Best Forex trading strategies that work.
You may have heard that maintaining your discipline is a key aspect of trading. While this is true, how can you ensure you enforce that discipline when you are in a trade?
One way to help is to have a trading strategy that you can stick to.
If it is well-reasoned and backtested, you can be confident that you are using one of the successful Forex trading strategies. That confidence will make it easier to follow the rules of your strategy—therefore, to maintain your discipline.
A lot of the time when people talk about Forex strategies, they are talking about a specific trading method that is usually just one facet of a complete trading plan. A consistent Forex trading strategy provides advantageous entry signals, but it is also vital to consider:
Picking the best Forex strategy for you.
When it comes to what the best Forex trading strategy is, there really is no one single answer.
The best FX strategies will be suited to the individual. This means you need to consider your personality and work out the best Forex strategy to suit you.
What may work very nicely for someone else may be a disaster for you. Conversely, a strategy that has been discounted by others, may turn out to be right for you.
Therefore, experimentation may be required to discover the Forex trading strategies that work . Vice versa, it can remove those that don't work for you.
One of the key aspects to consider is a timeframe of your trading style.
The following are some trading styles, from short time-frames to long, which have been widely used during previous years and still remain to be a popular choice from the list of best Forex trading strategies in 2017.
Scalping . These are very short-lived trades, possibly held just for just a few minutes. A scalper seeks to quickly beat the bid/offer spread and skim just a few points of profit before closing. Typically uses tick charts, such as the ones that can be found in MetaTrader 4 Supreme Edition.
Day trading . These are trades that are exited before the end of the day, as the name suggests. This removes the chance of being adversely affected by large moves overnight. Trades may last only a few hours and price bars on charts might typically be set to one or two minutes.
Swing trading . Positions held for several days, looking to profit from short-term price patterns. A swing trader might typically look at with bars showing every half hour or hour.
Positional trading . Long-term trend following, seeking to maximise profit from major shifts in prices. A long-term trader would typically look at the end of day charts.
The role of price action in Forex strategies.
To what extent fundamentals are used varies from trader to trader. At the same time, the best FX strategies invariably utilise price action.
This is also known as technical analysis.
When it comes to technical currency trading strategies, there are two main styles: trend following, and counter-trend trading. Both of these FX trading strategies try to profit by recognising and exploiting price patterns.
When it comes to price patterns, the most important concepts are those of support and resistance.
Put simply, these terms represent the tendency of a market to bounce back from previous lows and highs. Support is the market's tendency to rise from a previously established low. Resistance is the market's tendency to fall from a previously established high.
This occurs because market participants tend to judge subsequent prices against recent highs and lows.
What happens when the market goes near recent lows? Put it simply, buyers will be attracted to what they see as cheap.
What happens when the market goes near recent highs? Sellers will be attracted to what they see as either expensive, or a good place to lock in a profit.
Thus recent highs and lows are the yardstick by which current prices are evaluated .
There is also a self-fulfilling aspect to support and resistance levels. This happens because market participants anticipate certain price action at these points and act accordingly.
As a result, their actions can contribute to the market behaving as they expected.
However, it's worth noting three things:
support and resistance are not iron-clad rules, they are simply a common consequence of the natural behaviour of market participants trend-following systems look to profit from those times when support and resistance levels break down counter-trending styles of trading are the opposite of trend following—they look to sell when there's a new high and buy when there's a new low.
Trend-following Forex strategies.
Sometimes a market breaks out of a range, moving below support or above resistance to start a trend. How does this happen?
When support breaks down and a market moves to new lows, buyers begin to hold off. This is because buyers are constantly seeing cheaper prices being established and want to wait for a bottom to be reached.
At the same time, there will be traders who are selling in panic or simply being forced out of their positions. The trend continues until the selling is depleted and belief starts to return to buyers that the prices will not decline further.
Trend-following strategies buy markets once they have broken through resistance and sell markets once they have fallen through support levels. Trends can be dramatic and prolonged , too.
Because of the magnitude of moves involved, this type of system has the potential to be the most successful Forex trading strategy. Trend-following systems use indicators to tell when a new trend may have begun but there's no surefire way to know of course.
Here's the good news.
If the indicator can distinguish a time when there's an improved chance that a trend has begun, you are tilting the odds in your favour. The indication that a trend might be forming is called a breakout .
A breakout is when the price moves beyond the highest high or lowest low for a specified number of days. For example, a 20-day breakout to the upside is when the price goes above the highest high of the last 20 days.
Trend-following systems require a particular mindset. Because of the long duration—during which time profits can disappear as the market swings—these trades can be more psychologically demanding.
When markets are volatile, trends will tend to be more disguised and price swings will be greater. This means a trend-following system is the best trading strategy for Forex markets that are quiet and trending.
An example of a simple trend-following strategy is a Donchian Trend system.
Donchian channels were invented by futures trader Richard Donchian and are indicators of trends being established. The Donchian channel parameters can be tweaked as you see fit, but for this example we will look at a 20-day breakout.
Basically, a Donchian channel breakout suggests either of two things:
buying if the price of a market goes above the high of the prior 20 days selling if the price goes below the low of the prior 20 days.
There is an additional rule for trading when the market state is more favourable to the system. This rule is designed to filter out breakouts that go against the long-term trend.
In short, you look at the 25-day moving average and the 300-day moving average. The direction of the shorter moving average determines the direction that is permitted.
This rule states that you can only go:
short if the 25-day moving average is lower than the 300-day moving average long if the 25-day moving average is higher than the 300-day moving average.
Trades are exited in a similar way to entry , but using a 10-day breakout. This means that if you open a long position and the market goes below the low of the prior 10 days, you want to sell to exit the trade—and vice versa.
Learn to trade step-by-step with our brand new educational course, Forex 101, featuring key insights from professional industry experts.
Counter-trend Forex strategies.
Counter-trend strategies rely on the fact that most breakouts do not develop into long-term trends. Therefore, a trader using such a strategy seeks to gain an edge from the tendency of prices to bounce off previously established highs and lows.
On paper, counter-trend strategies are the best Forex trading strategies for building confidence because they have a high success ratio.
However, it's important to note that tight reins are needed on the risk management side. These Forex trade strategies rely on support and resistance levels holding. But there is a risk of large downsides when these levels break down.
Constant monitoring of the market is a good idea. The market state that best suits this type of strategy is stable and volatile. This sort of market environment offers healthy price swings that are constrained within a range.
Do note, though, that market can switch states . For example, a stable and quiet market might begin to trend, while remaining stable, then become volatile as the trend develops.
How the state of a market might change is uncertain. You should be looking for evidence of what the current state is, to inform whether it suits your trading style.
Discovering the best FX strategy for you.
Many types of technical indicators have been developed over the years. The great leaps forward made with online trading technologies have made it much more accessible for individuals to construct their own indicators and systems.
You can read more about technical indicators by checking out our education section or the trading platforms we offer. A great starting point would be some of the simple, well-established strategies that have worked for traders already.
By trial and error, you should be able to learn Forex trading strategies that best suit your own style. Go ahead and try out your strategies risk-free with our demo trading account.
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How Does Foreign Exchange Trading Work?
Foreign exchange trading was once just something that people had to do when traveling to other countries. They would exchange some of their home country's currency for another and endure the current currency exchange rate.
These days, when you hear someone refer to foreign exchange trading, they are usually referring to a type of investment trading that has now become common. Traders can now speculate on the fluctuating values of currencies between two countries.
It's done for sport and profit.
Beginner Trading.
It seems like something that most people would find easy, except, in this particular industry, there is a high rate of failure among new traders. Even traders that are aware of that tend to start out with the attitude of "It happened to them, but it won't happen to me." In the end, 96 percent of these traders walk away empty handed, not quite sure what happened to them, or maybe even feeling a bit scammed.
Forex trading is not a scam; it's just an industry that is primarily set up for insiders that understand it. The goal for new traders should be to survive long enough to understand the inner working of foreign exchange trading and become one of those insiders.
The number one thing that hangs most traders out to dry is the ability to use forex trading leverage. Using Leverage allows traders to trade on the market with more money than what they have in their account.
For example, if you were trading 2:1, you could use a $1,000 deposit, to control $2,000 of currency on the market. Many forex brokers offer as much as 50:1 leverage. New traders tend to jump in and start trading with that 50:1 leverage immediately without being prepared for the consequences.
Trading with leverage sounds like a really good time, and it's true that it can increase how easily you can make money, but the thing that is less talked about is it also increases your risk for losses.
If a trader with $1,000 in their account is trading with 50:1 and trading $50,000 on the market, each pip is worth around $5. If the average daily move is 70 to 100 pips, in a day your average loss could be around $350. If you made a really bad trade, you could lose your entire account in 3 days, and of course, that is assuming that conditions are normal.
Most new traders being optimistic might say "but I could also double my account in just a matter of days." While that is indeed true, watching your account fluctuate that seriously is very difficult to do. Many people start out assuming that they can handle it, but when it comes down to it, they don't, and forex trading mistakes are made.
Avoiding Mistakes.
Assuming that you can manage not to fall into the leverage trap, you'll need to have a handle on your emotions. The biggest thing that you'll tackle is your emotion when trading forex. The availability of leverage will tempt you to use it, and if it works against you, your emotions will have your vision upside down, and you will probably lose money. The best way to avoid all of this is to have a trading plan that you can stick to. Not only should you have a trading plan, but you should keep a forex trading journal to keep track of your progress.
You might feel when looking around online, that other people can trade forex and you can't. It's not true; it's just your self-perception that makes it seem that way. A lot of people that are trading foreign exchange are struggling, but their pride keeps them from admitting their problems, and you'll find them posting in online forums or on Facebook about how wonderful they are doing when they are struggling just like you.
Winning at trading forex online is an achievable goal if you get educated and keep your head together while you're learning. Practice on a forex trading demo first, and start small when you start using real money. Always allow yourself to be wrong and learn how to move on from it when it happens. People fail at forex trading every day for lack of ability, to be honest with themselves.
If you learn to do that, you've solved half of the equation for success in forex trading.
Get to know FOREX trading.
The Foreign Exchange market, also called FOREX or FX, is the global currency trading market. With a daily volume of more than $5.3 trillion, it is the biggest and most exciting financial market in the world. Whether you sell EUR 100 to buy US dollars at the airport or a bank exchanges 100 million US dollars for Japanese yen with another bank, both of these are FOREX deals. The players on the FOREX market range from huge financial organizations, managing billions, to individuals trading a few hundred dollars.
Thanks to the internet you can trade on the FOREX market in the same way as traders from the largest banks and investment funds.
All you need to get started is a computer with internet access and a trading account with a FOREX broker.
On the FOREX market one currency is exchanged for another. The single most important thing on the FOREX market is the exchange rate between two currencies (a currency pair).
You’ve probably seen it on the news:
An exchange rate can change very rapidly, sometimes several times a second, so there’s a lot of action going on 24 hours a day, 5 days a week. In general, the currency exchange rates reflect the health of countries' economies. If the economies of the Eurozone are doing better than the US economy, the euro will go up compared to the dollar (EUR/USD ↑) and vice-versa.
Here's an example of a FOREX trade. You decide to buy 1 000 euros against US dollars. The EUR/USD exchange rate at which you can BUY at this moment is 1.4500 so you pay $1 450.
Later, the EUR/USD exchange rate at which you can SELL euros for US dollars is 1.5500. You sell your €1 000 and get $1 550. Having started with $1 450, you now have $1 550 – you’ve made a profit of $100. Alternatively, the EUR/USD exchange rate at which you can SELL euros for US dollars is 1.3500. You sell your €1 000 and get $1 350. Having started with $1 450, you now have $1 350 – you’ve made a loss of $100.
That’s how money is made or lost on the FOREX market.
If you look at the FOREX quotes on your trading platform you will see that there are 2 prices for each currency pair. One is the price at which you can buy, referred to as the "ask price", and the other is the price at which you can sell, referred to as the "bid price". The difference between those two prices is known as the spread. The ask price is always higher than the bid price.
If your FOREX broker offers you leverage of 1:100, you can trade with 100 times more money than your deposit. This means that if you want to buy 100 000 EUR/USD you only need to have EUR 1 000. With this leverage you can take a position with 100 times larger value, resulting in 100 times bigger profits or losses, therefore great care is required when placing your trade. Equities on the other hand are traded without leverage.
To start please get a FREE Practice Account and log in. Then pick a currency pair (e. g. EUR/USD), choose a quantity and press the BUY button if you think the value will rise. Now you are a trader in a market used by millions of people all around the globe. You will earn money if the EUR/USD price goes up, and lose if it goes down. Check out your current profit or loss in the Open positions window. You can keep this position as long as you like. And when you no longer wish to keep your position, just close your trade by pressing the X button in the Open Positions window.
In the above example, we bet that the EUR will go up against the USD so we bought EUR/USD hoping to sell it later at a higher price. This is called long position. But what if we expect that the EUR will go down against the USD? Well, then you do the opposite - you sell the EUR/USD, expecting to buy it cheaper at a later time. The short trading enables you to take advantage if the exchange rate is going down.
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How does Forex trading work.
How does Forex trading work explained by professional FX trading experts, All you need to know about How does Forex trading work.
How does Forex trading work.
The Fx trading market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines the foreign exchange rate. It includes all aspects of buying, selling and exchanging currencies at current or determined prices. In terms of trading volume, it is by far the largest market in the world, followed by the Credit market.
The main participants in this market are the larger international banks. Financial centers around the world function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the exception of weekends. Since currencies are always traded in pairs, the Fx trading market does not set a currency’s absolute value but rather determines its relative value by setting the market price of one currency if paid for with another. Ex: 1 USD is worth X CAD, or CHF, or JPY, etc..
The Forex trading market works through financial institutions, and operates on several levels. Behind the scenes, banks turn to a smaller number of financial firms known as “dealers”, who are involved in large quantities of foreign exchange trading. Most Forex Tarding dealers are banks, so this behind-the-scenes market is sometimes called the “interbank market” (although a few insurance companies and other kinds of financial firms are involved). Trades between Forex dealers can be very large, involving hundreds of millions of dollars. Because of the sovereignty issue when involving two currencies, Forex has little (if any) supervisory entity regulating its actions, Now you know How does Forex trading work.
The Forex trading market is unique because of the following characteristics:
its huge trading volume, representing the largest asset class in the world leading to high liquidity;
its geographical dispersion;
its continuous operation: 24 hours a day except weekends, i. e., trading from 22:00 GMT on Sunday (Sydney) until 22:00 GMT Friday (New York);
the variety of factors that affect exchange rates;
the low margins of relative profit compared with other markets of fixed income; and.
the use of leverage to enhance profit and loss margins and with respect to account size.
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