23 Best Forex Trading Strategies Revealed (2020)

23 Best Trading Strategies
23 Best Trading Strategies

One of the most powerful means of winning a trade is to make use and apply Forex trading strategies. The first strategy to keep in mind is that following a single system all the time is not enough for a successful trade. Each trader should know how to face all market conditions, however, is not so easy, and requires a in-depth study and understanding of economics.

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What is Forex Trading?

Forex is a combination of foreign currency and exchange. Foreign exchange is the process of changing one currency into another currency for a vast variety of reasons, including:

  • Commerce
  • Trading
  • Tourism

Forex, or foreign exchange, is explained as a network of buyers and sellers, who transfers currency between each other at an agreed price. By doing this individuals, companies and central banks convert one currency into another.  While a lot of foreign exchange is done for practical purposes, the vast majority of currency conversion is undertaken with the aim of earning a profit.

Learning how to trade Forex can be a complicated process for beginners. Most people have a dream of getting rich overnight, which may turn out exactly as unrealistic as it sounds. The world of Forex trading can be overwhelming, especially when you are new to the game, and don’t know or understand the rules as yet.   There are a lot of figures in regards to how many traders successfully make money and how many traders occur a loss of money. The most common figure seems to be that 90% of traders occur a loss of money, and only 10% of traders are consistently profitable. What is it that these 10% are doing that put them in this league? First you will need:

  • A quick wit
  • The ability to work and keep calm under stress
  • The courage to take risks
  • Persistence a
  • The ability to make quick decisions

Decoding the most common terms used in forex will speed up traders understanding of the world of currencies: Currency Nicknames:

  • Single Currency – EUR (Euro)
  • Loonie – CAD (Canadian dollar)
  • Swissie – CHF (Swiss franc)
  • Aussie – AUD (Australian dollar)
  • Kiwi – NZD (New Zealand dollar)
  • Greenback, Buck – USD (U.S. dollar)
  • Sterling, Pound sterling – GBP (British pound)

Popular phrases

  • Going Long – Opening a Bullish (buying) trade
  • Going Short – Opening a Bearish (selling) trade
  • Cutting Short – To close a losing position early
  • Plunging – A price that’s sinking or falling from its previous value
  • Currency rallying – A price that recovers after a period of its decline
  • Position Trading – Trading with huge stop-losses for several months to years, without being too concerned with short term movements in asset prices

Technical Indicators in Forex Trading Strategies Technical indicators are the calculations based on the price and volume of a security, and are used both to confirm the trend and the quality of chart patterns, and to help traders determine the buy and sell signals.

  • Moving Average
  • Bollinger Bands
  • Relative Strength Index (RSI)
  • Stochastic Oscillator
  • Moving Average Convergence/Divergence (MACD)
  • RSI-Bars
  • ADX
  • Momentum

In Forex technical analysis a chart is a graphical depiction of price movements over a certain time frame. It can show security’s price movement over a month or a year period.

 

The Best Forex trading strategies are:

Perhaps the major part of Forex trading strategies is based on the main types of Forex market analysis used to understand the market movement.    

 

  1. Forex Technical Analysis Strategies

What is Forex technical analysis? Forex technical analysis is the study of market action by the primary use of charts for the purpose of forecasting future price trends. Forex traders can develop strategies based on various technical analysis tools including –

  • Market trends
  • Volume
  • Range
  • Support
  • Resistance levels
  • Chart patterns
  • Indicators

Forex traders can conduct a Multiple Time Frame Analysis by the use of different timeframe charts. Technical analysis strategies are a crucial method of evaluating assets based on the analysis and statistics of past market action, past prices and past volume.    

 

  1. Forex Trend Trading Strategy

Trends represents one of the most essential concepts in technical analysis. All the technical analysis tools that are used have a single purpose and that is to help identify the market trends. What is a Forex Trend? Much like any other trend for example in fashion- it is the direction in which the market moves. More precisely and good to know, the foreign exchange market does not move in a straight line, but more in successive waves with clear peaks or highs and lows.  Depending on the movement of these ‘highs and lows’ one can then understand the trend’s type. There are three types of trends that the market can move in:

  • Uptrend
  • Downtrend
  • Sideways

Traders and investors confront three types of decisions:

  • To buy
  • To sell
  • Do nothing

During any type of trend, traders should develop a specific strategy. The buying strategy is preferable when the market goes up and equally the selling strategy would possibly be profitable when the market goes down. But when the market moves sideways the third option – to stay aside – will be the cleverest decision.    

 

  1. Support and Resistance Trading Strategy

In order to fully understand the core of the support and resistance trading strategy, traders should understand what a horizontal level is. A horizontal level is:

  • A price level indicating either a support or resistance in the market. In technical terms – price lows and highs respectively.

The term support indicates:

  • The area on the chart where the buying interest is pointedly strong and exceeds the selling pressure.

The Resistance level indicates:

  • An area on the chart where selling interest overpowers buying pressure. It is usually marked by previous peaks.

In order to develop a support and resistance strategy traders should be well aware of how the trend is identified through these horizontal levels.    

 

  1. Forex Range Trading Strategy

What is Range trading?

  • A Range trading strategy (Channel trading) is normally associated with the lack of market direction and it is used during the absence of a trend.

Range trading identifies currency price movement in channels to find the range. This process is carried out by connecting a series of highs and lows with a horizontal trendline.    

 

  1. Forex Volume Trading Strategy

Volume shows the number of securities that are traded over a particular time.

  • Higher volume = higher degree of intensity or pressure.

In order to determine the upward or downward movement of the volume, traders should look at the trading volume bars usually presented at the bottom of the chart.  Any price movement is more significant if accompanied by a relatively high volume + a weak volume. Take note:  Not all volume types may influence the trade, it’s the volume of large amounts of money that is traded within the same day and greatly affects the market.    

 

  1. Multiple Time Frame Analysis Strategy

Using Multiple Time Frame Analysis suggests following a certain security price over different time frames. It is a very useful strategy for traders to analyse various time frames while determining the “trading circle” of the security. Through the Multiple Time Frame Analysis (MTFA) traders can regulate the trend both on smaller and bigger scales and recognize the overall market trend. The whole process of MTFA starts with the exact identification of the market direction on higher time frames (long, short or intermediary) and analysing it through lower time frames starting from a 5-minute chart.    

 

  1. Forex Trading Strategy Based on Fundamental Analysis

While technical analysis is focused on the study and past performance of market action, Forex fundamental analysis focusses on the fundamental reasons that make an influence on the market direction.    

 

  1. Forex Trading Strategy Based on Market Sentiment

Market sentiment is defined by investors’ attitude towards the financial market or a particular security. What and how people feel and how it behaves in Forex market is the notion behind the market sentiment strategy. Forex trading strategies can also be developed by following popular trading styles including day trading, carry trade, buy and hold strategy, hedging, portfolio trading, spread trading, swing trading, order trading and algorithmic trading.    

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  1. Forex Day Trading Strategies

 Day trading strategy represents the act of buying and selling a security within the same day, which means that a day trader cannot hold a trading position overnight. Day trading strategies include:

  • Scalping
  • Fading
  • Daily pivots
  • Momentum trading

In case of performing day trading, traders can carry out numerous trades within a day but should liquidate all the trading positions before the market closes on said day. Important Note:  The longer a trader holds a position, the higher the risk of losing will be. Depending on the trading style chosen, the price target may change.    

 

  1. Forex Scalping Strategy

Forex scalping is a day trading strategy based on quick and short transactions, used to make numerous profits on minor price changes. Scalpers, can implement up to hundreds of trades within a single day – and is believed minor price moves are much easier to follow than large ones. The main objective of following Scalping strategy is:

  • To buy /sell a lot of securities at the bid /ask price and in a short time sell/buy them at a higher/lower price to make a profit.

Essential factors for Forex scalping:

  • Liquidity
  • Volatility
  • Time frame
  • Risk management

 

  1. Fading Trading Strategy

Fading in the terms of forex trading means trading against the trend. If the trend goes up, fading traders will sell expecting the price to drop and visa-versa.  Unlike other types of trading which targets the prevailing trends, fading trading requires to take a position that goes counter to the primary trend. The main assumptions on which fading strategy is based are:

  • Securities are overbought
  • Early buyers are ready to take profits
  • Current buyers may appear at risk

Note: “Fading the market” can be very risky and requires high risk tolerance!    

 

  1. Daily Pivot Trading Strategy

The main concept of the Daily Pivot Trading strategy is to buy at the lowest price of the day and sell at the highest price of the day    

 

  1. Momentum Trading Strategy

  Momentum trading is based on finding the strongest security which is also likely to trade the highest.  The Momentum trading strategy is based on the concept that an existing trend is likely to continue rather than reverse. Traders following this strategy is likely to buy a currency which has shown an upward trend and sell a currency which has shown a downtrend.    

 

  1. Carry Trade Strategy

 Carry trade is a strategy in which traders borrow a currency in a low interest country, converts it into a currency in a high interest rate country and invests it in high grade debt securities of that country. The principle is simple- buy a currency whose interest rate is expected to go up and sell the currency whose interest rate is expected to go down.    

 

  1. Forex Hedging Strategy

Hedging is commonly understood as a strategy which protects investors from incidence which can cause certain losses. The idea behind currency hedging is to buy a currency and sell another in the confidence that the losses on one trade will be offset by the profits made on another trade. This strategy works most proficiently when the currencies are negatively correlated.    

 

  1. Portfolio / Basket Trading Strategy

Portfolio trading, also known as basket trading, is based on the mixture of different assets belonging to different financial markets (Forex, stock, futures, etc.). The concept is diversification, one of the most popular means of risk reduction.    

 

  1. Buy and Hold Strategy

The Buy and hold strategy is a type of investment and trading traders buy the security and holds it for an extended period of time.    

 

  1. Spread / Pair Trading Strategy

Pair trading (spread trading) is the simultaneous buying and selling of two financial instruments which relate to each other. The difference of the price changes of these two instruments makes the trading profit or loss.   Spread trading can be of two types:

  • Intra-market: traders can open long and short positions on the same underlying asset
  • Inter-commodity spreads: Traders can open long and short positions on different market assets which are related to each other, like gold and silver.

 

  1. Swing Trading Strategy

 Swing trading is a strategy by which traders hold the asset within one to several days whilst waiting to make a profit from price changes or so called “swings”.  Swing traders use a set of mathematically based rules to eliminate the emotional aspect of trading and make an intensive analysis.    

 

  1. False Breakout Trading Strategy

 A false break occurs when price looks to breakout of a support or resistance level, but snaps back in the other direction, false breaking a large portion of the market out.  When prices begin to breakout higher a large portion of the market starts to look for the resistance to break and will enter long trades, often setting their stop loss on the other side of the resistance.

  • Can be traded on many time frames
  • Can be used in many markets and pairs
  • Can be traded with many triggers as the major entry
  • Often entering when the majority of the market has been stopped out entering in the wrong direction

 

  1. Longer Term Position Trading

Position trading is where traders look to hold trades over much longer periods of time and take a ‘position’ in the market.  This style of trading is normally carried out on the daily, weekly and monthly charts.  As a position trader, traders will often be trying to use the overall larger trend to gain the best positions and capture long running trades.    

 

  1. Pinocchio Strategy

As with the fable – Pinocchio’s nose grew long when he was lying and the same happens with this strategy! When the wick is longer than the body, Traders will know that the market is deceiving them and that they should trade in the opposite way.    

 

  1. Double Red Strategy

 This is a short-term strategy based on price action and resistance. The trade is planned on a 5-minute chart. How to profit? Choose an asset and watch the market until you see the first red bar. Then wait for a second red bar. If the second red bar closes lower than the first red bar, then it’s a win. Usually, what happens is that the third bar will go even lower than the second bar. This is the point where you should open a short position. A few more tips that are great to follow in your forex journey include:

  • Experts advise against risking more than 1/6 of your free trading capital, especially when confidence is lacking.
  • Trends tend to develop quickly as the number of traders following them increase.
  • Stick to your strategy
  • Close unsuccessful position

In the forex market, $5.3 trillion is traded daily, making it the largest and most liquid market in the world – and traders can trade with small amounts such as $100. Get Started!                        

 

Top 3 Forex Brokers

Broker

Minimum Deposit

USD 100

REGULATED BY

Trading Desk Type

Market Maker

Tickmill has one of the lowest forex commission among brokers.

Trading Conditions

4.7/5

Trading Conditions

  • MT4
  • MT5

🥇
Rank #1

Broker

Minimum Deposit

USD 1

REGULATED BY

Trading Desk Type

Market Maker

Tight spreads and unlimited leverage on a specialist zero account

Trading Conditions

4.5/5

Trading Conditions

  • MT4
  • MT5

🥈
Rank #2

Broker

fb

Minimum Deposit

USD 1

REGULATED BY

Trading Desk Type

Market Maker

FBS has received more than 40 global awards for various categories

Trading Conditions

4.5/5

Trading Conditions

  • MT4
  • MT5

🥉
Rank #3

1

$30 Welcome Account

4.8/5

User Score

2

A review of Exness

Fastest Growing in Africa

4.7/5

User Score

3

A review about FBS

$100 Sign Up Bonus

4.7/5

User Score

4

50% Deposit Bonus up to $5000

4.8/5

User Score

5

World Class Customer Support

4.7/5

User Score

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