Forex Strategy [Best Results]

Published: October 21st, 2020 by Andrew

Many know that discipline is the key to being profitable by trading online, but how can you be disciplined? First of all, it is necessary to follow a very specific Forex Strategy, which leaves no room for doubts or interpretations.

But does it really exist?

Of course! Indeed, there are several, but to take full advantage of them you need to be willing to test them for a long time, so as to know every possibility that might arise and already know how to react promptly, while remaining within the rules of the chosen strategy.

In this guide we will see that to put a Forex Strategy into practice it is necessary:

  • Register with a regulated and secure CFD Broker
  • Practice on the Demo account to familiarize yourself with the chosen platform and strategy
  • Make the minimum deposit required and start investing in Forex

Forex Strategy: what is that?

Forex Strategy is a set of techniques and rules used to determine if, how and when to trade a currency pair in the Forex market.

The foreign exchange market, more commonly referred to as the Forex, FX, or currency market, is by far the largest market in the world by transaction value.

Forex trading strategies can be based on the study of technical analysis or on fundamental analysis.

Usually a good strategy is triggered by forex signals determined by an indicator or tool available on the trading platform used to trade currencies.

Best Forex Brokers

To implement a Forex Strategy, an online broker is required, i.e. an intermediary that allows you to trade these currency pairs such as EUR / USD, USD / JPY, GBP / USD, etc.

The best Forex brokers must have a number of characteristics to be considered safe, reliable and convenient:

  • They must have at least one license issued by a control body such as CONSOB or CySEC
  • They don’t have to charge commissions
  • They must offer a platform that offers the CFDs (Contracts for Difference) which are used to trade in any market (Stocks, Indices, Forex, etc.)

Below you will see some of the best Forex brokers ever, platforms like eToro, the absolute leader in online trading.

Platform: etoro
Min. Deposit: 50€
License: Cysec
  • Social Trading (Copy the best)
  • Simple and intuitive
  • ➥ Start
    1star 1star 1star 1star 1star
    Platform: xtb
    Min. Deposit: 100€
    License: Cysec
  • Free demo
  • Whatsapp Group
  • ➥ Start
    1star 1star 1star 1star 1star
    Platform: iqoption
    Min. Deposit: 10€
    License: Cysec
  • Free demo without limitations
  • Minimum deposit low
  • ➥ Start
    1star 1star 1star 1star 1star
    Platform: ubrokers
    Min. Deposit: 250€
    License: Cysec
  • Free Training
  • Zero Commissions
  • ➥ Start
    1star 1star 1star 1star 1star
    Platform: trade
    Min. Deposit: 100€
    License: Cysec
  • Free demo
  • Free course trading
  • ➥ Start
    1star 1star 1star 1star 1star
    72.30% of retail CFD accounts lose money
    Platform: forextb
    Min. Deposit: 250€
    License: Cysec
  • Free trading course
  • Free trading signals
  • ➥ Start
    1star 1star 1star 1star 1star

    Forex Strategy with eToro

    eToro is the most used online broker in the world and offers one of the fastest and most intuitive platforms in the world, perfect for implementing a correct Forex strategy, even if you have no trading experience.

    But the feature that has made eToro so popular is its patented system that allows you to copy the strategies of the best traders in the world (on eToro), automatically and for free.

    This patent is called Copy Trading and it works like this:

    • Register on eToro (for free)
    • In the “People” section you can choose the traders to copy, based on their returns.
    • With a click, Copy Trading will copy the operations of the chosen traders into your account.

    At that point you will get the same returns as these trading experts (in proportion to the investment made), at no additional cost.
    Do you want to know how much you can earn with Copy Trading? Well it depends on which traders you will copy. Here are some examples below:

    etoro-forex

    Click here and choose which trader to copy

    eToro Copy Trading offers the opportunity to make money and at the same time learn the best forex strategies used by professionals.

    But how is it possible that these famous traders let anyone copy their Forex strategy on eToro? Simply because the Broker pays them based on how many users copy them, like a social network.

    You can sign up for free on eToro by clicking here

    For more details you can read our full eToro review.

    Forex Strategy with ForexTB

    ForexTB is a specialized Forex Broker, as the name implies and is highly appreciated by both experts and beginners because it offers very effective support at an operational level.

    Obviously we are talking about a safe broker and authorized by CySEC internationally. It also tries to improve the preparation of its members by offering a free Trading Course in ebook format, which explains the basics of online trading in a very clear and complete way.

    Download the Trading Course for free by clicking here

    But the actual support leads into the free Trading Signals that ForexTB sends to all investors. These are very precise operational indications, developed by the famous Trading Central, with a success rate of over 70%.

    To get free trading signals click here

    ForexTB also offers traders an excellent demo platform, free and unlimited, perfect for those who want to learn without taking risks.

    You can join ForexTB for free by clicking here

    For more information read: Trading Signals

    Forex Strategy: the basics

    A Forex Strategy is a method, which can be both manual and automatic, to generate trading signals.

    • Manual strategies involve a trader standing in front of a PC screen looking for trading signals, which can be made more evident by a series of Forex indicators and charts found on trading platforms.
    • The automatic strategies, on the other hand, are algorithms that automatically generate signals and independently execute trades, replacing the man and eliminating the emotional factor that often negatively affects trading. In this case we are talking about automatic trading.

    In the rest of this guide we will show you some of the most used Forex strategies, but nothing prevents you from doing tests in your Broker’s Demo account to develop your Manual Trading Strategy (unless you know how to program a forex robot).

    Read also: Forex Quotes

    Creating a Forex Strategy

    Usually a Forex strategy originates from real trading. For example, you realize that a pair of currencies in a given condition tends to always behave in the same way, here are the conditions to identify the factors that affect this behavior and write the rules to follow.

    Obviously, the accuracy of the signal must be balanced with its repeatability, if the rules are too strict, the signals will be very rare, while if the rules are excessively vague, the signals will be excessive and the Forex Strategy will be ineffective.

    Generally speaking, to develop an effective Forex Strategy you need to:

    • Select the market: Traders need to determine which currency pairs suit the strategy best.
    • Sizing the position: It is necessary to determine how much to invest in each position in order not to exceed the risk and follow good money management.
    • Finding Entry Points: The rules must show exactly when to enter a long or short position (buy or sell) in a given currency pair.
    • Finding Exit Points: We need to develop rules that also say when to exit a position and how to place the Stop Loss.
    • Deciding trading tactics: Traders should establish very detailed rules and follow them precisely, otherwise the effectiveness of the strategy is lost.

    Before executing a Forex strategy on the real market, you must test it well on the forex demo account, do not rush to switch to the real account, use all the time it takes to optimize it.

    Which Forex Strategy to use?

    If you do not intend to create your own Forex strategy, you can use one of the most famous ones, they are certainly effective even if they leave a margin of tolerance to the trader’s sensitivity.

    If you want to eliminate this tolerance, you can improve the accuracy of the signals generated by these strategies by doing tests and adding rules to decrease the number of signals and increase accuracy.

    To choose which strategy to adopt it is advisable to follow these selection criteria:

    • Accuracy of the strategy: If it generates too many false signals you should try to optimize it or switch to another strategy.
    • Frequency of trading opportunities: If it does not generate enough opportunities for the time you have available for trading, it is probably not suitable for your needs.
    • Duration of the negotiation: The duration of the trade, until the closing of the operation, must be manageable, if you cannot follow the progress of the trade, this can be a problem.

    Below you will find the most popular Forex strategies among traders, compare them and choose the one that best suits your forex trading needs, then put it to the test on the Demo account and only when you have a total mastery of the chosen strategy, switch to real investments.

    Position Trading

    Position Trading is a long-term trading approach in which the operation can remain open for weeks or even months.

    The times available to enter the position are generally daily or even weekly.

    This Forex Strategy is mainly based on fundamental analysis and economic news such as GDP, unemployment, retail sales, etc.

    Nothing prevents you from using technical analysis to increase the accuracy of the system.

    Practical example:

    • Analyzing the fundamentals of EUR / USD we see a potential uptrend on the horizon.
    • Hence, the EUR / USD is expected to drop to valid support before entering the position.
    • Now, if the analysis is correct, it will be possible to enter the market with a good price and maintain the position for a long time.
    • The stop loss must be positioned below the support and the position must be closed in the event of news that suggests a reversal, but in any case, the aim is always to make a very high profit.

    forex-strategy-position-trading

    Pros:

    • There is no need to spend a lot of time on trading because the trades are long term
    • Less operational stress as short-term fluctuations do not affect.
    • You aim for a high profit with a very low risk, usually the profit must be at least 5 times greater than the risk taken.

    Cons:

    • It requires a solid understanding of the fundamentals that move the market
    • It needs a large margin because the stop loss will be far from the entry point.
    • It may not make steady profits due to the low number of signals generated.

    Range Trading

    Range Trading includes the identification of supports and resistances within which traders will place trades. This strategy works well in the market without significant volatility and with no trend in place. Technical analysis is the main tool used with this strategy.

    Duration of the trade:

    This Forex Strategy is suitable for any timeframe because the fluctuations within a “range” can be short, medium or even long term.

    Entry / exit points:

    The oscillators in this case are the indicators used to evaluate the timing of entry and exit.

    Practical example:

    Forex-Range-Trading

    The chart above shows a clear support and resistance band that traders use as entry / exit points. The RSI oscillator shows the timing of the entry / exit points as highlighted by the blue and red shaded boxes – blue: overbought and red: oversold.

    Range trading can lead to fruitful risk-reward ratios, however, this involves a long investment of time for each trade.

    Pros:

    • Significant number of trading opportunities
    • Favorable risk / return ratio

    Cons:

    • It takes long periods of time to follow the trades
    • Prolonged use of technical analysis is required

    Trend Following

    Trend Following is a simple Forex strategy that attempts to produce positive returns by exploiting the directionality of the markets.

    Duration of the trade:

    Trend Following generally takes place over a medium to long term time horizon, as trends change “slowly”. The strategy adapts to different time frames starting from the 4 hour one up to the weekly one.

    Entry / exit points:

    Entry points are usually signaled by an oscillator (RSI, Stochastic, etc.). And exit points are calculated based on a positive risk-reward ratio.

    So if the stop is 50 points from the entry level, the profit must be taken over 50 positive points, the ideal take profit should instead be positioned at 100 points with a risk / return ratio of at least 1: 2.

    Practical example:

    Strategy-Forex-Trend-Following

    In the simple example above, the EUR / USD pair shows an upward trend validated by higher highs and lows.

    Using the CCI oscillator as a tool for the timing of entry and exit from the trade, it can be seen that every time the CCI has fallen below -100 (highlighted in blue), prices have responded with a rally. Obviously this will not always happen, but the risk-return ratio is very favorable.

    The stop loss must be placed below the previous minimum and the take profit must be placed with a risk-return ratio of at least 1: 3.

    Pros:

    • Significant number of trading opportunities
    • Favorable risk / return ratio

    Cons:

    • It takes long periods of time to follow the trades
    • Prolonged use of technical analysis is required

    Swing Trading

    Swing Trading is a medium term trading strategy where you can keep trades open for days or even weeks.

    Duration of the trade:

    The times on which to trade are usually 1 or 4 hours although it is possible to use larger timeframes.

    Entry / exit points:

    The entry and exit points are marked by fluctuations, or the “swing” points that are visible even if there is a trend in progress, and this is what distinguishes this Forex Strategy from Range Trading.

    You buy on the supports, you sell on the resistances and the risk-return ratio must be at least 1: 2.

    Practical example:

    Forex-Swing-Trading

    In the example of the USD / JPY pair, the swing area between support and resistance is clearly seen.

    Pros:

    • This strategy doesn’t take long
    • Generate numerous trading opportunities

    Cons:

    • Trends cannot be followed and large profit opportunities are likely to be missed.
    • During the night there is a risk of dangerous reversals.

    Day Trading

    Intraday Trading or Day Trading is a short-term Forex Strategy in which the operations are held open from a few minutes to a few hours at the most. It is a faster version of Swing Trading.

    Duration of the trade:

    The timeframes on which to trade are usually those ranging from 5 minutes to 15/30 minutes.

    Entry / exit points:

    Day Trading must capture the intraday volatility of a currency pair and then buy on the supports, sell on the intraday resistance and use the mobile sideboard as confirmation of the fluctuation.

    A Day Trader does not care about fundamental analysis but looks at the economic calendar to avoid news that could generate unwanted volatility. Usually you follow the daily trend by trading all day in the same direction.

    The risk-reward ratio must be at least 1: 3 and the stop loss must be placed below the support or above the resistance depending on the direction of the trend.

    Practical example:

    Below we can see the chart of USD / CAD with a very evident bearish trend:

    Forex-Day-Trading

    Pros:

    • Possibility of obtaining constant small profits.
    • No overnight risk because all positions are closed at the end of the day.

    Cons:

    • It’s stressful because you have to constantly follow the markets.
    • News can negatively impact causing large unexpected movements.
    • Long-term trends escape.

    Read more: Stop Loss

    Scalping

    Scalping is the most difficult of the strategies we have talked about and also the fastest.

    Duration of the trade:

    It is a very short-term strategy where trades last for a few seconds or at most a few minutes.

    Entry / exit points:

    Usually the entry and exit points are clearly indicated by technical tools on the platform because you have to be very quick in executing orders.

    The risk-reward ratio is at least 1: 1 but it is a very difficult Forex strategy to put into practice and causes a strong emotional stress that it causes.

    Pros:

    • Having many trading opportunities every day.
    • Possibility of high profits at the end of the day.

    Cons:

    • You have to be glued to the screen for many hours a day.
    • It is a highly stressful endeavor.
    • It is not easy to make steady profits.

    Read more: Scalping

    Which Indicators to use for your strategy

    To use a Forex Strategy it is necessary to know and be able to configure the main technical analysis indicators, here are some of the most used:

    Forex Strategy: there is no Holy Grail

    There are very expensive Forex Strategies for sale on the market but don’t expect them to be foolproof. The Holy Grail of Forex Strategy does not exist.

    Usually those for sale are manuals that guide you to understand and use an existing system, with some variations, but you should not expect to obtain constant profits just because you have purchased the strategy you use, indeed, the most effective strategies are precisely the most common, such as those we have presented in this guide.

    Another urban legend is that some very profitable system comes from financial companies or investment banks: Not so!

    The instruments used by large international investors are never put up for sale, if they spread they would lose all their effectiveness!

    When to Change Forex Strategy

    A forex trading strategy works really well when traders follow the rules.

    But just like anything else, a certain strategy may not be for everyone, and what works today may not work tomorrow.

    If a strategy does not prove to be profitable and does not produce the desired results, traders must consider these points before modifying or changing it with another:

    • Match risk management with trading style: If the risk / reward ratio does not produce the desired results, this ratio may need to be changed.
    • Market conditions evolve: a trading strategy can depend on specific market trends, so if these change, a particular strategy may become outdated and therefore may need to be modified or replaced.
    • Understanding the strategy: If a trader does not fully understand the strategy they are using, there is a good chance it won’t work.

    While change can be positive, changing a Forex strategy too often can be costly in terms of results. Each change must be tested and considered, it makes no sense to change the rules all the time.

    forex strategy

    Conclusions

    In this guide we have examined how a Forex strategy should be analyzed, tested and adopted, but as we said at the beginning, the real difference is made by the trader and the discipline in following the rules that this strategy imposes.

    If you want to test a Forex Strategy we recommend that you use the Demo account of one of the Forex Brokers we have proposed, in this way you can understand if the system is suitable for your trading style. Then you can make the minimum deposit required by the Broker and start trading in real.

    Here are the official links of the free Demo accounts offered by the best Forex brokers:

    What is a Forex Strategy?

    It is a set of rules that defines the entry and exit from a trade in the forex market.

    When to Change Forex Strategy?

    When the strategy used is no longer profitable due to various reasons.

    What indicators to use in the Forex Strategy?

    Oscillators and the main technical analysis indicators are fundamental in using a Forex Strategy.

    What Broker to use in Forex?

    The best brokers for an effective Forex strategy are eToro and ForexTB.

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