It is important for every trader to develop strategies for trading forex. The reason is that a trader has a very high chance of losing everything that he has put into his trading account if he does not have a plan. The development of a strategy helps to ensure that the trader is thinking in the right manner and has understood the instruments that he trades and also has a plan to be profitable as well. Experienced traders would tell you having a trading strategy and sticking to it at all times is the key difference between a successful trader and a failed one.
What is the best strategy for Trading Forex?
Anywhere on the internet, if a trader sees an article talking about strategies for trading forex, his first question is to see whether he can get a free strategy that works. But rather than trying to get a free FX trading strategy that works, it is more important to understand how to develop one and what are the basics of a successful trading strategy.
One of the many reasons on why it is always better to develop your own strategy is simply because if it’s free, it ain’t going to be profitable, at least not for long. If it was a profitable one, the person who developed it would rather trade it himself and retain the edge in the market for as long as possible rather than giving it out for free and losing that edge once everyone starts trading it. So, do not expect any freebies.
The other reason to not look for free forex trading strategies is because what works for one may not work for the other. Trading is always about emotions and what suits one’s emotions are always the best strategy. Likewise, what works today may not work tomorrow. So rather than depending on someone to give you free fish every day, it is better that you learn to fish yourself so that it stays with you all your life even when the person who gave you the freebies is long gone. If you do this yourself, it also helps to ensure that when the market changes, you will be able to tweak the strategy so that it continues to stay profitable.
And last a finally, the best strategy is always the one that is profitable and that suits your character so that you will be able to follow it strictly. First, make sure that it is a profitable one and do a lot of backtesting and forward testing on the instruments on which you plan to trade. Once you are fully confident that your strategy is working perfectly, implement it in live trading and follow it very diligently. There is no point in backtesting a strategy to find it profitable but then going back to your own manual intervention in the strategy once you go live. Put your full trust in the strategy and whatever happens, as long as you believe the strategy is fine, do not tinker with it in live trading.
Forex Trading for Beginners: 4 Profitable Strategies for 2020
The best forex trading strategies are those that can be easily understood even by beginners. This is very important as it then gets the beginners interested in the strategies and they can use that as the springboard for developing further strategies at their own pace. But you have to remember that there is no single answer to the question of what is the best forex trading strategy.
Let us stick to the very simple and most popular forex trading strategies:-
This is as old as the trading itself and unless you get this perfectly right as far as position sizing is concerned, you are very likely to blow your account. But of course, if you manage to get it right, then it can rake up profits in double quick time during ranging markets and then if your total profits exceed 100% of your capital, then you can withdraw the profits and you can be assured that you have your money back and whatever you get beyond that would be full profits for yourself.
Bolling Bands Bounce-Off
This is again a very important trading strategy as Bollinger Bands is a very simple and very widely used indicator. It charts a specific deviation from the mean and whenever the price goes to the extreme and touches the edges of the bands, the trader can enter into a trade with a good stop loss.
Fibonacci Price Action
For this, it is important for the trader to understand how the Fibo tool works and also to understand what support and resistances mean. In other words, this is purely a price action strategy and though it may be difficult to master at the first stage, once you are able to do that, this is all that you will be needing to be a profitable trader in the long run and it is just simple forex trading.
Again, all the above strategies may not work for all instruments and for all market conditions and this is why backtesting becomes very important. Do at least 6 months of backtesting so that you are sure of the risks and returns and whether the strategy is profitable in the long run before you try these on a live account.
Pin Bar Trading Strategy
This is also a very good one and a very old trading strategy as well. This works on many markets and it used to work really well till a few years ago but still, it is quite effective even now but due to the changing market conditions, it is always better to look to combine this old strategy with some new one that you can come up with or take it along with other factors that you may be looking at like a trend indicator or some price action strategy that you may be looking for.
If this pin bar appears in a support or resistance region that you have marked out, that really improves the effectiveness of this strategy. This is basically a price action strategy and hence works really well when it is combined with other price action strategies like support/resistance and other price action patterns. It is better to not use this alone and depend on this alone but you can improve the effectiveness of the pin bar by combining this with some other indication that can confirm the signal. Also, there are certain instruments in which this is still extremely effective and there are certain instruments that are not so much. So, try and mix and match the instruments and the various timeframes and see what works best for you and if you manage to do that, then you should be having a very good strategy for yourself for the long term as long as you are able to stick to it.
Which Timeframe is Best for Forex Trading?
One of the frequently asked questions by traders is on which timeframe is good for trading. Again, it totally depends on the trader. As you would know by now, the market is available 24X5 and there are various periods of the day when the market is slow and when the market is volatile. The most popular trading strategies target the daily timeframe because the price action during that timeframe is very stable as compared to the other time frames like 15 minutes or 5 minutes. The lower timeframes are mainly used for scalping trading strategies and it works best for those who are used to day trading.
Positional Trading – Consistent Forex Trading Strategy
The forex market trading strategies should use technical analysis and take the timeframe also into consideration and when you develop one for yourself, you should keep this in mind too. If you are just starting out to trade and are a beginner, then you should stick to the larger timeframes so that you get time to analyse them and form your opinions and get used to the market and the charts. The strategies that work off daily timeframes and above are called positional trading as they are positions that are likely to be open for trades or even weeks. This will teach you patience and also teach you how to stay consistent and are one of the best forex trading strategies for beginners.
What are some Forex Trading Mistakes?
One of the common mistakes made by traders during trading is that they can’t control their emotions and they give up their strategy. The mistake starts with the strategy developed as they are confused with the various popular forex trading strategies that they get to see on the internet and they see how many traders are celebrating their trading success and they get misguided by it.
They choose a strategy without much thought or they don’t test it enough. And if they do not test it enough, it simply means that they would not be able to trust it enough when it comes to live trading. They will no longer be able to follow the trading strategy that they developed very strictly and this leads to them missing out on placing take profits or stop losses or increasing their trade sizes putting their account at risk. All their trade management and risk management strategies that they had developed would go for a toss and this leads to the trader losing his entire account.
There are many lessons to be learnt in this. The trader has to be slow and thorough and consistent in developing his trading strategy. Once he has developed a profitable one and has tested it thoroughly, he has to implement it in the way it is supposed to be and not tinker with it during live trading. Another important point is to keep a watch for changing market conditions and tweak the strategy to remain profitable whenever he sees a chance.
Is It Easy to Develop Forex Trading Strategies?
It is indeed easy to develop not just one but many as well as long as you are sure of what you are looking for and ensure that you remove all those strategies that are not profitable and also make a promise to yourself that you will thoroughly test each and every strategy that you come up with before either discarding them or trying them in your live account.
What are the best forex trading strategies is not a question that should concern you at this moment. All it needs is for you to be able to study the patterns that you see on the chart. You can throw in indicators if you want to and there are thousands of combinations of indicators, instruments, timeframes, etc and it is totally up to you to get to see patterns in them and form a strategy for yourself. The market and technical analysis are based on the theme that history would repeat itself and so it is all about seeing if there are any patterns in the market that could be deemed to be profitable and ensure that you can form a strategy around these patterns and trade them day in and day out with no changes to remain profitable.
There are different types of forex trading strategies and you need to find ones that you are comfortable with. Do not believe anything that other traders are likely to tell you and beware of those who try to sell some software or some strategy which shows a very high success percentage, The logic is very simple and that is that if it was profitable and good performing over a long period of time, the person who developed it could have traded it himself and made a fortune from it by now rather than trying to sell it to you for $50.
As a trader, you have to remember that the market can be very lonely at times and you need to get used to trading alone with no help and you need to develop a trading strategy that involves simplicity and uniqueness. Of course, many things could work for the short term but this is not a 100 metre sprint but a marathon. You need to understand that trading is a life skill that can keep earning you money for the rest of your life and no one except yourself is going to come with you till that time. So that is why it is very important for you to learn all the tools yourself. Of course, you could consult fellow traders and have mentors as well but ultimately it all comes down to you and your strategy and what you are going to do at the time of live trading that is going to make the difference between success and failure.