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Forex Trading Strategies

Forex Trading Strategies

In terms of trend following what are the best Forex trading strategies to use? Here we will give some insight on constructing and operating a Forex strategy for gains.

1. Use Breakouts

This is an excellent way to generate trading signals and works on the simple fact that Forex markets trend for long periods and most of these trends, start from breaks of support or resistance and continue from them. When you trade breakouts, you don’t have to predict, hope or guess you simply trade the price break when it comes and because you are trading the reality of price change you will have the odds on your side and that’s what successful Forex trading is all about.

2. Buying Dips in Existing Trends

We all know that greed and fear, will spike prices to overbought and oversold levels and the way to get in on long term Forex trends is to look to buy breaks back to a key moving average. The 20 day MA is a good one to  use, to get in on existing trends and you can also use the average used at the centre of a Bollinger Band.

3. Catching new Trends – Contrary Trading

You can catch the start of a trend by trading contrary to the herd; market tops occur when the market is most bullish and important market bottoms occur, when the market is at it’s most bearish. At these turning points, a good indicator to use is the Net Traders positions realized by the CFTC. This report shows the breakdown of small specs, large specs and commercials on CME currencies. The group you are most interested in here is the commercials; they are only hedging and not motivated by greed or fear and if you have them opposite to the herd, i.e. small and large speculators, you will often see a price break in favor of the smart money commercials; it’s a simple easy to use tool and its free.  

4. Timing the Move

When you spot a potential trading set up, you should always make sure that you check if price momentum supports your trading signal before entering a trade and two good indicators to use for this are, the RSI and the Stochastic. Both are visual indicators and will only take you an hour or so to learn but by making them part of your essential Forex education, you can get the odds on you side and make bigger Forex profits.

5. Money Management

The foundation upon which any successful Forex trading strategy is built is strong money management. You need to play strong defense first and protect what you have above all else when using leverage and even a good Forex trading system will lose if money management isn’t tight and solid.  

In terms of money management always do the following

  • Do not over leverage positions – this wipes out more trading accounts than any other single reason.
  • Never place mental stops, place them as soon as you placed your trade, so you are not tempted to run losses.
  • All trades are equal and never make the mistake of calculating your risk reward as your target minus your stop, it’s simply an assumption. Always assume the worst first and things can only get better! In terms of risk all trades are equal.
  • When placing stops, make sure you fully understand the implications of standard deviation of price and volatility and place your stop outside of random volatility. The subject of volatility should be an essential part of any traders Forex education.
  • Don’t trail stops to quickly or to closely, you need to take open equity dips to make big gains. Most traders try and restrict risk so much they create it and never hold long term trends. You need to accept open equity dips short term to make big profits long term.  
  • Don’t just manage individual trades, manage your overall account equity and make sure you adjust risk reward, in terms of how you are doing overall on account equity growth.

The Road to Forex Success

Any Forex trading strategy which is successful tends to be simple; never cram your system with to many indicators if you do, it will simply have to many elements to break. Simple strategies are more robust with fewer elements to break. Always keep in mind, you will never succeed long term with poor money management, it’s the very foundation of your success.

Once you have your trading strategy, you need to apply it with confidence, discipline and courage. You need confidence and discipline, to ride out periods of losses and keep them small and the courage to run long term trends.

If you have a Forex trading system and include all the above points in this article, you could soon be enjoying Forex trading success in around 30 minutes a day and making the big profits, from the big trends, in the worlds most exciting investment - global currencies.