June 21, 2021, | AtoZ Markets – According to the analysis of exchange trading, only up to 3-5% of traders receive regular income from this activity. It is impossible to make a profit in the Forex market without a developed strategy, systematization of work, and compliance with established rules.
Therefore, newcomers who are in a hurry to make money in Forex trading, having no trading experience, not yet understanding the charts, quickly lose their deposit and leave this business. After that, many people leave negative reviews about reliable Forex brokers on various forums on the Internet, that it is impossible to make money here.
In this article, you will find materials about the best Forex strategy, as well as how to choose and test FX strategies correctly, without repeating the mistakes of other traders.
What are the best Forex strategies?
For beginners, in order to start trading on Forex without risk and loss, you must first learn the basic concepts and terms of trading. Then it is recommended to work out ready-made stock trading strategies offered by experienced traders with many years of experience in this area of earnings.
Note: "The best Forex strategy helps to understand how the market works faster, to learn to predict the direction of price movement. Without them, even an experienced trader is capable of making mistakes and, accordingly, getting losses."
A trading strategy is a system of rules that must be followed constantly. In order to make a profit, you cannot retreat from them. This is a kind of plan for concluding deals, trading on the Forex market. A well-developed trading strategy allows a trader to enter the market at a set point without any hesitation and exit it in a timely manner while making a profit. No one is insured against losses in the foreign exchange market. But if you work correctly according to the strategy, there will be much more profitable trades.
The trading plan is compared to a traffic light for cars. An experienced trader can confidently recognize signals that allow or prohibit entry into the market. Any professional will not trade in the Forex market without Strategi developed. And newcomers most often neglect these rules, so they quickly lose their financial investments.
The main difficulties arise for traders when there is money in the trading account with the choice of the point of entry to the market. To avoid such doubts, a trading strategy is needed. The moment of opening a deal occurs when signals appear, which can be the following:
- the price has reached the set level;
- intersection of indicators on the price chart of a trading instrument;
- the formation of various patterns on the chart that predict the further direction of the price;
- available candle combinations.
It is believed that when concluding contracts without a trading plan, the number of profitable and unprofitable trades is approximately the same. But practice shows that if even the simplest Forex strategy is not applied, trading sooner or later leads to the loss of the deposit.
For beginners, it is recommended to start using working strategies developed by experienced participants in the foreign exchange market. With the advent of experience, when the market becomes clear, the charts will be easy to read, you need to combine different trading strategies on Forex, add something of your own to them. The result will be your own trading plan.
Any self-created strategy must be tested before using it on the market. Experienced Forex traders recommend doing this within six months, and only on a demo account, so as not to lose your own money. If necessary, adjustments are made, and only then the most profitable strategy with a high probability of success is obtained.
Note: "And only if the Forex trading strategy shows positive results and meets the desires of the trader, he can use it for transactions."
If there is no experience in this area, there is no need to rush anywhere. Before you start operating with your money, you need to carefully study the already developed trading strategies by professional traders. And beginners are recommended to complete at least a basic Forex training course.
One of such sources of trading systems is this site, on it over the years about 500 free trading systems have been collected (many of them have been modified by us), testing has been carried out on many of them, expert advisors have been written, and recommendations are given in the comments.
If you learn to distinguish between points of entry and exit from the market, constantly adhere to the established rules, the trading procedure itself will not present any difficulties. But 90% of inexperienced participants in foreign exchange trades neglect all these rules, wanting to quickly make a profit, lose their investments and decide to leave this business.
What determines the choice - 3 main rules
Many simple Forex strategies have been developed today. Therefore, it is important for each new bidder to choose the most optimal plan, to improve it over time for themselves. Profit in this business largely depends on the correct choice of the moment of concluding the deal and the period of holding the position.
Rule 1: duration of holding open positions in exchange trading
Having concluded a contract, each trader independently decides for how long he opens a deal, i.e. determines the time and date of the closing of the contract. Therefore, according to the duration of holding a position, trading strategies are divided into 3 categories: short-, medium- and long-term.
Short term
The short-term method is more intended for experienced traders. It includes:
- Intraday. This is intraday trading where a trade opens and closes in one day. Forex day trading strategies are simple and straightforward enough. They are suitable for most market participants. During the day, a trader can complete several transactions at once using different instruments. This type of exchange trading allows traders to open up to 5 transactions per day.
- Scalping. This option is convenient if you have a small amount of money on your account. Contracts are concluded for a minimum period - from a few seconds to half an hour. In this case, an experienced scalper can carry out up to 200 transactions per day, but not all of them are profitable. This is a rather complex method of trading, which is used regardless of the main direction of the market movement.
Warning: "Short-term trading strategies are the most aggressive because they provide for the conclusion of many contracts - an average of 100 transactions within 1 trading day."
Medium-term
In medium-term trading, positions are held for at least 1 trading day, and the maximum period can be up to 2 weeks. At the same time, in order not to lose your own investments, it is recommended to work with a leverage of no more than 1: 3. Before entering the market, a trader conducts technical and fundamental analysis.
This Forex option for beginners is more suitable than scalping.
Long term
A simple Forex strategy for long-term trading is suitable for both novice traders and fairly experienced market participants. In this case, contracts are concluded for several months.
Long-term trading provides an opportunity to watch the movement of the price chart more calmly, less worry about the result of the transaction. A trader does not need to constantly sit at the computer, 15-20 minutes a day is enough to control the market situation.
Correct forecasting when using long-term trading strategies allows investors to get big profits. One long-term trade can bring in several thousand pips.
Rule 2: approach to the analysis of the currency market in trading - fundamental and technical
To correctly predict the movement of the market, you need to be able to analyze it. For this, trading provides 2 types of analysis: fundamental, technical. Some people think that mastering one of them is enough for profitable trading, but this is a misconception.
In practice, money on the currency exchange is most often lost by those participants who do not know the basics of any of these types of analysis. And those who effectively use both fundamental and technical analysis in their work make a big profit.
Fundamental analysis
This type of Forex market analysis helps to predict changes in the price of a financial instrument based on economic news around the world. Important news often foreshadows a reversal of the price chart - a trend. Therefore, a trader who has entered into a deal without preliminary fundamental analysis will not be ready for unexpected changes in the stock market.
According to its meaning, all news are divided into 3 main categories:
- insignificant;
- relevant;
- important.
It is not recommended to enter the market on the eve of important events. In such situations, price movements are unpredictable and can change dramatically in one direction or the other. Sharp movements of the price chart in most cases close contracts by stop losses and with large slippage. In this case, the rules of the chosen super strategy are violated. Professional trading participants recommend to close positions and stop trading before the release of significant news until the market calms down.
Note: "Market participants often use fundamental analysis in medium- and long-term trading."
Technical analysis
Analyzing the situation in the foreign exchange market using a price chart is a technical way. Forecasting the direction of the chart movement is based on the historical information of the rate of the financial instrument selected for trading.
The most reliable technical analysis tools for 2021 used by traders:
- Japanese candles;
- graphic shapes;
- price chart;
- additional indicators.
Note: "Technical analysis is most often used for short-term trading and non-aggressive markets."
Rule 3: method of analyzing charts (search for patterns, indicator, candlestick)
For the Forex market, the best trading strategies are those that were created using different instruments at the same time. To analyze changes on a price chart, you need to use technical analysis, which consists of 3 main groups: figured (price patterns), indicator, candlestick.
Price patterns
Figured, or pattern analysis involves the detection of various patterns on the chart of price changes for a financial instrument, which foreshadow the direction of the trend movement. Therefore, you need to know such figures and their meaning.
All shapes (patterns) are divided into 2 main categories :
- continuation of the trend;
- reversal.
In the classic version, curly models are rare. They are more often found on charts as part of large forms. Therefore, when using this type of analysis, it is recommended to carefully consider the chart in order to correctly highlight the patterns.
Note: "Professionals advise with caution to treat the triangle shapes, which can portend both a trend change and its continuation."
The main reversal patterns include the following patterns:
- head, shoulders, incl. upside down;
- double, triple top;
- double, triple base;
- diamond.
The main patterns that indicate a trend continuation are triangles, pennants, flags, rectangles, and wedges.
Forex Mathematical Indicators
An additional analysis that is often used with candlestick and figured is an indicator. Special technical indicators are added to the chart, which helps the trader to determine the moment of the most profitable entry into the market. However, it is not recommended to use many different indicators at the same time. Such analysis will not lead to large profits, but will only complicate the choice of the optimal point for opening or closing a position for the trader.
Technical indicators fall into 2 categories :
- Oscillators. They foreshadow a possible trend reversal, show themselves well in flat (price changes in the market in the established corridor). In such situations, there is no clear trend direction, i.e. the price moves in the channel with the formed high and low.
- Trend indicators. They show the maximum efficiency of the trend movement.
But when using even the most popular and accurate technical indicators for market analysis, one cannot exclude possible risks that the price will unexpectedly go in the wrong direction. Therefore, to obtain the most accurate information about the market movement, you need to use 2-3 different indicators. If they all give the same signals, a trade is opened, otherwise, it is better to wait.
Note: "Such signals do not take into account the possibility of the release of significant economic news that could dramatically change the direction of the trend movement."
Candle
To use this method of market analysis, you first need to study the Japanese candlesticks themselves: the meaning of individual candles and their combinations. There are many patterns that predict the future direction of the price (reversal or continuation of the trend). Candlestick analysis is used by many traders and consider it to be the most understandable and effective.
Japanese candlestick is a method of analyzing changes in price direction in a specified period. It is a rectangle called the body of the candlestick, from which lines (price high and low) emerge from above and below.
Candles come in 2 colors: white (green), black (red). White candles show an increase in the price of a financial instrument, black ones - a fall. Accordingly, candlestick patterns help predict the continuation of the trend or its reversal in the opposite direction.
Candlestick analysis is used for a separate trading strategy and Forex system.
Based on the direction of movement, the price within the specified timeframe is divided into 2 groups:
- Bearish. The closing price, in this case, is lower than the opening price of the transaction, i.e. there is a downtrend in the market.
- Bullish. In this case, the deal is closed at a higher price than it was opened, i.e. the value of the financial instrument used has increased.
Candlesticks provide an opportunity to immediately understand the mood in the financial market, i.e. which deals were made by participants more - for sale or purchase. Experienced traders, who often use candlestick analysis in their work, easily find familiar candlestick patterns on the charts and determine which direction the price will go longer.
Note: "Applying the listed types of analysis, traders choose the best Forex strategy for themselves in the FX market."
An example of a simple Forex trading system
A system of 2 screens is used to perform market analysis. A trade is opened in accordance with the trend in the price of a financial instrument. The long-term trend is analyzed on the daily timeframe.
To enter the market as efficiently as possible, you need to wait for the chart correction, the price must reach the set resistance (support) level and bounce off the line in the opposite direction.
More accurate analysis is performed on the hourly timeframe. After the price reaches the resistance (support) level line, it is necessary to wait for its rebound directly in the direction of the trend movement.
For example, a long position is entered after a close above the previous day's high of a bullish candle. The profit is fixed at the level of the important high (using the daily chart). Stop loss (loss limitation) is set below the previous minimum (hourly chart is used).
To filter a trade, a moving average line is often used, for which a period with a value of 20 is used. A contract is bought only if the price of the financial instrument used is above the moving average. If a short position is opened, the price must be below this line.
This method can be used to fix a trade when the price is above the center line. The purchase contract is not closed. As soon as the price falls below the line, a profit is taken. In this case, they can be several times larger than in the previous version. At the same time, in order to eliminate the risk of a sharp price reversal, it is necessary to constantly move the stop loss below the moving average.
How to choose the best Forex strategy - 3 easy steps
Every young trader should first of all understand that the best and most profitable Forex trading strategy is the one that suits him best. It may take more than one month to create your own secret copyright exchange trading plan, for some, it may take up to several years.
Experienced Forex market participants recommend that beginners take the simplest ready-made strategies as a basis, try to trade with their help, then add something of their own, i.e. adjust to individual characteristics. Only in this case, you can achieve success in trading, while in a shorter time frame.
To choose the optimal trading plan for the foreign exchange market, beginners are advised to first analyze their characteristics: psychological type, free time to study the market and work on it, professional level of a trader.
Step 1 - determine exactly your psychotype of a trader (comparison table)
When choosing the best Forex strategy, it is recommended first of all to establish your own psychological portrait. For ease of drawing up a trading plan according to your psychotype, you can use the following table:
After determining the inherent emotional state of a trader, you need to assess your own professional level of trading on the exchange floor.
Step 2 - assess your level of professionalism
It is recommended to master Trading with the analysis of trade by professionals, i.e. learn from them. Without understanding the philosophy of this area of earnings, the principle of operation of trading systems, it is impossible to receive permanent income in the Forex market.
Therefore, novice traders should definitely study several books on trading on the stock exchange. It is recommended to undergo paid training from professional traders with many years of experience in stock trading, attend free training seminars. You shouldn't even try to make money on Forex without basic knowledge.
Recommended books for newbies to read:
- Edwin Lefebvre "Memoirs of a stock speculator".
- Curtis Face "The Way of the Turtles".
- Jack Schwager "New Market Wizards".
- Brett Steenbudger "Trader's Manual".
- Alexander Elder "How to play and win on the stock exchange".
- John Murphy "Technical Analysis of Financial Markets".
- Jack Schwager "Technical Analysis. Complete Course".
- Larry Williams "Long Term Secrets of Short Term Trading".
- Linda Raschke, Lawrence Conors "Stock Secrets".
- "Trading with Dr. Elder", A. Elder.
- "Small encyclopedia of a trader", E. Nayman.
- "Black Swan", N. Taleb.
There is still a lot of literature for both beginners and experienced traders, but even these books will be enough to understand the principle of the foreign exchange market, get acquainted with profitable strategies, and assess the possible risks of losing your capital.
Step 3 - Determine how much free time you can devote to trading
Everyone who wishes, under the established conditions, is able to make money on the foreign exchange market, with no time limits. You can get income by trading on the stock exchange even by spending just 5-10 minutes every day.
The choice of timeframe depends on the availability of free time for trading. For example, if the main job takes a person full time, then it is not recommended to use strategies designed for intraday trading.
Practice shows that combining the main daily work with exchange trading does not give the desired results. In this case, you can only use positional strategies, respectively, analyze the market in your free time.
You can try the most profitable intraday strategies if your main job has a free or shift schedule. But it takes a good experience to make a profit. It is recommended for beginners to start with small investments, and use most of their own funds for financial instruments with a fixed profit or long-term trading plans.
Note: "Experienced market participants recommend not trading 1 day a week and not studying any trading materials, i.e. the brain should be given a break from stock trading."
And it is necessary to remember the basic rule that only disciplined and persistent participants make money in the foreign exchange market.
Best Forex strategy - Conclusion
Today there are many Forex trading strategies to generate income. For this, ready-made, proven tools are used or you create your own. But in both cases, the trading plan must correspond to the needs and psychotype of the trader.
Beginners get a lot of experience with the help of a special program - the Forex strategy tester. This software is an exchange trading simulator. The tester resembles the MT4 trading terminal and allows you to reproduce the trading model.
You can independently learn to trade on a virtual demo account, but when using the tester, the market movement can be accelerated, and accordingly, the developed strategy can be analyzed faster. If we compare the demo account and the tester, then this is the ratio of several months to several days. At the same time, such an analysis can be performed on weekends.
Experienced market participants advise beginners to use the best Forex strategy developed by professional traders with many years of experience in exchanges. Additionally, technical signals are used to track the contracts of professionals, as well as their reactions to different market situations. Over time, such training moments will help you gain experience and engage in trading on your own. But relying only on your intuition in this business is not recommended. This will only result in the loss of your deposit.