Forex Strategies

Trading strategy for Forex is basically a defined set of rules for trading. Strategy largely affects the long-term success in Forex trading. Trading without strategy is able to give only the short-term profit and soon can be followed by a collapse.

Support and resistance

basic forex strategy support resistance level

Trader defines a flat market with clear support and resistance levels. Trading is within the range until price breakout. Stop loss is put outside the channel.

  • Timeframes: All, preferably from 1H.
  • Type: no trend (flat)

Breakouts

When price trades in a range for some time, sooner or later we’ll see a breakout either up or down. Usually the breakout is very fast and volatile, so it is possible to open a trade in the same direction. Stop order is usually above the support line or below the resistance but not too close to avoid common movements and flat widening. To be sure, it is always wise to wait until at least one price bar closes below/above the flat-range line.

  • Timeframes: All, preferably from 1H.
  • Type: no trend (flat)

channel

Moving average

channel

Perhaps one of the most popular strategies. Please note that trader will get much more signals trading on smaller time frames which puts more emotional pressure. Any instrument can be chosen and any period can be set for the moving average. Back-testing on history (at least 1 year period) is required to define if chosen parameters are correct. Stop loss is usually set above/below the moving average but not too close.

  • Timeframes: All, preferably from 1H.
  • Type: directional (flat)

Oscillators

Oscillators measure strenght/weakness of a selected instrument. Oscillators work well during flat markets when there are no trends. Trader can choose an instrument and indicator’s parametres according to personal needs and back-testing results. Oscillators point out good entry points whenever market is oversold or –bought. It is wise to use a fixed stop loss when working with oscillators to avoid bigger losses if a breakout should happen.

  • Timeframes: All, preferably from 4H.
  • Type: no trend (flat)

channel

Technical formations and japanese candles

channel

History tends to repeat so are the visual formations on the charts as well as price-bar combinations. Listing all the possible combinations is not a purpose of this topic, we just give an idea where one could start. There are many visual formations that can be used: „triangles“, „flags“, „head and shoulders“ etc as well as countless price-bar combinations consisting of one or several candles.

  • Timeframes: All, preferably from 1H.
  • Type:both directional and flat

The importance of Forex trading strategy

Specific trading strategy should be used exactly for a chosen currency pair, for which it is created because it depends on the ratio of the certain currency pair. However, this does not mean that the other currency pair won’t benefit from the chosen strategy, but make sure you analyse the strategy more before applying it on different currency pairs.

The main task of any Forex trading strategy is to minimize the impact of external factors on the Forex trader and to organize trader’s activities. The development of a trading strategy can even be compared with the development of a business plan for a specific project.

When developing your own trading strategy or improving the old one, it is important to remember these rules:

  • Any trading strategy has a share of subjectivity, it does not guarantee a success and can work also against you;
  • Each Forex trading strategy should be compatible with a trader’s style;
  • 95% of trading failures are caused by lack of the psychological stability – Forex trading strategy is designed to solve this problem.

We hope it helped you to understand a little bit more about trading and gather some ideas for developing your own strategy which suits you. Traders can combine different methods or develop even their own indicators and trading robots, because there is no limit in different variations.