Any newbie in the forex trading fairly soon learns that there are plenty of different forex trading strategies. So, any beginner trader will always wonder, what is the best strategy for trading forex? Any forex trader wants to know what trading strategy should be selected (or created) for further profitable trading. Of course much depends on the type of trading you prefere, as some strategies are the best in short-term trading, swing trading or forex scalping or day trading or positional trading. Some strategies will suit a day trader or a long-term investor. This article explains three forex trading systems that are proven to be working in the financial markets.
Top 3 Forex trading strategies
Number 3. Trendline breakout trading strategy
This is one of the earliest and simplest forex strategies that is based on the trend reversal. The strategy signals based on the price movements that a particular price level where the ongoing trend will reverse. This strategy also employs the support and resistance levels, and I think it is suitable for all investors and all assets, ranging from currency pairs to commodity CFDs or stocks.
Well, let us see how you can open positions to buy and sell trading with this strategy:
- Find a clear trend and draw the trendline along with its highs/lows. We need only a single line that will be broken out in case of the trend reversal. In the downtrend, we need the resistance line (red), and in the uptrend, we need the support line (blue);
- Now, we need to expect until the market moves so that the price chart breaks this trendline. The only fact that the price breaks through the line is enough to deliver a trading signal;
- If the downtrend is broken, it will be followed by an uptrend, and so, we will enter a buy trade (Buy). If there is an uptrend break, the price will reverse down and we shall enter a sell trade (Sell);
- You should enter a buy trade when the 2 major conditions are met: the price has broken through the resistance level (red line), and the price reached the level of the most recent high of the broken downtrend (Buy level);
- A sell trade is entered when the 2 major conditions for sell are fulfilled: the price has broken through the support level (blue line), and the price reached the level of the most recent low of the broken uptrend (Sell level);
- Once both conditions are met, we can open a buy/sell position right away when the price reaches the high/level described in steps 4 and 5;
- A take profit is set at the high/low of the previous trend before the low/high where we opened a position (Take Buy/Sell);
- A stop loss is put at the low/high of the previously broken trend (Stop Buy/Sell);
As you see, this a simple and profitable forex trading strategy that can be used in any timeframe and provide a sufficient level of signal accuracy. Statistically, the profits/loss ratio is about 65/36.
Number 2. Three EMAs breakout strategy
This strategy is one of the basic indicator strategies and, like the previous ones, is quite simple and applies the trend reversal principle. This is a forex indicator strategy, so, you will need to attach three Moving Averages to the chart.
Well, let us see how you enter trades according to this trading system.
- Place three EMAs in the price chart. For convenience, they should be of different colors. For the first EMA, the period is 21 and the offset is -2 (blue). For the second EMA, the period is 14 and the offset is -3 (red). The period of the third EMA is 9 and the offset is -4 (green);
- Therefore, the blue EMA will be the slowed and when it is met by other, faster EMAs, there will be delivered entry signals;
- A sell signal appears when the green EMA breaks through the red one from above and both lines cross the blue line from above (Sell 1,3,5);
- A buy signal is sent when the green and the red Mas cross the blue one from below, and the green MA must also crossthe red one from below ((Buy 2,4);The strategy doesn’t suggest particular levels to put a Take Profit and Stop Loss, so, you exit the trade based on the market situation, you must be extremely careful about following your risk management;
- You should close the position (with a profit or with a loss) when the green and the red EMAs cross each other again in the opposite direction after you have entered the trade;
As you see, this trading strategy Forex is also very simple. A simple averaging indicator provides clear signals with a profit/loss ratio of about 70/30.
Number 1. Trading strategy based on triangle pattern breakout
I suggest this is one of the best best forex strategies. When you trade with this strategy in the forex markets,you should at least know the basics of technical analysis, as you need to find a triangle pattern in the price chart and mark its legs (boundaries) with the trendlines, which are the support and resistance levels (blue lines). The triangle looks like a narrowing sideways channel.
Well, let us see how you enter trades based on the signals of this trading strategy:
- This strategy delivers hardly any signals to enter the market at the current price, it suggests using pending orders, buys limit or sell limit order;
- After you have discovered a triangle pattern, you can start putting pending orders. You should place the order at the price level that will indicate that the price has broken out one of the trendlines of the patterns;
- A Buy Limit should be put at the high prior to the pattern’s resistance line breakout (buy 1). If a new high emerges, the limit order should be moved one high lower (Buy 2), and you do so until the resistance line is broken out;
- You put a Sell Limit order at the low prior to the pattern’s support level breakout (Sell 1). If there a new such low emerges, you should move the pending order to next least low (sell 2), and you will do so until the support line is broken out;
- When one of the pending orders works out, you put a Take Profit at the high (if you buy) or at the low (if you sell) of the pattern;
- A stop loss is set at the opposite extreme (low/high) relative to the extreme you entered a trade. For example, for a sell trade (sell 2), you put a stop loss at the level of a possible buy trade Buy 2);
This trading strategy is more complex and requires some experience in spotting a triangle pattern in the price chart, but it provides greater trading opportunities. The complexity is compensated by high accuracy of trading signals with the profit/loss ratio of about 85/15.
So, now you know three best forex strategies any forex trader should try. Try them all, choose which suits you best and start making money in real time.
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