A great variety of fx trading strategies and systems can confuse a beginner. Let’s discuss which strategies are the most efficient and how to choose the best forex strategy for trading.
The most strategies are based on the indicators of technical analysis. There are also some strategies on the basis of fundamental analysis, for example forex news trading strategies. Some traders don’t use indicators in their fx trading strategies and techniques.
The first step is to choose, which approach to trading fits your needs and personality better. You can select a conservative or aggressive trading style. Conservative traders have minor risks and modest income. They prefer trend-following strategies.
Aggressive trading implies high risks and increased revenue. Aggressive traders manage to reach 1000% profit quite frequently. They often use a trend-fading strategy and rarely follow the trend, because the market is on trend only ⅓ of time on average.
Let’s move to trading systems and talk about them in details.
Trend-based strategies provide the best ratio between profit and deposit: with a comparatively small deposit you can make a huge profit. The most significant technical indicators which help to define a trend are the Moving Averages (MA). Traditionally all trend strategies use a Moving Average, because it provides the most complete picture of the price movement.
Sometimes we use Parabolic SAR and Pivot indicators as additional indicators. You can find plenty of additional indicators on the Internet, although Moving Average is the most important one.
Take MA with 24 - 120 period for hour candles and periods 21 and 130 for day candles. These indicators help us to identify the trend and its direction. If both moving averages have an upward direction, we face a usual bullish trend and if both moving averages look down, the trend is bearish.
Common rules of technical analysis advise us to follow the trend. We should also remember that the trend can be stabilized after correction.
Let’s have a look at the GBP/USD day chart: both MAs are the downtrend.We need to wait for the correction, when the price level will be found between 21-day and 130-day moving averages, and open a sell position in the direction of the trend. You can see that trend-following strategies based on Moving Averages are rather simple and efficient (Image 1).
The market is in flat during the most time and oscillators seem to us the best-performing trend-fading systems. To build a trading system, use the most popular indicators:
Let’s discuss characteristics of RSI oscillator.
The indicator is plotted between a range from 0% to 100%. When the indicator’s line gets below 30%, it means that the security is oversold and its position above 70% tells it is overbought.Use 9-hour or 11-day RSI. When the indicator leaves the overbought area, open a sell position and when it leaves the oversold area, buy.
When a price and the indicator move in different directions, it is called divergence. RSI divergence signals are the most reliable. When a price reaches a new Low, the indicator is in the oversold area and cannot establish a new Low. This position indicates bullish divergence. When a price reaches new High, the indicator is in the overbought area and cannot establish a new High, that indicates a bearish divergence (Image 2).
Thus, we see that a trend-fading strategy even based on one technical indicator can be effective and quite intelligible for beginners.
Trading robot is a software which allow you to trade on the Forex market automatically, without your participation. It opens and closes trades using a special algorithm. There are lots of paid and free trading robots, which used in almost any trading strategy.
The Martingale trading system is used in many robots, that are very popular among traders. Such a robot opens a Sell position for 1 lot and sets Take Profit and Stop Loss orders at 25 pips. If you lose your position, the robot double your next position. It opens a Sell position for 2 lots with a Take Profit and a Stop Loss orders on the same level. This trading system follows the rule telling that a price cannot move the same direction for all the time. Sooner or later a bounce occurs and you will take your profit.
Conlusion: it is up to you which type of Forex trading strategy to use. The main rule is simple: you should consider current market conditions. The market has a trend only during the third part of the trading time, so don't ignore trend-fading strategies. Test both approaches and apply them in proper conditions.You should also remember, that there are not completely risk free forex trading strategies or the best no loss forex trading strategy.
What to do now
If you are sure now about which system you prefer, you can start trading with us right now:
If you are familiar to this topic well enough to share your thoughts, you can write an article about Forex trading and receive $30 no deposit bonus to your Forex account.
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