Forex Strategies: 8 Best Trading Strategies in 2022
You may have heard that discipline is a key aspect of trading. But how to be disciplined when the deal is already in the market? One way is to stick to a specific trading strategy. If it is back-tested and its application is justified, you can be sure that you are using a quality Forex trading strategy that actually works. This confidence will help you stick to the rules of your strategy and therefore maintain discipline.
Very often, when people talk about trading strategies, they mean specific trading methods, which are usually only part of a trading plan. While Forex trading strategies help identify good trade entry signals, it is also important to consider:
- Position volumes
- Management of risks
- How to exit a trade smartly
Most Profitable Forex Strategies: How to Choose the Best Trading Strategy in 2022
In fact, there is no unequivocal answer to the question “What is the best and most profitable strategy for Forex trading?” Everyone will have their own best trading strategy. This means that when creating a Forex strategy, you must take into account your individuality. What may work well for one may be a disaster for another.
Conversely, a trading strategy that others have underestimated may be right for you. Therefore, only in the course of studying and testing various strategies will you be able to find the one that suits you. It will also help weed out those strategies that do not suit you. One of the key aspects to consider is the time frame of your trading style.
There are several trading styles (listed below) from short-term to long-term. These styles have been widely used by traders over the years and still maintain their popularity, being on the list of the best Forex trading strategies in 2022. The best Forex traders are always aware of different styles and strategies in order to choose the right ones based on the current market conditions and conduct successful Forex trading.
Scalping involves very short-term trades that open for a few minutes. The scalper tries to catch the moment when the profit on the trade exceeds the spread, and then quickly closes the trade, making a profit of just a few points. This strategy is considered one of the most difficult in Forex. Scalping usually uses short timeframes, which can be found in MetaTrader 4 or 5, for example. These platforms offer some of the best Forex scalping indicators. An example of this trading style is the 1-minute scalping strategy.
Intraday trading (day trading) - as the name implies, transactions remain open only during the day. This eliminates the possibility of the negative impact of large price movements during the night. Intraday Forex strategies are suitable for beginner traders. Trades are usually only held open for a few hours, and the time frame period is typically one or two hours.
Swing trading - positions are held for several days in order to profit from short-term price patterns. A swing trader usually checks the price bars every half hour to an hour.
Positional trading - implies long-term trend tracking, the desire to maximize profits from significant price fluctuations. The long-term trader usually checks the charts at the end of the day. The best position trading strategies require traders to have a lot of patience and discipline, as well as a good knowledge of the fundamentals of the market.
Below is a list of the best Forex trading strategies to help you determine which one is right for you.
Trading Strategies: 50-pips per day
One of the Forex trading strategies is the “50 pips a day” strategy, which is based on the market movements of highly liquid currency pairs early in the morning. The GBPUSD and EURUSD currency pairs are one of the best currencies to trade with this strategy. After the close of the candle formed at 10 am (GMT+3), traders place two positions or two oppositely directed pending orders. When one of them is activated as a result of the price movement, the other position is automatically cancelled.
- The target level to close the position and take profit is set at 50 pips, and the stop loss is placed 5-10 pips above or below the 10 am (GMT+3) candle after it has formed. This is done for risk management. Once these conditions are in place, the rest is up to the market to do for you.
Day trading and scalping are short term trading strategies. Keep in mind, however, that shorter timeframes carry more risk due to the nature of the transactions involved, so it is important to manage risk effectively.
Profitable Trading Strategies: Daily Chart Trading
The best Forex traders prefer daily charts (Daily timeframe) for the short term.
strategies. Compared to a 1 hour trading strategy or even shorter time frame strategies, there is much less market noise on the daily charts. Such charts can bring in over 100 pips per day due to the longer time frame period, resulting in some of the most profitable trades in the market.
Trading signals on daily charts are often more reliable than signals on short time frames, and the size of the potential profit is greater, although there are, of course, no guarantees in trading. Traders also don't need to be distracted by daily news and random price fluctuations. The method is based on three main principles:
Determining a trend: markets are either trending or consolidating – this is a cyclical process. The first principle of this style is to identify protracted movements in the Forex market. One way to determine the trend is to study Forex data for 180 periods. The next step is to identify swing highs and lows. By using this price data to analyze current charts, you can determine the direction of the market.
Focus: This method requires patience and you will have to fight the urge to enter the market right away. You need to stay focused and save your capital for more opportunities.
Less leverage and more distance to stop losses: be aware of the large price swings in the market during the trading day. Setting stop losses further from the current price does not mean that you are putting large sums of capital at risk.
Although there are a huge number of trading strategy guides for professional Forex traders, the best strategy for making consistent profits can only be achieved through continued practice.
Here are some more Forex strategies you can try:
- Trading strategies: trading on the hourly timeframe (H1)
- With this strategy, you can try to make a profit by trading on the 60-minute timeframe. The most suitable currency pairs to trade using this strategy are EUR/USD, USD/JPY, GBP/USD and AUD/USD. As for the indicators used for this type of strategy, the most suitable one is the MACD, available in both MetaTrader 4 and MetaTrader 5.
Buy deal rules:
You can open a buy position when the MACD histogram rises above the zero line. A stop loss can be placed at the recent low.
Rules for a sell trade:
- You can open a sell position when the MACD histogram falls below the zero line. A stop loss can be placed at the recent high.
- Profitable Forex strategy on a weekly chart (Weekly)
- While many traders prefer intraday trading due to market volatility providing more opportunities on shorter timeframes, weekly Forex trading strategies give you more flexibility and stability. The weekly candlestick provides a wealth of information about the market. Weekly Forex trading strategies involve trading smaller positions and avoiding excessive risks.
- Forex Strategies: The Role of Price Action
- Almost all traders to some extent use the price action strategy in their trading. This approach is also known as technical analysis.
When it comes to technical analysis based strategies, there are two main styles: trend trading and counter trend trading. Both of these strategies for trading in the foreign exchange market are aimed at making a profit based on price patterns.
When using price patterns, support and resistance levels are extremely important. They reflect the likelihood of the market rebounding from previous levels of lows and highs.
Support is the tendency of the market to rise from the level of the previously set minimum.
Resistance is the tendency of the market to fall from a previously set high.
This is because market participants tend to draw conclusions about subsequent prices by comparing them to recent highs and lows.
What happens when the market approaches recent lows? Buyers will be attracted by the low price of the asset, and sellers will be attracted by the opportunity to take profits.
What happens when the market approaches recent highs? Sellers will be interested in opening short positions at the highest prices, buyers at these levels fix their profits.
Thus, recent highs and lows are a criterion for assessing the current situation in the market.
There is also an inverse relationship: market participants anticipate a certain price movement at these points and act accordingly. As a consequence, this may encourage the market to behave exactly as they expected. However, the following is worth noting:
- Support and resistance levels are not a 100% rule, they are simply a general consequence of the natural behavior of market participants.
- Trend-following systems aim to take profits when price breaks through support and resistance levels.
- Countertrend trading is the opposite of a trend-following strategy: it involves opening a sell trade when a new high is set and a buy trade when a new low is made.
Trading Strategies in Trading: Forex Trending Strategies
Sometimes the market breaks out of the trading range, moving below the support level or above the resistance level - this is how a trend begins. How does this happen?
When price breaks support down and the market starts moving to new lows, buyers stop taking positions as they see the price drop more and want to wait for an all-time low. At the same time, other traders will close their buy trades in a panic, or will simply be forced to close their positions due to mounting losses, or will open sell positions, because. believe that the fall will continue further.
The trend will continue until sales run out and buyers regain confidence that prices will not fall any further.
Trend trading involves the trader opening a buy position after the price has broken through the resistance level up, and a sell position after it has broken through the support level down.
Moreover, trends can be long-term. Due to the magnitude of price movements, this type of trading system may prove to be the most successful Forex trading strategy. Trend systems involve the use of indicators so that a trader can determine when a new trend might start, but of course there is no way to know this with 100% accuracy.
The good news is that the indicator can determine when a trend will start to form, thereby increasing your chances of a successful trade. A sign of a trend formation is called a breakout. A breakout is a situation where the price goes beyond the highest high or the lowest low in a certain number of days.
For example, a 20-day upside breakout is when the price rises above the highest high in the last 20 days. Trend systems require special thinking due to their duration - during this time, profits can disappear due to market fluctuations. Such transactions can be quite difficult psychologically. During times of high market volatility, it is much more difficult to follow trends, and price fluctuations will be stronger.
Thus, the trending strategy is the best trading strategy for calm Forex markets.
A good example of a simple trending strategy is the Donchian Trend system. Donchian channels were invented by futures trader Richard Donchian and are indicators of emerging trends. The Donchian Channel parameters can be customized however you see fit, but in this example we will be looking at a 20-day breakout.
A breakout of the Donchian channel indicates one of two things:
- Open a buy position if the market price rises above the high of the previous 20 days.
- Open a sell position if the price falls below the low of the previous 20 days.
There is an additional rule for trading on this system. This rule is designed to filter out breakouts that go against the long-term trend. In accordance with it, it is necessary to use 25-day and 300-day moving averages. The direction of the over 25-day moving average determines the direction in which you can trade:
- If the 25-day moving average is below the 300-day moving average, go short
- If the 25-day moving average is higher than the 300-day moving average, go long
- You can exit trades in the same way, but using a 10-day breakout. That is, if you, for example, opened a long position, after which the market falls below the low of the previous 10 days, it is probably the best decision in this situation to sell it to get out of the transaction, and vice versa.
- Forex strategies profitable: trading on a four-hour timeframe
One of the potentially profitable and profitable Forex trading strategies is the 4-hour chart trending strategy, which can also be used as a swing trading strategy. This strategy uses the 4-hour timeframe as the base chart to look for trading signals. In this case, the hourly chart (H1) is used as a signal chart to determine specific entry points in positions.
Always remember that the timeframe of the signal chart must be at least one hour less than the base chart. For best results, this Forex strategy uses two moving averages (MA). One with a period of 34 and the other with a period of 55. To determine whether it is worth trading with the trend, you need to correlate the MA lines with the price movement.
In the case of an uptrend, the following conditions must be met:
- The price moves above the MA lines
- lines have a moving average with a period of 34 above the line with a period of 55.
- MA lines are directed upwards
In the case of a downtrend, the following conditions must be met:
- The price moves below the MA lines
- The price moves 34 below the line with a period of 55.
- MA lines point down
- The MA lines will act as a support zone during an uptrend and a resistance zone during a downtrend. It is inside and next to this zone that you can find the best points for opening positions according to this trend trading strategy.
forex countertrend strategies
Countertrend strategies are based on the fact that most breakouts do not end up as long-term trends. Therefore, a trader using this strategy seeks to capitalize on the propensity for prices to bounce off previously set highs and lows. Theoretically, counter-trend strategies can be one of the best Forex trading strategies, since they are characterized by a high rate of return.
However, it is important to note that risk management requires more stringent regulations. These trading strategies are based on support and resistance levels. But there is a risk of big losses in cases when the price breaks through these levels. Constant monitoring of the market will not be superfluous at all.
A stable and volatile market is best for this type of strategy. This market environment offers healthy price swings within the trading range.
Remember, however, that market conditions can change. For example, a trend may start in a stable calm market, and as the trend develops, market volatility will increase. How the state of the market may change is unknown. You should look for evidence of what the current state of the market is in order to understand whether it suits your trading style or not.
Forex strategies: How to find the best one?
The concept of an ideal Forex strategy sounds very attractive. In reality, there is only one win-win Forex trading option - not to trade at all. Remember that Forex trading is always risky. It is important to understand that trading is made up of wins and losses. Sometimes you can lose more than you originally invested in the trade.
Sometimes it may seem that some traders have learned some secret because they have a high profit margin. You may have a strong desire to copy their methods in the hope of getting similar results. However, these results are the result of hard work, skills and experience gained over the years. Even if you manage to make successful trades by copying expert traders, you will not learn anything new.
There are no simple Forex trading strategies that will make you a fortune overnight, so don't believe the headlines that promise you. However, through trial and error and using a demo account, you can explore the Forex market and find the style that works for you on your own.