26 Expert Forex Trading Strategy Tips
Forex trading can be a very profitable when practiced by highly skilled and competent individuals with very robust knowledge of the happenings in the financial sector. However, one doesn’t need to be a professional in any of the financial institutions to be a competent forex trader because with just an understanding and the perfect application of several strategies utilized in the Forex market, one can be a success while also make a whole ton of money.
What are Forex strategies ?
These are methods of applying forex tools with proficient analyses of the market used by competent forex trader to gain a profitable outcome. They usually involve the use of tools embedded in the trading platform like charts, bars, graphs etc. The use of these kinds of these elements in crafting a strategy for profitable trading is referred to as technical analysis.
Forex strategies are essential techniques of trading and their application in the FX market is considered by experts as good trading practice. Just like a team can’t win a football game without a game strategy, a trader must never attempt currency trades on the FX platform without a trading plan or strategy.
What is the Purpose of a Forex Strategy ?
Obviously, the main reason for having a forex strategy when trading the market is to produce profitable outcome, however, because there are no certainties in the financial market, measures must be taken to stem any possible loss. So when experts are preparing a strategy for a trading day, they do not only plan for the profit they hope to make, they also apply practices that will mitigate a possible loss.
This is really the essential purpose for having a strategy when trading the forex market; unless one wants to hastily blow away every dime in his or her account.
Expert Trading Strategies
Now that the meaning and the importance of forex trading strategies have been broadly discussed, more light can be shed on the various types of strategies available at the disposal of forex traders. It should be noted though that no strategy is superior as each one the techniques available is potent in the hands of a competent trader.
Price action strategy
This is a forex strategy employed when trading the currency market that involves the sole use of the price chart. When using price action strategy, every other indicator is set aside so that the trader can make accurate analysis based on the movement of price on the chart.
There is a reason why price action is one of the foremost tools used by seasoned traders and adapted by beginners. It is because no other strategy or indicator paints a clearer picture of price movement within a period of time.
Advocates of this trading strategy point to the fact that most other indicators usually lag behind price action hence making their application very moot. But price action gives detailed information of the pattern with which prices move on the chart thus helping the trader to accurately predict future price movements.
This involves the use of the stochastic oscillator as an indicator to aid the process of finding a trading signal. While its basic function is to monitor the momentum and speed of price, it is used by seasoned traders to predict the end of trend in the currency market. By identifying when a currency pair on the price chart is overbought or oversold, the stochastic oscillator can easily foretell the next direction of the market.
Fibonacci ratio trading system
This is a forex trading strategy that utilizes a mathematical principle developed by ancient mathematician, Leanardo Pisano who was also nicknamed Fibonacci. The principle is based on a series of numbers with constituents that result in the succeeding number when added together. An apt description of this principle is as follows: 0,1,1,2,3,5,8,13,21,34,55,89,144,233…. By applying this principle into a forex indicator called Fibonacci retracement, a more accurate prediction of price direction can be made by the trader.
The moving averages crossover strategy
The moving average is a sort of graphical representation of price action, which is used to indicate the average closing prices of a forex pair over a given period of time. With its main purpose being to give an apt review of price trend across the chart, it can also be used to predict future movement of the currency pair.
When used together with an effective price action strategy, moving averages can deliver very impressive higher return/lower risk results.
The crossover strategy involves the application of two moving averages representing different time periods on the price chart. A signal to enter the market is usually noted when the two averages distinctly cross one another at a peculiar position on the chart. If a unique candle-stick pattern is formed within the vicinity of the crossover, the trader can then be confident to either place a purchase or sale order.
Trading candle stick patterns with moving averages
This is similar to the moving average crossover strategy with only minor details differentiating it from the former. It functions by using only candle-stick patterns to read the spontaneous movement of prices while also applying moving averages to confirm the market’s direction. Market signals are usually appear on the price chart where the formation of a unique price action pattern coincides with the candle stick making contact with the moving average line.
The trend line strategy
This is a variation of price action strategy that employs the use of a trend line, which traces the direction (the trend) of the forex market. It is one of the simplest yet potent strategies to use when the direction of a market is clear. The entry signal for this strategy appears where the market price bounces distinctively on the drawn trend line.
The support and resistance strategy
This is a replica of the trend line strategy that can be used for currency markets that are trending and stagnant. It involves the use of horizontal lines that are placed at strategic places on the price chart particularly where there are consistent rebounds of the bars or candle-sticks. The support line is usually drawn near the lower end of the chart, and it’s used to place a buy trade. The resistance line on the other hand is mostly placed on the upper end, and functions as a signalling tool for a sell trade.
Pin bar strategy
The pin bar is a very apt description tool of the forex market, and can be used by competent traders to make well informed trades. It is basically a candle-stick with a very small body and a long pin. It functions as a broadcast and forecast tool, informing the trader of the reversal and rejection of a price, and predicting a change in the direction of the market.
The EMA strategy with trends
Short for Exponential Moving Averages, this strategy involves the use of a slow 200 period average when dealing with a trending market. A very effective long term strategy for longer time frames, the signal for its execution appears when a descriptive price pattern forms near the moving average line.
Combination of a pin bar and an inside bar
This is one of the sub-strategies of price action that uses a peculiar candle stick pattern as a signal to enter a trade. In this strategy, a trade signal is noted when a pair of adjacent candle sticks are composed of a pin bar and an inside bar. If used with other trading strategies like the trend line or the support and resistance strategy, it can be one of the most potent forex strategies in the market.
Pivot point strategy
Similar to the support and resistance lines, pivot points are horizontal price levels on the chart that show prospective areas where a sudden change in the direction of the market can occur. It is mostly used by intraday traders that take advantage of these positions as entry points for their swift trades.
The blade runner
This is another sub-strategy of price action that can be utilized to a great effect. It involves the use pivot points, support and resistance levels along with the candle-stick chart that interprets the market condition. This strategy is perfect for trending markets where the price is temporarily stalling.
The Bollinger band bounce strategy
This is perhaps one of the best strategies used to trade markets that aren’t trending i.e. in a range. When the price of the currency pair is stalling, frequent bounces of the candle sticks within a distinct area can be noticed, and these bounces can be used by a trader to choose an entry point.
The MACD trading strategy
This strategy makes use of an indicator called the Moving Average Convergence Divergence. The primary use of the MACD is to show the momentum of the market, which helps verify the volume of trades at a particular point in time. However, it can also be used expertly with a trend line to predict the next surge of a trending market.
Horizontal channel trading system
A channel is simply two parallel lines that are drawn across distinctive areas of support and resistance on the price chart. It is basically a more wholesome application of the support and resistance strategy, but is limited to a market that is range bound.
Used together with effective price action signals this can be one of the most potent strategies available to a trader during a slow trading day.
The head and Shoulder pattern strategy
This is a very popular strategy that is utilized by swing traders who seek to capitalize on the reversal of prices in the market. The strategy, which belongs to the price action family, can only be used if the peculiar candle stick pattern of a head and two shoulders is formed by occurrences in the currency market.
The appearance of the shape is usually a signal for a sharp fall in the price of a currency pair.
The Inverse head and Shoulder pattern strategy
This is basically the use of the head and shoulder pattern that is inversed. It is usually a signal for a sharp rise in the price of the market.
The double top trading strategy
This is another price action strategy that is employed when a reversal in the direction of the market seems near. Used across all time frames, it is very potent in predicting a fall in prices especially when the double top is formed on an already existing resistance line.
The double bottom trading Strategy
This is exactly a mirror of the double top strategy; hence it is used to forecast the reversal of a downtrend.
Trend line breakout strategy
This is the use of trend lines to spot surges in the momentum of the market. The strategy makes use of a trend line that is drawn across the price chart to link the ends of peculiar candle-sticks together. In this circumstance, it functions as a diagonal support and resistance line that can be used by the trader to find signals for a price breakout.
Support and Resistance breakout strategy
This uses a principle similar to the trend line breakout strategy but with the horizontal lines of support and resistance used as its tool. It is applied in chart conditions where a range bound market looks to raise its momentum and move away from the horizontal line.
This is a forex trading strategy that is used by seasoned traders, which involves the execution of trades several times in a day. Scalping usually requires the use of price charts with very short timeframes like the one minute chart. While the profit from each session is usually little, when all the sessions are joined together, a huge return is usually seen.
The 1-2-3 trading strategy
This is a basic trading strategy that is employed in a trending market by using resistance and support lines to capitalize on a pullback of the currency pair. When used with price action strategies and an indicator, it can be an accurate forecasting tool.
The Ross hook strategy
A variation of the 1-2-3 trading strategy, it involves the use of a price pattern known as the Ross hook pattern. It can also be used effectively with the support and resistance lines, along with the moving average indicator.
The use of the news to trade the forex market is a common practice among forex traders, and is mostly responsible for the chaos in the market that is experienced during day trades. Technically referred to as fundamental analysis, it is when a trader applies news events and the consequences of such events to make informed trades in the forex market.