There are traders who make decisions based on their guesses. And there are traders who meticulously plan every step and prepare for all possible outcomes. Which ones are more successful? It’s a no-brainer: by using even the most simple Forex trading strategies that work, any goal is achievable.
Picking the Best Forex & CFD Strategy for You in 2020
Adopting a set of trading strategies early on is pretty much a guarantee of your Forex success. An effective strategy will provide crucial keys, such as points for entries and exits, risk management solutions, tool settings and position sizing.
You might say: “Ok, I’m sold. Show me one of those strategies that will make me super profitable”. But here’s a thing. While there are literally dozens of Forex trading strategies that work, the challenge is to find the one that fits you specifically.
In order to make the right choice, a trader needs to consider several factors. Start by evaluating how much you already know about the Forex market. In case your knowledge is somewhat limited, consider getting a little more information before you proceed.
As you get familiarized with the specifics of foreign currency trading, you will notice that there are different approaches to earning income on Forex. These approaches differ in the amount of time they require, the level of risk involved and even on your own personal characteristics.
You will need to be entirely comfortable with the trading method you choose. To help you outline the general direction of a strategy for you, here are the most recognized trading styles:
Scalping is the most fast-paced trading style out there. The main focus is to shave off mere pips from the chart in order to gain profit. Scalpers usually don’t spend more than a couple of minutes on each trade and need to have impeccable attention to detail. Although scalping might sound like the most straightforward approach, it actually requires high levels of skills and practice. Partially due to the overall speed of the trading process and partially due to the increased levels of stress.
Day trading is slightly more paced out than scalping. A day trader’s objective is to close all trades within the course of one day. The major reason behind this logic is to avoid having your positions carried overnight, because when a trade stays open for more than a day it is subjected to nightly charges called swaps. Day trading strategies may vary in style and can sometimes fall into the categories of scalping or swing trading.
Swing trading also comes in many variations, but by definition it is a little more slow-moving than day trading. A swing is a section of the cart between the highest and the lowest point of elements forming in the same direction. Swings are not the same as trends and sometimes can occur during non-trending conditions. By outlining the swings traders can calculate when the chart is going to peak either high or down to enter the trading process accordingly.
Position trading is the most stretched out approach in terms of time. The idea behind it is simple: buy an asset at a comfortable price and wait for its value to rise significantly to sell it for profit. Such trades can last anywhere from a couple of days to several months and sometimes even years. In order to successfully engage in position trading, traders need to understand the nature of ongoing trends and have a clear vision of both technical and fundamental factors behind price formation for their chosen currency.
Yes, it might seem like a lot to choose from, especially at the beginning. And it is also true that your first couple of picks might not necessarily fit your preferences and you will have to move to something else a few times.
But the good news is that there will absolutely be a Forex trading strategy that works for you among one of the styles described above.
Now, to sink a little deeper into choosing between Forex trading strategies that work, we are going to describe several existing approaches. Keep in mind that disregarding how each strategy sounds in theory, the only way to check its effectiveness is to try it.
50-Pips a Day Forex Strategy
As you might have guessed from the name, the objective of this strategy is to gain profit equivalent to 50 pips within one day. The main trick here, however, is that not every currency pair might move fifty pips over such a limited period of time.
This means that in order to successfully implement any limited pip goal strategy, you will have to pick a highly liquid instrument. Liquidity of any currency is based on the amount of overall attention it is getting from traders worldwide.
The United States Dollar is the most liquid currency across the globe, but in order to trade it effectively you need to pair it up with another highly liquid unit. The major pairs such as EUR/USD or USD/GBP can easily range anywhere from 50 to 150 points during one day. And on the other hand, pairs such as USD/SGD (Singapore dollar) may barely move past 30 points.
Traders who choose 50 pips a day strategy can only use technical analysis in their decision-making process. But it also wouldn’t be a bad idea to check with certain fundamental factors to foresee stages of high liquidity in pairs that are not always active, for example.
As for the risk prevention measures, any small profit goal strategy requires really close set ups of automated orders such as stop loss. By setting a stop loss anywhere between five and ten pips from the low point at your current chart, you are ensuring that potential losses are cut down to the minimum.
Forex Daily Charts Strategy That Works
A daily chart method is one of the stress free Forex trading strategies that work for pretty much anyone. The focus here is to identify trends on the day chart and use them to your advantage.
This type of trading might not be suitable for traders who aim to gain profits fast. A daily chart trader understands that the market moves in cycles and that their patience will be generously rewarded. This means: maximum observation and minimum action.
There are many different ways to identify the trend: from manually drawing lines on the chart to using a set of formulas and indicators. The upside in either case is that the daily chart has a significantly reduced level of noise, which makes trend location a little easier.
Another center principle for daily chart traders is to keep visible distance between the chart and the stop losses as well as not to put a lot at risk. Slow and steady, day by day: that will be your main mantra if you choose this approach.
Forex 1-Hour Trading Strategy
This is the strategy that aims to benefit from the one-hour chart. Similarly to the 50-pip method, you will want to go with highly liquid pairs that show a lot of activity within limited periods of time. After all, the goal of either of the Forex trading strategies that work is to gain the optimal amount of profit. And that just won’t be possible with slow moving pairs.
To successfully implement a one-hour chart strategy you will need to use a 100 pip momentum indicator along with the indicator arrows. In order to buy, wait for the blue line of the indicator to cross the red one from beneath and for the arrow to provide a green signal. You can choose to gather profits after a set amount of pips, such as 30, for example. A stop loss can be placed immediately below the red indicator line.
Selling with this strategy will work in the exact opposite way. Open the position when the blue line crosses red from above and the arrow is indicating red. Gather profits when you reach 30 pips worth of profit and place your stop loss immediately above the red line.
Forex Weekly Trading Strategy
As day timeframe strategies come with more action, weekly chart trading is for traders who look for more paced-out, stable trading. Each weekly candlestick consists of five daily sticks and this can provide plenty of info on ongoing trends.
If you use an EMA indicator for this approach, wait for the previous week’s last candle to close above the Exponential Moving Average. Then look for the exact moment when the prior week’s high was broken through. Place a buy stop order on the 4-hour candle at the same level as the broken high.
Calculate the stop loss based on the nearest low point. It can be anywhere between fifty and a hundred pips. If the nearest low is less than fifty, consider accounting for previous extreme values to make the necessary adjustments.
The Role of Price Action Trading in Forex Strategies
Price action trading is based on the theory that all you need to know about your instrument to successfully trade it is purely numerical values. Because while fundamental analysis of the Forex market has a lot of ground to stand on, it can be very subjective and therefore, confusing.
That’s why so many Forex trading strategies that work are focused primarily on technical analysis. The logic is very simple: buyers will buy the chosen asset when it’s cheap and sellers are going to wait for the maximum price of the currency they hold in order to gain the most profits.
But how do we know if what we are looking at is the most optimal price? By implementing price action trading strategies.
You can roughly divide all technical analysis based methods into trend following and counter trend trading. However, there are slightly more elements to this. For example, a good majority of traders use virtual levels at the chart, commonly known as support and resistance.
In theory, as the price chart moves up and down through the day it is expected to bounce up from the support level and down from the resistance. This is majorly explained by the fact that the Forex market is driven by traders, and the more of them respect those established levels the more likely they will keep being met.
But the price action methods are built on the idea of support and resistance levels being broken. This way, trends will occur when the price movement breaks either the virtual ceiling or the floor. Now, let’s discuss a few types of simple Forex trading strategies that work based on this principle.
Trend Following Forex Strategies That Work
Following a trend is kind of riding a train and getting off it with the majority of passengers. It is pretty simple: locate the trend and either first buy low and sell high if it is upwards or sell high and wait for the low again to buy back when it’s downwards.
Trends can both be short and fast and long and slow. The trick to successfully trading Forex along with the trends is to have an idea when they might slow down and reverse. And there are a lot of ways to approach this.
You can either use trend locating and confirming indicators, or lean towards mathematical calculation of possible support and resistance levels. There is also an option to learn how to recognize chart patterns that signal to trends reversals. Usually before a trend reverses, the chart slows down and this leads to formation of very specific chart elements.
Gather all your patience and learn as much as possible about the nature of trend formation. Perhaps the best news for you at the very beginning is the fact that no trend lasts forever. And if you are not having too much luck during a certain trend, you might be more successful with the next one.
4-Hour Forex Trading Strategy
Although four hour time frames are most commonly used by swing traders, trend following price action traders can also take advantage of it. In this scenario a 4H chart is going to serve as a base for locating potential trading signals and then a 1H chart is used during the actual position placement.
The best solution in terms of technical indicators is to use two Moving Averages with periods of 34 and 55. The relation of the price movement to the two MA’s is going to help you determine whether trading a current trend will be beneficial.
When the market is trading upwards, it is considered good conditions when price action stays above the Moving Averages, the 34 MA is over the 55 one and both Averages keep on going up along with the trend. In a downtrend the opposite: price action has to be below Moving Averages, the 34 MA stays under the 55 one and both average keeps sliding downwards.
The logic behind these to Averages is to use the space between them as support area during upward trending and as resistance during downtrends. This area will also become your best source of potentially profitable positions.
Counter Trend Forex Strategies That
While trend following makes complete sense, it is the counter trend Forex trading strategies that work in the higher number of cases. The main theory behind going against the trend is that breakouts from the established range, which trends essentially are, don’t last for too long.
This way the objective of a counter trend trader is not to profit from the ongoing trend itself, but from its reversal. You can look at it as kind of looking long into the future. This is both the benefit and the flaw of this strategy.
Because while the majority of trends reverse, some manage to continue for very long periods of time. This way, a position held against the trend can visibly cut into the profits. Which only means that it’s imperative for the trader to master effective risk management as well as basics of technical analysis to successfully trade against the trend.
Now, as we have already discussed many proven Forex trading strategies that work, let’s move on to this burning question: how do you know a strategy will work for you?
Discover the Best Forex Trading Strategy that Works for You
We already know that there is no one single trading strategy out there to fit everyone. We also know that it is pretty much impossible to find the right approach from the first try. So, how do we at least narrow down the search to make sure we can move on to the actual trading process sooner?
A very nice way to help you through the selection is to outline your Forex preferences and expectations. You can use a model of SMART goals: specific, measurable, achievable, realistic and timely.
Start by picking out the basics such as how much you can invest into Forex trading and how significantly you are looking to grow your initial deposit. It can also help to do some research and pick trading instruments, also known as currency pairs, you are planning to operate with. This will help you further on in terms of information and tools you’ll need along the way.
Then decide on how you are going to measure your success. Is it going to be reflected in the number of pips you gain daily or in the certain monetary amounts on a monthly basis? Remember that you are the boss here and it is entirely up to you how your trading process is going to unfold.
Next step is to make sure you set achievable targets. The best solution, perhaps, is to start small and progress as you go along. For example, your first task as you enter the foreign exchange market might not be to grow your capital, but don’t lose more than a half of it. Because truth be told, the road might get pretty bumpy in the beginning, and your main job is to power through and keep looking for the most optimal solutions.
It is also very important that your goal is realistic. This way, planning to turn ten bucks into ten million dollars over a year is something purely fantastic. However, setting a goal of growing ten dollars into fifty over the same period of time is closer to reality. Of course, there are going to be times when you will catch a good wave and exceed your own expectations, but still having a sober picture in mind will never hurt.
Finally, decide on how much time you will need to achieve your goal based on your current knowledge and availability. Then section this time down into smaller parts to build a schedule for your trades. Again, it is entirely up to you whether you trade for twenty minutes a day or for forty hours each week, as long as you are both profitable and comfortable.
Based on the goal you have set for yourself, start exploring the existing strategies out there. Something sounds good? Give it a try and see how it will work for you. And if you are not confident enough to put your own money on the line while looking for a strategy, consider testing Forex trading strategies that work in the demo mode.
Risk Free Trading With a Demo Account
Demo account is an ultimate tool for risk free Forex trading strategies that work testing. It works perfectly for both novice and professional traders. While newbies test their skills and settle on a strategy that works for them, expert traders test their uniquely designed strategies and new tools.
A demonstration account on Forex is an exact copy of a regular live account, except every move you make in their runs in simulation mode. By having an option to try every trick in a book and not risk any money, you will have enough confidence to test every possible strategy that comes to mind.
Moreover, you can feel absolutely free to adjust any chosen strategy to your liking. This can be done by changing the settings of suggested indicators, playing with the setups of automated orders as well as personalizing the charts to be more comprehensive for you individually.
And then after you are done experimenting in the demo mode, you will have enough skills and knowledge to move on to the live market and apply everything you’ve learned. This time for real profits.