The big advantage of having a forex trading strategy is that you can take some of the guesswork out of trading currencies. Read on to find out more about the best forex trading strategies and how to choose among them to trade currencies successfully. Picking a forex strategy is one of the most important things you can do to help assure your profitability as a currency trader, so you will definitely want to choose a successful strategy.
First, test each strategy via backtesting, which can be done with the popular MetaTrader forex platforms if you have modest programming skills. Vet your strategy in a demo account that most online brokers will allow you to open without risk. If any strategies still look profitable, you can start trading them in a live account for the ultimate test. Many successful strategies for trading forex exist, but not all of them are suitable for every trader.
Select a strategy that best suits your particular situation, including your available time, personality type and risk tolerance. These are covered below based on the typical time involved, ranging from short to long term. Scalping is a very short-term trading strategy that involves taking multiple small profits on trading positions with a very short duration.
Scalpers need ultra quick reaction times because they usually enter and exit trades in just seconds or minutes. This very fast paced and a rather stressful activity that may not suit everyone. Scalpers also closely monitor price charts for patterns that can help them predict future exchange rate movements. Scalpers generally do best using a broker with tight spreads, quick guaranteed order executions and minimal or 0 order slippage.
Day trading is another short-term trading strategy that is followed only during a particular trading session. Day traders generally do not take overnight positions, so they close out all trades each day. This helps reduce exposure to market movements when the trader is inattentive to the market. Most day traders use trading plans based on technical analysis on short-term charts that show intraday price action. Many day trading strategies exist, but a popular one, is known as breakout trading.
Trades get triggered when the exchange rate moves beyond a given level on the chart for a currency pair and are confirmed when accompanied by an increase in volume. Note that trading volume also increased when the breakout occurred, thereby confirming it. Some forex traders with deep pockets and a decent appetite for risk might use news trading strategies, although they are probably not ideal for forex beginners.
These strategies can be based on fundamental and technical analysis and they generally benefit from the notable volatility often seen in the forex market immediately after key news releases. News traders typically need to monitor economic calendars for key data releases. They then watch the market closely before the event to determine key support and resistance levels so that they can react quickly after the event based on the results.
News traders need to maintain strict discipline when managing their currency positions during such fast markets and often place stop-loss and take profit orders in the market. An example of an economic calendar and a data release event that a news trader might use is U. In the situation below, the previous unemployment claims number was 3,K, the expected number was 2,K, and the result was worse than expected at 2,K. This should have put pressure on the U. Swing trading, sometimes also known as momentum trading, consists of a medium-term trading strategy that aims to capture more market moves.
Swing traders do this by trading both with major trends and also against them when the market is correcting, so they should be willing to hold overnight positions. Swing traders tend to focus on entering and existing positions based on momentum indicators that provide buy and sell signals. Traders use them to find overbought or oversold markets they can sell or buy.
Swing traders might also buy ahead of support or sell before resistance levels that develop on the charts of the exchange rate for a currency pair. Trend trading is a popular longer-term forex trading strategy that involves following the prevailing trend or directional movement in the market for a particular currency pair.
This strategy often involves buying on pullbacks in up trends or selling on rallies in down trends. After a trend trader has taken a position in the direction of the trend, you will probably hold onto it until the market reaches their objective or the trend starts reversing. Trend traders often use trailing stop loss orders to guard their profits if a significant reversal materializes.
They might also use longer and shorter term moving averages and watch for crossovers to signal a potential reversal. You can start the account opening process today and most brokers will let you open a demo account first to try their services out and trade without any risk before depositing your money.
CedarFX offers access to a wide range of tradable securities, including stocks, futures, major and exotic forex pairs, cryptocurrencies and more. Though CedarFX could introduce a few additional educational resources, the broker remains a unique option for traders invested in giving back.
IG is a comprehensive forex broker that offers full access to the currency market and support for over 80 currency pairs. The broker only offers forex trading to its U. Though IG could work on its customer service and fees, the broker is an asset to new forex traders and those who prefer a more streamlined interface. With a massive range of tradable currencies, low account minimums and an impressive trading platform, FOREX.
Take time to educate yourself about those facets of trading forex, too. If you feel confident in your strategy and the broker you chose, then you can open up and fund a live account to start trading with real money. How profitable you are with forex depends on you!
To make a profit through forex trading, you must know how to trade intelligently and you also need a trading strategy. Trade with risk capital only — this is money that you can afford to lose. Regardless of what market you plan to trade, the online broker you choose is extremely important to your success.
The broker you choose should be well-regulated. Put together a trading plan that lays out an appropriate position sizing method and clear risk parameters. You can devise a trading plan and practice using it in a demo account. The most popular include scalping, day trading and position trading. The most significant are the lack of sufficient capital and over-leveraging with margin.
Read More. Forex trading is an around the clock market. Benzinga provides the essential research to determine the best trading software for you in Benzinga has located the best free Forex charts for tracing the currency value changes. Let our research help you make your investments. Discover the best forex trading tools you'll need to make the best possible trades, including calculators, converters, feeds and more. Compare the best CFD brokers to find which one is best for you.
Choose from our top six picks based on platform, security, commissions and more. Compare the best copy trade forex brokers, based on platform, ease-of-use, account minimums, network of traders and more. When it comes to technical currency trading strategies, there are two main styles: trend following and countertrend 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 include support and resistance.
Put simply, these terms represent the tendency of a market to bounce back from previous lows and highs. This occurs because market participants tend to judge subsequent prices against recent highs and lows. Therefore, recent highs and lows are the yardsticks 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 had expected. Did you know that you can see live technical and fundamental analysis in the Admirals Trading Spotlight webinar? In these FREE live sessions, taken three times a week, professional traders will show you a wide variety of technical and fundamental analysis trading techniques you can use to identify common chart patterns and trading opportunities in a variety of different markets.
Sometimes a market breaks out of a range, moving below the support or above the 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 noticing 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 or building short positions because they believe it can go lower.
The trend continues until the selling is depleted and belief starts to return to buyers when it is established that the prices will not decline further. Trend-following strategies encourage traders to buy the market once it has broken through resistance and sell a market once they have fallen through support. In addition, 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 inform traders when a new trend may have begun, but there's no sure-fire way to know of course. Here's the good news: If the indicator can establish a time when there's an improved chance that a trend has begun, you are tilting the odds in your favour to use the best Forex trading system. The indication that a trend might be forming is called a breakout.
A breakout is when the price moves beyond the highest high or the lowest low for a specified number of days. For example A 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. Therefore, a trend-following system is the best trading strategy for Forex markets that are quiet and trending.
A good example of a simple trend-following strategy is a Donchian Trend system. Donchian channels were invented by futures trader Richard Donchian , and is an indicator of trends being established. The Donchian channel parameters can be tweaked as you see fit, but for this example, we will look at a day breakout. It's called Admiral Donchian.
To upgrade your MetaTrader platform to the Supreme Edition simply click on the banner below:. There is an additional rule for trading when the market state is more favourable to the Forex trading system. This rule is designed to filter out breakouts that go against the long-term trend. In short, you look at the day moving average MA and the day moving average.
The direction of the shorter moving average determines the direction that is permitted. This rule states that you can only go:. Trades are exited in a similar way to entry, but only using a day breakout. This means that if you open a long position and the market goes below the low of the prior 10 days, you might want to sell to exit the trade and vice versa. Now let's look at another system that could be the best trading strategy for you.
One potentially beneficial and profitable Forex trading strategy is the 4-hour trend following strategy which can also be used as a swing trading strategy. This strategy uses a 4-hour base chart to screen for potential trading signal locations. The 1-hour chart is used as the signal chart, to determine where the actual positions will be taken. Always remember that the time frame for the signal chart should be at least an hour lower than the base chart.
For this Forex strategy, two sets of moving average lines are chosen for the best results. One will be the period MA, while the other is the period MA. To ascertain whether a trend is worth trading, the MA lines will need to relate to the price action. The MA lines will be a support zone during uptrends, and there will be resistance zones during downtrends.
It is inside and around this zone that the best positions for the trend trading strategy can be found. Below is a daily chart of GBPUSD showing the exponential moving average purple line and the exponential moving average red line on the chart:. 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 can be one of 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 trading strategies rely on support and resistance levels holding. But there is also 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. It's important to note that the 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 you whether it suits your trading style or not and should be one of the Forex strategies you should be using.
Source: Admirals Demo Account Example. Many types of technical indicators have been developed over the years. The great leaps made forward with online trading technologies have made it much more accessible for individuals to construct their own indicators and systems, as we've gone through in these trading strategy guides.
You can read more about technical indicators by checking out our education section or through the trading platforms we offer. The best Forex trading strategies for beginners are the simple, well-established strategies that have worked for a huge list of successful Forex traders already.
Of course, many newcomers to Forex trading will ask the question: Can you get rich by trading Forex? It's important to understand that trading is about winning and losing and that there is always risk involved. In some cases, you could lose more than your initial investment on a trade. There are no easy Forex trading strategies which are going to make you rich overnight, so do not believe any false headlines promising you this.
Trading Forex is not a 'get rich quick' scheme. However, through trial and error and the use of a demo trading account, you can learn about the Forex market and yourself to find a suitable style. It can also help you understand the risks of trading before making the transition to a live account. Traders that choose Admirals will be pleased to know that you can trade in a virtual environment by opening a demo trading account. Instead of heading straight to the live markets and putting your capital at risk, you can practice your Forex trading strategies on a FREE demo account.
This is a great way to help you find the best trading strategy for yourself and the trading strategies that will help you become successful. You can open a FREE demo trading account in just a few minutes and access a range of additional trading indicators and software complimentary.
Admirals is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8, financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today! This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.
Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks. Contact us.
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The reality is that nobody really knows exactly when a trend will begin. Therefore, your trading system has to be ready in all trading environments. Curve fitting can give you false confidence that a trading system is much better than it really is. To learn more about forward testing read this guide. Here are some options that you can start to explore, depending on which one you are more drawn to.
I've found that most people will do best if they start with manual testing, then figure out ways to automate strategies that work. However, if you're a more technical person like an engineer or developer, then you may prefer to start with automated testing. Automated testing is when you create a program that automatically enters and exits trades for you. There are programs that you can purchase, rent, or even download for free.
In my experience, I believe that automated trading is only for a small portion of independent traders. Now that you understand automated and manual backtesting, it's time to decide which one is best for you. Again, I feel that most traders are best suited to developing a manual trading strategy, then figuring out how to automate parts of it. Regardless of what you decide, I would highly recommend choosing one and becoming and expert at it.
Traders would put the stack of cards into the computer and the machine would create a report with the results. You have probably heard of traders like Ed Seykota , one of the pioneers of automated trading systems and computerized backtesting.
If you haven't heard of him, be sure to read Market Wizards. After his success, a long line of successful automated systems traders followed, including Michael Marcus and Dr. David Druz. Now let's take a look at some Forex traders that I've interviewed that backtest their strategies.
Technology is getting better and cheaper. So if you have a very limited budget, then I have some great news! If manual trading is your thing, then I would recommend starting with TradingView. I like TradingView because there's nothing to install. MetaTrader 4 is also free, but you have to install it and there can be some trouble with getting it to work right, especially on Mac or Linux. Regardless if you use MetaTrader or TradingView, you'll need to setup a spreadsheet to track your trades.
You could use a piece of paper to track your trades, but a spreadsheet is better in the long run because you can perform complex calculations on your results. You could add a ton of other metrics, but I want to give you the simplest solution and you can build from there. If your spreadsheet is too complicated, it will take too long to fill out and may not apply to the trading strategy you're testing.
It's widely used, has a ton of documentation and you can download free code to speed up your learning process. To learn more about the MQL programming language, start here. I have found that when it comes to programming, the best way to start is to get some code that you already know works, then make small changes to some of the parameters or functions. After you are comfortable with that, then you can start making bigger changes and even writing EAs from scratch.
Free options are great, but when you are ready to get real, then you'll have to spend some money. For manual backtesting, I would recommend using NakedMarkets. It's a fairly new product, but it has many fantastic features that speed up the backtesting process. The historical data is NakedMarkets is free and you can use it for both automated and manual trading strategies. In my opinion, the best part about the software is the analytics.
You get very detailed reports on your testing results. Another good option is Forex Tester. If you want to take advantage of the discount that I have worked out for Trading Heroes readers, use this coupon. Forex Tester can be used for automated backtesting, but I have found that it's hard to find programmers who can code for it. In automated backtesting, I would still recommend using MetaTrader 4, but I would also suggest hiring a programmer to help you with testing.
Even if you are proficient in coding, an additional pair of skilled hands and eyes can help tremendously. You can find qualified programmers on our list of trading programmers. Although I recommend that you look at MT4 first, there is a list at the end of this post that might help you.
The method that you'll use to analyze your backtesting will really depend on what you used to backtest with. This isn't the most efficient way to do it, but you got it done, and I respect that tremendously. There are a lot of Excel resources to learn from, but I'll give you a quick lesson here.
Another important metric is your max drawdown. Learn how to calculate max drawdown in a spreadsheet here. That will get you started, but figure out the metrics that you care about and add them to your spreadsheet. There are a few manual backtesting software packages out there, but I recommend NakedMarkets because it has the best analytics of any manual software I've seen. Again, you have quite a bit of choice when it comes to automated solutions.
But most people will use MetaTrader 4 because it's free and you can use your broker's data. Again, NakedMarkets is great for analyzing your MT4 results. If the resources I mentioned above don't float your boat, then these products might be a better fit. They can be a good way to start with backtesting, but I recommend upgrading as soon as you get some money. I firmly believe that the only habits you will stick to, are the ones that are easy to do.
So make backtesting as simple as possible and it's a habit that you'll keep doing. Also avoid these common backtesting mistakes and understand the limitations of manual backtesting. To see my best backtesting results, subscribe to my Resonant Value Report. Think of it as a shortcut to finding trading strategies that work. Whew…this guide took a long time to create, but I think I covered everything that a beginner should know. Disclaimer: Some links on this page are affiliate links.
We do make a commission if you purchase through these links, but it does not cost you anything extra and we only promote products and services that we wholeheartedly believe in. Hi, I'm Hugh. I'm an independent trader, educator and researcher. I help traders develop their trading psychology and trading strategies.
Learn more about me here. Related Articles. Share This Article. First posted: July 28, Last updated: May 18, Get Instant Access. A good example of a mechanical system is a moving average cross strategy, where MA periods are given and positions are entered and exited exactly at the point of cross. When working with mechanical trading strategy, it is easy to backtest one and determine its profitability. You can also automate such system via MetaTrader expert advisors or any other trading software.
The usual drawback of such strategies is their lack of flexibility before the fundamental changes in the market behavior. Mechanical strategies are a good choice for traders knowledgeable in trading automation and backtesting.
Strategies that retain some uncertainty and cannot be easily formalized into mathematical rules are called discretionary. Such strategies can be backtested only manually. They are also prone to emotional errors and various psychological biases. On the bright side, discretionary trading is very flexible and allows experienced traders to avoid losses in difficult market situation, while offering an opportunity to extend profit when traders deem it feasible.
Newbie currency traders should probably stay away from discretionary trading, or at least try to minimize the extent of their discretion in trading. In this Forex strategy repository, you will find various strategies that are divided into three major categories:. Indicator Forex strategies are such trading strategies that are based on the standard Forex chart indicators and can be used by anyone who has an access to some charting software e.
These FX strategies are recommended to traders that prefer technical analysis indicators over everything else:. Price action Forex strategies are the currency trading strategies that do not use any chart or fundamental indicators but instead are based purely on the price action. These strategies will fit both short-term and long-term traders, who do not like the delay of the standard indicators and prefer to listen as the market is speaking. Various candlestick patterns , waves, tick-based strategies, grid and pending position systems — they all fall into this category:.
Fundamental Forex strategies are strategies based on purely fundamental factors that stand behind the bought and sold currencies. Various fundamental indicators, such as interest rates and macroeconomic statistics, affect the behavior of the foreign exchange market. These strategies are quite popular and will benefit long-term traders that prefer fundamental data analysis over technical factors:. It is very important to test your trading strategy before going live with it.
There are two ways to test your potential trading strategy: backtesting and forward testing. Backtesting is a kind of a strategy test performed on the past data. It can be either automated or manual. For automated backtesting, a special software should be coded. Automated testing is more precise but requires a fully mechanical trading system to test. Manual testing is slow and can be rather inaccurate, but requires no extra programming and can be done without any special preparation process.
Any backtesting results should be taken with a grain of salt as the tested strategy might have been created to fit particular backetsting historical data. Forward testing is performed either on a demo account or on a very small micro live account. During such tests, you trade normally with your strategy as if you were trading your live account.
Scalping. Forex scalping is a popular trading strategy that is focused on smaller market movements. Day Trading. Day trading refers to the process of trading currencies in one trading day. Position Trading.