What are the best forex trading strategies?
August 19, 2023
One of the most important things when trading on Forex is to choose a strategy and maintain your discipline. Trading on Forex is a business. With a plan, you can expect your business to expand. Choosing the best Forex strategy is the most reliable strategy to become a profitable trader.
Several trading strategies are considered the best Forex strategy for consistent profit, and it is tough to choose one strategy. You need a Forex Trading System that works for you. If you are an experienced trader making profitable trades, you can ensure that you’re using a high-quality Forex trading system; in that case, you should stick to the rules of your Forex strategy and maintain your discipline. In this Forex Trading Strategies guide of Aron Groups, recover eight of the best trading strategies you can implement today.
Table of Contents
What is a forex trading strategy?
Before talking about different strategies, you need to understand the nature of strategy in Forex. A forex trading strategy is a methodology for opening and closing forex positions. It is a trading system you can use to determine when
to buy or sell a currency pair.
Traders use various analysis techniques, including technical and fundamental analysis, to acquire a way of knowing when to enter or exit a position. When using a good forex trading strategy, you have to analyze the market and be confident about your position, and you need to consider all possible risks.
How to pick the best Forex strategy?
The best forex trading strategy is the one that works for you, so it is really hard to provide you with one single answer. For every trader, there is a different type of strategy that works. You need to understand your priorities and needs to find a strategy that works for you. Your personality, the number of hours you’re going to dedicate yourself to the market, your risk tolerance, and many other factors determine what type of forex trading system works for you. Remember that no one size always fits strategy, and what may work well for someone else may not work for you. On the other hand, a strategy that has been disappointing for others may be the best strategy for you. So, it is recommended to consider experimentation to discover the best forex strategy.
You can use demo accounts in Aron Groups and test your favorite strategy to see whether they suit you. As there are many different types of trading strategy styles, from short-term to long-term strategies, each of which can be the best choice for you. It is essential to understand the differences between strategies to choose them wisely.
- Short-term strategies refer to positions that open and close within 60 minutes, 30 minutes, 15 minutes, 5 minutes, and even 1-minute charts.
- Long-term strategies refer to positions taken within a 4-hour, daily, weekly, and monthly chart.
Remember that most of the time, people talk about forex trading as a strategy as a method, while forex trading as a strategy provides you with much helpful information, including:
- Entry signals
- Exit signals
- Position size
- Risk management
Create a trading Style
Based on previously mentioned information, in order to create a forex trading strategy, you need to consider the following:
· Find your referred style:
Remember that style is different from strategy. For example, you might prefer day trading, which is a trading Style. In this case, you prefer to focus on daily market trends. On the other hand, you might prefer to be scalpers and profit from 5 or so pips of movement.
· Choose your favorite pairs:
One of the most important things in determining your strategy is choosing your preferred currency pairs:
- Major currencies: refers to eight currencies from powerful economies such as the US dollar, euro, yen, Franc Swiss, British pound, Australian dollar, New Zealand dollar, and Canadian dollar.
- Minor currencies: Minor currencies refer to pairs that are consistent with a major currency and other currencies.
- Exotic currencies: this type of currency refers to currencies of emerging companies like Brazil and South Africa.
· Determine your budget:
At this point, you need to determine how much capital you’re willing to risk on each trade.
· Available time:
How much time can you be sitting at your desk monitoring the market? Because sometimes, you need to monitor the market constantly, and sometimes you can let the position run its course and stop monitoring the market.
Read more: What is Margin Trading in Forex?
Forex strategies that works
In order to formulate a trading strategy that works for you, you need to consider multiple factors. As a trader, you have a unique goal and budget to consider when choosing a suitable strategy. When choosing a trading strategy, consider the three criteria of time resource required, frequency of trading opportunities, and typical distance to target.
Before choosing a strategy, you need to compare that strategy to the above three criteria.
Best types of Forex trading strategy
Here we are going to introduce some trading styles that are also known as trading a strategy that you might find helpful to formulate the best strategy that works for you:
Scalping is a trading style that applies in very short-lived trades. A scalper tries to beat the bid and ask spread and obtain a few pips of profit before closing the position.
Scalping is one of the most advanced Forex trading strategies you can use. The Forex-1 minute Trading Strategy which can be used in the MetaTrader 4, is one of the indicators you can use for scalping.
Scalping is a short-term strategy that usually operates between 1 to 30 minutes. Traders using this strategy use moving averages to identify the trend.
In this case, traders enter and exit positions within a day, which is a perfect way to remove the chance of being adversely infected by large moves overnight. This type of trading strategy is mostly used by beginners, with charts set to one or two hours and trades that may last only a few hours.
In this case, the trader holds a position for a couple of days and aims to profit from short-term price movements. In this case, you might find yourself looking at bars every half an hour or hour.
This type of strategy is considered medium-term and is generally held anywhere between a few hours to a few days. You can benefit from oscillators and indicators to determine the entry and exit points.
Carry Trade strategy
Using strategy, you will be borrowing a lower-rate currency to invest in a higher-yielding rate currency. Carry trades are medium to long-term trades. And you need to consider exchange rate risk and interest rate risk to open this type of
position and the best time to open the position is at the start of a trend to benefit from the exchange rate fluctuations.
This type of strategies considered to be a long-term trend following strategy aiming to maximize profit from major price movement. In these cases, as a long-term trader, you’re supposed to look at the end-of-day charts. Traders using this type of strategy are more disciplined and patient, and you need to have a great knowledge of market fundamentals to make profitable positions.
In the following, we provide you with a list of trading strategies regarded to be some of the top forex trading strategies, and we will talk about how you can use them, so it is a perfect time to choose the right one for you.
Read more: Why Is the Forex Market Important?
50-pips-a-day forex strategy
Traders using this strategy are aiming to take advantage of early movements in major highly liquid currency pairs, including GBPUSD and EURUSD. Using this strategy, traders, after 7 am GMT, when the London market Opens, place two positions; one of them gets activated by price movement, and the other position is automatically canceled. In this strategy, the profit target is set at 50 pips, and the trader will place a stop loss order between 5 to top pips above or below each order. Stop loss placement is for risk management purposes.
After opening a position 50 pips above and another 50 pips below the 7 am candlestick close and determining a stop loss, you only need to wait for the market to take its course. The market will move in one direction and activate one of your positions so that the other one can be canceled.
Scalpers benefit from this strategy because they want to take a smaller but more frequent position, and they don’t think about longer-term price movement in our currency. Day traders also used this strategy. Consider that shorter-term trades simply have greater risk due to the rising number of trades, so it is really important to ensure effective risk management.
Price action trading
When you choose this trading style, you will need to study the historical prices of your favorite currency to create a technical trading strategy. You can use this technique on its own or in conjunction with an indicator. Some traders consider economic events as a substantiating factor. Price action trading is referred to also as technical analysis, which is considered trend following and counter-trend trading. Using this strategy, you will be monitoring price patterns. And, of course, it is really important to consider the support and resistance level.
- Support: This is a level at which buyers do not let the price break below; the line shows the market tendency to rise.
- Resistance: This is the level sellers do not let the price break above, and it is the market’s tendency to fall.
Traders who use this strategy are always asking about what happens when the market approaches the support or resistant level. In this strategy, the overall performance of the market is evaluated using the resistance and support levels.
In terms of length of trade, you should know that price action trading can be utilized over the short or long term.
Using this strategy, you can determine the entry and exit points by Fibonacci retracement using candle wicks, indicators, trend identification, and oscillators.
Daily chart Forex strategy
Experience traders prefer this strategy over more short-term strategies as there is less market noise in a forex daily chart strategy. You can earn 100 pips a day, and it can be the most successful trading strategy around.
It is considered to be one of the best forex trading strategies because its signals are more reliable than lower time frames. In these cases, you don’t need to be worried about daily news and random price fluctuations. You will be formulating this strategy based on three main principles:
- Identifying the market direction by studying the price data over the last three months.
- Stay out of the market and be patient
- Benefit from larger stop losses as there might be larger intraday swings in the market.
Some might consider this strategy to be the best forex strategy but remember, in order to create the most successful trading strategy, you need to practice and remember that the best trading strategy for everyone might not work for you.
Forex 1-Hour Trading Strategy
Using this strategy, you will benefit from the 60-minute time frame in the market. Traders using this strategy prefer to trade the following currency pairs: EUR/USD, USD/JPY, GBP/USD, and the AUD/USD.
You can apply this trading strategy using the MACD Trading strategy resource on MetaTrader 5. In this case, if the MACD histogram goes above the zero line, you should take a long position, and when the MACD histogram goes below the zero line, you should open a short position.
Don’t be overwhelmed with complex terms because practice makes perfect using a demo account.
Forex weekly trading a strategy
Many traders prefer intra-day and short-term forex trading systems because many traders prefer intraday and short-term forex trading systems because of the market’s volatility in shorter time frames. A weekly trading strategy is considered to be more flexible and stable. Using this strategy, you will minimize the risk involved in your trades.
Trend following Forex strategy
When using trend trading as a strategy, you trade in the direction of the current market movement. All you need to do is identify the market direction and analyze it to determine an exit point for your position. Using this strategy, you will buy the market once it has broken to resistance and sell it when it has fallen through support. In order to determine the perfect time to enter the market, you are required to use indicators to determine the beginning of a new trend.
Range trading forex strategy
Using this strategy, you need to understand the support and resistant lines to find levels at which the market reverses. While prices break above or below the support and resistant lines in the trend market when using the range trading Forex strategy, the prices are rebounding between these levels. So, it is great to use scalping or swing trading in this strategy.
News trading Forex strategy
Many factors affect the Forex market, and understanding the impact of different factors on currency prices is vital to becoming a consistently profitable Forex trader. Then you use new trading strategies; you focus on a single piece of news, for example, interest rate announcement. To apply this strategy, you need to have an Economic Calendar. Remember that this strategy comes with increased risk because the outcome of releasing different news is unpredictable.
Retracement Trading Forex strategy
Using this strategy, you will be looking for reversal movement in a short time. A new trend begins if the price reverses and continues in that direction. This point is perfect for entering the market. We can benefit from technical analysis to determine retracements.
What is the number 1 rule of Forex?
The number 1 rule of Forex, which every professional trader knows, is not just a single one:
- Start slow and with less money to avoid further losses.
- Stick to your plan and limit your losses.
- Master skill of understanding different indicators to use them properly.
What is the best strategy for trading Forex?
In this article, we have discussed different Forex strategies to help you find the best one to start trading on Forex.
Is there a 100% winning strategy? Now you know the answer. The answer depends on the trader’s preferences, risk tolerance, trading style, budget, and the number of hours he’s going to spend trading Forex. There are many things to consider when formulating a forex trading strategy. It would be best if you never traded Forex without a valid strategy. The best way to choose a strategy is to test different ones using a demo account. In Aron Groups, we provide you with a demo account to help you practice trading skills and select the perfect strategy in a risk-free environment.