Forex Trading Strategies
Last Update: June 25th, 2019
Countless forex trading strategies were invented over the years, and some rely on the technical use of charts and numbers. Others rely on a fundamental understanding of the market with reference to current events. And yet, some strategies have become popular while others are only used by a minority of traders. These trading strategies range in different levels of complexity. We will now discuss some of our expert’s favorite strategies – starting with a rather simple one and moving up the scale in complexity as we continue.
In this section of our website, we present you with a wide range of forex strategies and explain in detail how they work and how you can use them. We have divided this section into four sub-categories which become visible if you place your mouse cursor on the ‘Forex Strategies’ section on the top left of our main page without clicking on it. The four sub-categories are:
- The fundamental forex strategies for trading based on fundamental events and how they affect the forex market.
- The technical forex strategies for trading based on technical (mathematical and statistical) analysis of the forex rate charts.
- The popular forex strategies section contain forex strategies based both on fundamental and technical trading. You’ll find here the most crucial strategies for your forex career and therefore they are in a different section.
- In the forex strategies articles section you’ll find information on implementing the best forex strategies in your forex trading process: stuff like risk management, matching guides between a personality type and the relevant trading strategies, etc.
The Carry Trade Forex trading strategy is very different from other forex trading strategies in the way that it operates. This forex trading strategy allows us to make a profit even when the market is stable as it does not rely on the movement of prices between two currencies but rather on the difference between the interest rates of two currencies.
We have discussed many Forex trading strategies that allow us to analyze the price action from many different angles. These trading strategies give us the technicals however there’s one factor that always has the potential to make all of the technicals irrelevant and sway the market in any way that it likes. Big news events from different countries can have a huge effect on the market, effectively rendering all our analysis meaningless.
Market sentiment is the momentum of the market. All traders have a style when trading in the forex market – some might be bullish and some might be bearish. The market sentiment is the style of the various traders combined, producing an overall feel for the market.
The forex market can be very volatile. But we can turn the market volatility in our favour with certain trading strategies, such as widening targets, low leverage, portfolio diversification, minimize risk etc.
Arbitrage is a speculative strategy, where someone attempts to profit from price differences of the same instrument either in the same market or in different markets. It involves buying and selling an asset at two diffenct prices in order to profit from the difference.
Fair value strategy shows which of two economies is in the best shape. You evaluate and weigh each sector of the economy to see the performance of the entire economy.
The ‘Fibonacci Indicator’ forex trading strategy is one of the most well known and commonly used long term Forex trading strategies. This method relies on what is called a ‘Pullback’ and to fully understand how it works we must discuss the more fundamental concept ‘the trend’. When looking at each price change individually it is very hard to find a pattern. Looking at the bigger picture allows us to identify the trends.
Horizontal Levels is one of the simplest yet incredibly useful ideas in Forex trading. Horizontal levels are fundamental in most Forex trading strategies and aid us in analyzing charts. However, they can also be used on their own as a strategy rather than just a tool for other strategies.
Traders and analysts of the financial instruments, apart from the fundamentals, use a number of indicators to figure out what might happen to the price of a certain instrument. These indicators offer a simple method of recognizing patterns and predicting which way the price will trend. The use of these indicators is what makes Forex signals possible, as they allow for real-time analysis of the price action and our analysts here at FXL use them all the time.
Candlestick charts are the most common chart types used by retail traders and investors. There are other types of charts such as line charts, bar charts etc., but they don’t tell the story of past price action like candlestick pattern indicators do. When trading is based on technical analysis, the decisions for future price action are made based on how the price has reacted in the past. Candelstick analysis is very useful and they are a favorite indicator for many traders.
We have covered most of the important technical chart patterns in our strategy section. “Triangles” and “Wedges” are two of the 10 most important chart patterns and in this article we´ll explain how to trade them.
How many times have you entered into a trend only to find out that it has already run its course and you were too late? Many of the Forex trading strategies that we use help us predict which way the market is trending and whether to expect a bearish or bullish trend, but give little or no indication as to the strength of the trend. ADX, or Average Directional Index, is a tool that is designed to help us anticipate the strength of a trend to avoid these kinds of situations.
Ichimoku Kinko Hyo means “instant look at the balance chart”. It is based on other charting indicators like candlesticks and moving averages so it is considered a technical strategy. Basically, the Ichimoku indicator is a group of indicators or a strategy that indicates the trend. It uses multiple point moving averages that are calculated based on the medium price of the candlesticks or (high+low)/2.
‘Head and Shoulders’ is one of many recognizable and tradable chart patterns. They consist of a high peak in the middle and two double peaks on either side of that one as can be seen in the illustration below. The higher peak is the head and the two lower ones are the shoulders. The pattern itself looks like a head between two shoulders, hence the name.
Traders of the financial markets, small or big, private or institutional, investing or speculative, all try to find ways to limit the risk and increase the probabilities of winning. There are many Forex trading strategies out there and hedging is one of them. In fact, hedging is one of the best strategies to do just that, that’s why many large institutions use it as a mandatory component of their tactics.
Having nothing in particular, to fill his days, Elliott turned his attention to the stock market behavior and developed his theorem in later stages of life. Born an accountant, but retired at age 58 after catching a virus from a trip to South America. This is one of the oldest trading strategies, first published in 1938 as a book under the name ‘The Wave Principle’. Until that time, the general concept was that the market behaved in a chaotic manner and there were not many trading strategies if any existed.
Previously, we published an article where we explained the development and workings of the Elliot Wave Theory. This principle is useless unless implemented in everyday trading. In this article, we will explain how to successfully trade with the Elliot Wave Theory (EWT).
Liquidity has been an important factor since ancient times and it continues to this day. A person, company or a country can be very wealthy but if they don´t have enough liquidity or liquid assets they can bankrupt easily. Very often we hear about liquidity or the lack of it, during financial crises.
Trading can be as difficult or as easy as you want it to be. Indicators and trading strategies can make trading much easier, and knowing how to read the price action is one of the most useful ways to trade. Since price action trading doesn´t predict the future like many other indicators, it never lies; it will tell you how the market will actually behave during different time periods and prices.
Trading in a volatile market is dangerous but there is the potential for huge profit opportunities. In order to make a profit in volatility trading you should pick the big levels, go with the flow and increase your targets.
The multiple time frames trading strategy is a Forex trading strategy that works by following a single currency pair over different time frames. By following the price chart we can see the highs and lows and establish the overall and temporary trend. However, by looking at the different time frames we can see changes and patterns that we were not able to spot by using a single time frame.
Many novice traders find scalping to be a very appealing forex trading strategy. The scalping strategy is an ‘intraday’ trading strategy and it allows for a successful trader to make a lot of money in no time. It is so appealing because it is a relatively low-risk strategy and can yield very big profits. Although scalping is considered low-risk, it relies on an attentive trader and can be compromised if emotions can get in the way.
A good way to understand support and resistance trading is to picture a man trying to get past a certain line with a fence blocking his way. He will keep going along the fence but will not be able to pass it. That fence represents the “support and resistance levels”.
Trading along the trend is one of the safest ways to trade and a great forex strategy for maximizing profits. FXML’s top analysts use trend trading as one of their leading trading strategies and always check which side of the trend they are on before making a trade or signal.
As traders, we have many things to take into consideration. We have to implement different factors and indicators in our analysis in order to succeed in this business, no matter if you trade short or long term. These might be fundamental indicators, technical indicators, or both. One of the simplest indicators is the moving average (MA). It is easy to interpret and can be placed on the chart so you don´t have to make calculations.
The comments of the Central Banks set the tone of the market. You can trade the comments by scalping, short-term trading and/or long-term trading.
Trading the Central Banks can be very profitable. The main strategies are trading the expectation, the knee-jerk reaction and the main event.
In this article we will explain the techniques that have been developed by traders, economists and analysts, which are essential to understand and make part of your trading in order to minimize risk.
Currently, the global economy is pretty weak and the safe haven currencies are reaping the benefits. We expect the economy to pick up by mid-year causing the risk currencies to strengthen.
At the beginning of 2015, we reviewed the events and risks which were expected to happen during the year, as it is usually the case with forex traders/analysis. We took a technical look at GBP/USD after the fallout following the Scottish independence referendum and concluded that this pair would stop falling (and probably move up on a rate hike) from the BOE. The first half of the assumption was correct, but the second part wasn’t because the global economic situation worsened and the BOE has remained dovish ever since.
We also predicted that the Euro pairs would continue to slide since the ECB had already announced the start of quantitative easing. Although, we didn’t expect EUR/USD to fall beyond 1.10, which came short of the real bottom at 1.0460. Below you can find the analysis as of December 2014.
Different traders have different personalities. It is important for both impulsive and conservative traders to match their trading strategy to their personality in order to get the best results from their trades.
In the first part of this risk (money) management series, we discuss the common sense tactics that each trader should be aware of. These include leverage, risk/reward ratio, exposure to trades, and keeping up-to-date with information, etc.
The trader’s personality is very important. You must discover your trading personality before choosing what trading strategy to use.
It is common knowledge that new Forex trader’s fail 80% of the time. This is because many beginners start trading without a clear plan. A premeditated plan is crucial when you trade. Trading without a plan is like going to war without an attack and a defense plan. Before you go into a battle you assess your capability, your strengths, and your weaknesses. The same logic applies to Forex – you prepare a plan that helps you base your trading on your strongest features and avoid the weak ones.
Our article about creating a trading plan was so popular that we decided to add a Part 2. In this section you will learn about building risk-free trades, taking the first step and building up the confidence to “pull the trigger” and open trading positions, placing winning trades, and even how to deal with “losing out” and learning when to accept the loss. Learn how to “step in” when following your strategy and plan, in order to make maximum profits!
The market environment has changed over the last two years and the volatility has increased immensely. Consequently, we must change our forex strategy and widen the targets to avoid whipsaws and to give our trades breathing room.
All financial instruments have certain behaviour during certain months. The USD is usually weak during April months in the past… while the GBP is particularly strong. But will they follow similar patterns this April?
Trading your logic or trading the market? Sometimes, the price moves stubbornly against the technical and fundamental analysis. We can still trade profitably, either by going with the flow using short-term forex signals or against it using long-term trades.
Some people with obsessive tendencies become obsessive traders. That´s obviously not the right way to trade but there are techniques and forex strategies to help them overcome this “pathology”.
Many forex traders have limited funds or time which can be seen as an obstacle. However, there are trading strategies suitable for these forex trader types, which can help them trade as successfully as any other trader.
Recently, we have seen a lot of irrational price action in the forex market. But the market always hints which direction it wants to go, so during these times, it´s better to let the market be your guide.
We know the importance of the strategy but the implementation is just as important. If you apply your strategy in the right way you will succeed, if not you´re bound to fail.
On June 23rd, the British people voted whether or not to stay in the EU. This move has great implications for the Pound prior and after the referendum, as well as for the Euro.
The central banks shift interest rates to help the economy and inflation. These moves have a great impact on the forex market and related currencies.
Hedging strategies consist of going short and long on two positively correlating forex pairs. Man Group uses this forex strategy with great success.
A trading journal highlights all your successes and failures. By keeping a journal you can avoid repeating mistakes and increase your performance level.