You may have heard that maintaining your discipline is an essential aspect of trading. While this is true, how can you ensure that you apply this discipline when you are in a deal? One way to help is to have a trading strategy that you can stick to. If it makes good sense and back-tested, you can be confident that you are using a high-quality forex trading strategy. This confidence will make it easier to follow the rules of your strategy, and thus help maintain your discipline.
Often when people talk about forex trading strategies , they are talking about a specific trading method that is usually just one aspect of an entire trading plan. While the forex trading strategy provides entry signals, it is also necessary to consider:
How to exit the trade
Choosing the Best Forex Strategy for You in 2021
When it comes to explaining the best and most profitable forex trading strategy, there is no single answer. The best forex strategies will be suitable for the individual. This means that you need to think about your personality and come up with the best forex strategy that works for you. What may work too well for someone else may be a disaster for you.
On the contrary, a strategy that has been left out by others may be right for you. Therefore, experimentation may be required to discover successful forex trading strategies. It can also remove the ones that don’t work for you. One of the main aspects to consider is the time frame of your trading style.
There are several types of trading patterns (explained below) from short time frames to long time frames. These patterns have been widely used over the years and are still a popular choice from our list of best forex trading strategies in 2021. The best forex traders always stay aware of different patterns and strategies in their search for how to trade forex successfully, so that they can choose the right option, based on on current market conditions.
Scalping – These are very short-lived trades, and will likely only be held for a few minutes. The scalper seeks to quickly beat the bid/offer spread, carves out only a few pips of profit before exiting and is considered one of the most advanced forex trading strategies. This strategy usually uses lower time frame charts, such as the one that can be found in the MetaTrader 4 Supreme Edition package. This trading platform also offers some of the best forex indicators for speculation. The 1 minute forex trading strategy can be considered an example of this trading style.
Day Trading – These are the trades that were exited before the end of the day. This removes the chance of being negatively affected by large movements overnight. Day trading strategies are popular among forex trading strategies for beginners. Trades may only last for a few hours, and price bars on charts can usually be set to an hour or two.
Swing trading – trades held for several days, where traders aim to profit from short-term price patterns. A swing trader might normally look at the bars every half hour or hour.
Central trading – following the long-term trend, seeking maximum profit from major price shifts. The long-term trader usually looks at the end of the day charts. The best positional trading strategies require tremendous patience and discipline on the part of the traders. It requires a good amount of knowledge regarding market fundamentals.
Below is a list of some of the best forex trading strategies that have been revealed and discussed so that you can try to find the one that is right for you.
Forex strategy 50 pips a day
One of the newer forex trading strategies that are being used is the 50 pips a day forex strategy that promotes early market movement of some highly liquid currency pairs. The GBPUSD and EURUSD currency pairs are some of the best currencies to trade with this particular strategy. After the candle closes at 7 AM GMT, the traders place two opposite pending positions or orders. When one of them is activated by price movements, the other position is automatically canceled.
The profit target is set at 50 pips, and the stop loss order is placed anywhere between 5 and 10 pips above or below the 7 AM GMT candle, after it was formed. This is implemented to manage risk. With these conditions set, it is now up to the market to do the rest. Day trading and speculation are both short term trading strategies. However, remember that the short term involves greater risk due to the nature of the more trades being taken, so it is essential to ensure effective risk management.
The orange squares show the 7 a.m. bar. In some cases, the next bar did not trade beyond the high or low of the previous bar resulting in no trade being set up unless the trader left his orders in the market. The effectiveness of trading is not time tested and it only works in an idea platform that you can build upon. Past performance is not a reliable indicator of future results.
Forex daily charting strategy
The best daily chart forex traders swear by more short term strategies. Compared to the 1 hour forex trading strategy, or even those with lower time frames, there is less market noise associated with the daily charts. These charts can give you more than 100 pips per day due to their longer time frame, which is likely to produce some of the best forex trades.
Daily trading signals can be more reliable than lower time frames, and the potential for profit can be higher, even though there are no guarantees in trading. Traders also do not need to worry about daily news and random price fluctuations. The method is based on three main principles
Determining the trend: the trend of the markets and its consolidation, and this process is repeated in cycles. The first principle of this method is to find the long moves in the forex market. One way to determine a forex trend is to study 180 periods of forex data. The next step will be to identify the tops and bottoms of the swing. Referring to this price data on the current charts, you will be able to determine the direction of the market.
Stay focused: this requires patience, and you have to get rid of the urge to enter the market right away. You need to stay away and conserve your capital to have a greater chance.
Less Leverage and Higher Stop Loss: Be aware of the high intraday fluctuations in the market. However, using larger stops does not mean putting large amounts of capital at risk.
While there are plenty of trading strategy guides available for professional forex traders, the best forex strategy for making consistent profits can only be achieved through extensive practice. Here are some of the revealed forex strategies, which you can try:
1 hour forex trading strategy
You can make use of the 60 minute time frame in this strategy. The most suitable currency pairs to trade with this strategy are EUR/USD, USD/JPY, GBP/USD and AUD/USD. Regarding the resources of forex trading strategies used for this type of strategy, MACD is the most suitable and available on both MetaTrader 4 and MetaTrader 5.
Buying trade rules:
You can enter a long trade when the MACD histogram crosses the zero line. The stop loss can be placed at the bottom of a recent swing.
Selling Trade Rules:
You can enter a short position when the MACD histogram drops below the zero line. The stop loss can be placed at a recent swing high.
Below is the hourly chart of AUDUSD. The red lines represent the scenarios in which the MACD histogram crosses and below the zero line:
Weekly forex trading strategyWhile many forex traders prefer day trading due to market volatility providing more opportunities in narrower time frames, weekly forex trading strategies can provide more flexibility and stability. The weekly candle provides comprehensive market information. Weekly forex trading strategies rely on lower position sizes and avoid excessive risk.
For this strategy, traders can use the most popular price action trading patterns such as engulfing candles, buntings, and hammers.
One of the most common patterns in forex trading is the hammer which looks like the image below:
The antithesis of the hammer is the meteor that looks like the image below:
The chart below shows the weekly price action of the NZDUSD and examples of the patterns shown above.
The role of price action trading in forex strategiesTo what extent the fundamentals are used varies from trader to trader. At the same time, the best forex strategy will always use price action. This is also known as technical analysis. When it comes to technical currency trading strategies, there are two main patterns: trend-following, and counter-trend trading. Both forex trading strategies attempt to profit by recognizing and exploiting price patterns.
When it comes to price patterns, the most important concepts include concepts such as support and resistance. Simply put, these terms represent the market’s tendency to bounce off previous lows and tops.
Support is the direction of the market to rise from a pre-established low.Resistance is the market’s tendency to fall from a pre-established high.This happens because market participants tend to judge subsequent prices against recent highs and lows.
What happens when the market approaches its recent lows? Simply put, buyers will be attracted to what they consider cheap.What happens when the market approaches recent highs? Sellers will be attracted to what they see as either too cheap or a good place to make a profit. Therefore, recent highs and lows are the criteria by which current prices are evaluated.There is also the self-fulfilling aspect of support and resistance levels. This happens because market participants anticipate a certain price movement at these points and act accordingly. As a result, their actions can contribute to the market’s behavior as they expected. However, it is worth noting these three things:
Support and resistance levels do not offer strict rules, they are simply a common consequence of the natural behavior of market participants.Trend-following systems aim to take advantage of times when support and resistance levels break down.Counter-trend trading patterns are the opposite of trend-following – they aim to sell when there is a new high, and buy when there is a new low.Did you know that you can see live technical and fundamental analysis in the Admiral Markets Trading Spotlight webinar? In these free live sessions, which are conducted three times a week, professional traders will show you a variety of technical and fundamental analysis trading techniques that you can use to identify popular chart patterns and trading opportunities in a variety of different markets.
Forex strategies to follow the trendSometimes the market gets out of the range, moving below support or above resistance to start a trend. How does this happen? When the support breaks down and the market moves to new lows, buyers start to pull back. This is because buyers are constantly noticing the creation of cheaper prices and want to wait until the bottom is reached. At the same time, there will be traders selling in a panic or simply forced to leave their positions or build short positions because they think it can go down.
The trend continues until the selling depletes and the belief begins to return to the buyers when it is established that the prices will not drop further. Trend-following strategies encourage traders to buy the market once it breaks through resistance and sell the market once it drops through support.
Plus, trends can be both dramatic and long-term too. Due to the amount of moves involved, this type of system has the potential to be the most successful forex trading strategy. Trend tracking systems use indicators to notify traders when a new trend is starting, but there’s no sure way to tell, of course.
Here’s the good news: If an indicator can pinpoint a time when there’s a better chance of starting a trend, you’re tilting the odds in your favour. Indication that a trend may form 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 breakout to a 20-day uptrend is when the price rises above the highest peak of the last 20 days. Trend-following systems require a certain mindset, due to the long duration – during which profits can disappear with market volatility. These crafts can be more psychologically demanding. When markets are volatile, trends tend to be more convincing and price fluctuations will be greater. Therefore, the trend tracking system is the best trading strategy for the forex markets that is calm and trendy.
The Donchian Trend System is one good example of a simple trend-following strategy. Donchian Channels was invented by futures trader Richard Donchian, and is an indicator of trends in the making. Donchian channel parameters can be modified as you see fit, but in this example we will be looking at a 20 day hack. The Donchian Channel hack indicates one of two things:
Buying, if the market price exceeds its highest price in the previous 20 days.Sell, if the price falls from the lowest level in the previous 20 days.Below is a daily EURJPY chart showing the Admiral Donchian indicator set at 20 bars.
There is an additional rule for trading when the market condition is more favorable 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 (MA) and the 300 day moving average. The direction of the shorter moving average determines the permissible direction. This rule states that you can only:
Short, if the 25-day moving average is lower than the 300-day moving average.Long buy, if the 25 day moving average is above the 300 day moving average.Exiting trades is done in a similar way to entering, but only with a 10-day breakout. This means that if you open a long position and the market falls below the lowest level in the previous 10 days, you may want to sell to exit the trade and vice versa.
4 hour forex trading strategyOne of the potentially useful and profitable forex trading strategies is the 4 hour trend following strategy which can also be used as a swing trading strategy. This strategy uses a basic 4-hour chart to examine potential trading signal positions. The hourly chart is used as a signal chart to determine where the actual positions will be taken.
Always remember that the time frame of the signal chart should be 1 hour lower than the basic chart. For this forex strategy, two sets of moving average lines have been chosen to get the best results. One will be the 34-period moving average, and the other will be the 55-period moving average. To ascertain whether a trend is worth trading or not, the moving average lines will need to correlate with the price action.
In the case of an uptrend, the conditions that must be met include:
Price action above the moving average linesLetter 34-MA Footer 55-MAMA lines descend upwardsIn the case of a downtrend, the following conditions must be met:
Price action is below the moving average linesThe 34-MA line is below the 55-MA lineMA lines are sloping downThe moving average lines will be a support area during uptrends, and there will be resistance areas during downtrends. The best positions for a trend trading strategy can be found in and around this area.
Below is the daily chart of GBPUSD showing the 34 exponential moving average (purple line) and the 55 exponential moving average (red line) on the chart:
Counter trend forex strategiesCounter-trend strategies are based on the fact that most breakouts do not develop into long-term trends. Therefore, a trader using such a strategy seeks to gain an advantage from the tendency of prices to bounce off predetermined highs and lows. On paper, counter-trend strategies can be one of the best confidence-building forex trading strategies, as they have a high success rate.
However, it is important to note that tight rein is required on the part of risk management. These forex trading strategies depend on the stability of support and resistance levels. But there is also the risk of major downsides when these levels break. Constant monitoring of the market is a good idea. The market condition that suits this type of strategy is stable and volatile. This type of market environment provides healthy price fluctuations that are restricted within a range. It is important to note that the market can switch countries.
For example, a stable and calm market may start a trend, while remaining stable, and then become volatile as the trend develops. How the market condition may change is uncertain. You should look for evidence of the current situation, to let you know whether or not it suits your trading style.