Which forex trading strategy do you prefer
The Three Most Effective Forex Trading Strategies
The Best Forex Trading Strategies Every Trader Should Know.
Anyone new to Forex trading will quickly realize that there are a variety of different Forex trading strategies. Every newcomer to trading will always wonder what the best strategy for Forex trading is. All forex traders want to know which trading strategy to choose (or develop) to trade profitably. Of course, a lot depends on which type of trading you prefer. Some strategies are best for short-term trading, swing trading, forex scalping, day trading, or position trading. Some strategies are suitable for day traders, others for long-term investors. This article explains three forex trading systems that have been shown to work in the financial markets.
The 3 Best Forex Trading Strategies
Number 3. Trading strategy with the trend line breakout
This is one of the oldest and simplest forex strategies based on trend reversal. Based on the price movements, this strategy signals that a certain price level has been reached at which the current trend will reverse. The support and resistance levels are also used in the strategy. In my opinion, this strategy works for all investors and all financial instruments, from currency pairs to commodity CFDs or stocks.
Let's see how you can open buy and sell positions in trading using this strategy:
- Find a clear trend and draw the trend line with its highs and lows. We only need a single line that will be broken in the event of a trend reversal. In the downtrend we need the resistance line (red), in the uptrend the support line (blue);
- Now we have to assume that the market will move until the price chart breaks this trend line. The mere fact that the price breaks the line is sufficient as a trading signal;
- When the downtrend is interrupted, an uptrend follows, so we open into a buy. If the uptrend is interrupted, the price reverses downward and we open a sell;
- You should make a buy when the 2 main conditions are met: the price has broken the resistance (red line) and the price has reached the level of the last high of the broken downtrend (buy level);
- A sale should be made when the 2 main conditions for selling are met: the price has broken the support level (blue line) and the price has reached the level of the last low of the broken uptrend (sell level);
- If both conditions are met, we can immediately open a buy / sell position when the price reaches the high / level described in steps 4 and 5;
- A take profit is set on the high / low of the previous trend before the low / high at which we opened a position (Take Buy / Sell);
- A stop loss is set at the low / high of the previously broken trend (stop buy / sell);
As you can easily see, this is a simple and profitable forex trading strategy that can be used in any timeframe and that offers a reasonable level of signal accuracy. Statistically, the profit / loss ratio is around 65/35.
Number 2. Breakout strategy with 3 EMAs
This strategy is one of the basic indicator strategies. Like the strategies described above, it is quite simple and is based on the principle of trend reversal. Since this is a forex indicator strategy, you need to add three moving averages to the chart.
Let us now consider how to open new trades according to this trading system.
- Position three EMAs on the price chart. To make things easier, they should use different colors. For the first EMA, the period is 21 and the offset is -2 (blue). For the second EMA, the period is 14 and the offset is -3 (red). For the third EMA, the period is 9 and the offset is -4 (green);
- For this reason, the blue EMA is slowed down. When hit by other, faster EMAs, entry signals are generated;
- If the green EMA breaks through the red EMA from above and both lines cross the blue line from above, a sell-signal is generated (sell 1,3,5.);
- A buy signal is generated when the green and red EMA cross the blue EMA from below. In addition, the green EMA must cross the red EMA from below ((buy 2.4);
- This strategy does not provide for specific levels of take profit and stop loss, so you leave the trade depending on the market situation. Accordingly, you should follow the guidelines of your risk management very carefully;
- You should close the position (at a profit or a loss) if the green and red EMA cross again from the opposite direction after entering the trade;
As you can see, this forex trading strategy is very simple. A simple mean value indicator gives clear signals with a profit / loss ratio of around 70/30.
Number 1. Trading strategy based on the triangle pattern breakout
I claim this is one of the best forex strategies out there. If you use this strategy to trade the forex markets, you must at least master the basics of technical analysis. Because you have to find a triangle pattern in the price chart and mark its foothills (limits) with the trend lines that represent the support and resistance values (blue lines). The triangle looks like a narrowing sideways channel.
Now let's look at how to open trades with signals based on this trading strategy:
- This strategy hardly provides any signals to enter the market at the current price. It suggests the use of pending orders, buy or sell limits;
- After discovering a triangle pattern, you can start placing pending orders. You should place the order at a price level that indicates that price has broken one of the pattern's trend lines;
- A buy limit should be set before the high before the pattern's resistance line (Buy 1) breaks out. When a new high occurs, the limit order should be moved down by a high (Buy 2) until the resistance line is broken;
- You place a sell limit order at the low preceding the breakout of the support level (Sell 1) of the pattern. Should a new low of this type arise, you should move the pending order down to the next low (Sell 2). Do this until you break the support line;
- If any of the pending orders are successful, place a take profit on the high of the pattern (if you buy) or the low of the pattern (if you sell);
- A stop loss is set at the opposite extreme value (low / high) relative to the extreme value at which you made the trade. For example, on a sell trade (Sell 2), you set a stop loss at the level of a possible buy trade (Buy 2);
This trading strategy is more complicated and requires some experience in spotting a triangle pattern on the price chart. However, it offers more extensive trading opportunities. The complexity is compensated by the high accuracy of the trading signals with a profit / loss ratio of around 85/15.
Now you have learned about the top three trading strategies that every forex trader should try. Try them all, find out which strategy suits you best and start making money in real time.
P.S .: Do you like my article? Then I would be very grateful if you share it on social networks :)
You can leave me your questions and comments below. I am happy to answer the questions and provide further explanations.
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The content of this article reflects the opinion of its author. The official opinion of LiteForex may differ. The information material published on this page is for informational purposes only and does not constitute investment advice or investment recommendations within the meaning of Directive 2004/39 / EC.
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