specific rules that you’ll have to follow. It will guide you where you should protect your trade and your risk, where to place a stop loss. Where to expect profits. What to do if the market doesn’t do the expected move. Where to add-on a position and where to cut earlier to cut losses.

What Strategy Do You Need to Trade With?

This is a million-dollar question. To answer such a question, you need first of all to try to understand what you are really looking for.

So, for example, if you are a long term trader, you don’t need to waste time on day-trading strategies. If you trade Forex, you don’t need strategies that are built for stocks trading. If you are price action trader – you don’t need indicators-based strategies and vice versa, if you rely on technical indicators – then pure price action strategy won’t help you much.

Once you figure out what you are looking for, it’s time to think about the type of strategies and the trading style they will fit.

What Strategy Do You Need to Trade With?

One of the worst mistakes beginners make is looking for a HOLY GRAIL trading strategy. They really believe that there is a strategy that will allow them to make profits without failure.

That, of course, is a dream that is impossible to turn to reality and it’s important that you don’t create unrealistic expectations.

The reason it’s impossible to have a strategy that is 100% accurate is very simple. The market conditions frequently change, and you have to be able to change accordingly. There are times that the market is moving in a clear trend, there are times that reversals happen, there are times where the market is consolidating and creates ranges.

There are stable economic periods and periods of panic, there are periods when price is moving in uptrend and periods when it moves in downtrend. So it’s unrealistic to expect one strategy to be able and adapt to all these changing conditions.

Here are the most common trading strategies

Trend riding strategies

Trend trading strategies are based on the idea that a trader identifies a trend, and trending market conditions, and waiting for setups that will allow him to join the trend and ride it. Some such strategies are based on pure price action analysis, identify trend conditions by the price movement (normally by identifying higher highs and lows) and look for retraces or pullbacks that will allow them to ride the trend. Technical patterns such as triangles and flags are also very popular and powerful price action-based way to trade with the trend.

Trend trading strategy
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Reversal trading strategies

More advanced technical analysis tools can help traders identify reversal conditions on the market and trade these accordingly. Such reversals could be identified by slowing down momentum, by rounding tops or bottoms on the chart, by false breakouts or by indicators that will help to spot positive or negative (bullish or bearish) divergence. The most popular indicators for that are MACD, RSI, Volumes, Momentum, CCI and Force indicator.

Reversal trading strategy
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Price Action strategies

Price action strategies are based on price action only and trying to spot how fast or slow price changes. Fast change on the price and impulsive moves normally identify good trending conditions, while slow moves and slow creation of lows or highs normally identify slower market conditions and potential retraces or trend reversals.

Price action trading strategy
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Indicator based trading strategies

Such strategies are based on algorithms that are scanning a combination of indicators and providing the trader some output with buying or selling opportunities. Normally, indicator-based strategies are using 2 or more indicators combination and are based on multiple time frames, to improve the reliability of the trading opportunities that the strategy provides.

Strategies that rely on indicators are strategies that can work well for both trending market conditions and reversal conditions.

Indicator trading strategy
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Trading systems / robots

Recently more and more systems or EAs/robots can be found online. Such systems are normally automated or semi-automated trading tools or solutions that are based on different trading strategies.

These systems or tools are built in order to save precious time for traders of analysing charts and sitting in front of the computer waiting for the right trading conditions to be met. These systems normally will alert the trader when the conditions are met and some of them will even be able to trade for the trader. We’ve reviewed a popular one called 1k Daily profit.

Autmatic trading strategy
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How To Find A Good Strategy?

Good strategies must have several components in order to be trustworthy – They must have clear trading rules for buys and sells. There must be clear protection and target levels. They have to offer positive risk-reward trading opportunities.

Essentially they have to be understandable, transparent, and logical to you! You MUST be comfortable with the trading strategy you use and you must be able to understand its logic.

How to Use Different Strategies in The Most Successful Way?

As I’ve mentioned before, market conditions change, and it happens frequently. You have to be able to change accordingly and use the right strategy at the right time. If the trend is bullish, you have to use strategies to buy. If the trend is bearish, you should use strategies that are good for selling.

Essentially you should use reversal strategies depending on the opportunity.

One of the most successful ways to trade, in general – is to analyse the market and different instruments, choose the ones that have the most reliable conditions, define the direction you expect it to go to and look to trade this direction with the strategies you choose to trade with.

 


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