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Top 10 Best Forex Trading Strategies

Trading forex without a strategy is a bit like starting out on a trip without a map since you never know where your account will end up. You might make money or lose money, but you have no idea which is more likely. The big advantage of having a forex trading strategy is that you can take some of the guesswork out of trading currencies. Read on to find out more about the best forex trading strategies and how to choose among them to trade currencies successfully.

A forex trading strategy defines how you will enter and exit trades, by using technical indicators to identify key price levels. While there are hundreds of strategies, we’ve compiled a list of ten of the most frequently used. Forex traders and market analysts are constantly creating new strategies to find the best time and point at which to enter or exit a trade. These are ten of the most popularly used strategies for trading currency pairs.

Top 10 forex strategies

1. Bollinger Band Forex Strategy

A Bollinger band strategy is used to establish likely support and resistance levels that might lie in the market.

The Bollinger tool consists of three bands: the central line is a simple moving average (SMA) set to a period of 20 days, while the upper and lower lines measure the volatility on the market. If the forex market is highly volatile, the bands will widen, and if the market is more stable, the bands will get closer together. When the price reaches the outer bands of the Bollinger, it often acts as a trigger for the market to rebound back towards the central 20-period moving average.

Forex traders can identify possible points of support and resistance when the price moves outside of the Bollinger band. When this happens, either the market will break out of its range, or the move will be temporary and eventually the price will return to the direction it came from. The bands help forex traders establish entry and exit points for their trades, and act as a guide for placing stops and limits.

Bollinger Band Forex Strategy

2. Momentum Indicator Forex Strategy

The momentum indicator takes the most recent closing price and compares it to the previous closing price. It is then displayed as a single line, usually on a separate chart below the main price chart.

The indicator oscillates to and from a centreline of 100. How far the indicator line is above or below 100 indicates how quickly the price is moving. For example, a reading of 102 would indicate the market is moving more quickly upward than a reading of 101, while a reading of 98 would indicate the market has a stronger downtrend than a reading of 99.

Momentum indicators can be a useful tool when providing overbought and oversold signals. Forex traders can use it to identify the strength of the market movement, and whether the price is moving up or down.

It is important to ensure that the market has respected the momentum indicator on previous occasions and find the exact conditions that seem to be working.

Momentum Indicator Forex Strategy

3. Fibonacci Forex Strategy

Fibonacci retracements are used to identify areas of support and resistance, using horizontal lines to indicate where these key levels might be.

These Fibonacci retracement levels are drawn as six lines on an asset’s price chart. The first three are drawn at the highest point (100%), the lowest point (0%) and the average (50%). The remaining three lines are drawn at 61.8%, 38.2% and 23.6%, which are significant percentages in the Fibonacci sequence.

Forex traders can use the Fibonacci indicator to spot where to place their entry and exit orders. The trick is to place your stop-loss below the previous swing low (uptrend), or above the previous swing high (downtrend).

Fibonacci Forex Strategy

4. Bladerunner Forex Strategy

The Bladerunner forex strategy compares the current market price to the level the indicator says it should be. By looking at this disparity, traders can identify entry and exit points for each trade. The strategy is named because it acts like a knife edge dividing the price – and in reference to the 1982 science fiction film of the same name.

The Bladerunner strategy is based on pure price action, combining candlesticks, pivot points, and support and resistance levels to locate new opportunities. Before you start to use the Bladerunner strategy, it is important to make sure the market is trending. Typically, traders will combine the Bladerunner strategy with Fibonacci levels, to validate their strategy and give themselves some extra security when trading.

The strategy uses a 20-period exponential moving average (EMA) or the central line of the Bollinger band indicator (described above). If the price is above the EMA, it is taken as a sign that it will decrease soon, and if the price is below the EMA, it is seen as a sign that it will increase in the near future.

A trader would wait for the price action to reach the EMA, at which point the theory suggests it will rebound.

The first candlestick that touches the EMA is called the ‘signal candle’, while the second candle that moves away from the EMA again is the ‘confirmatory candle’. Traders would place their open orders at this price level to take advantage of the rebounding price.

Bladerunner Forex Strategy

5. Moving Average Crossovers Forex Strategy

A crossover is one of the main moving average strategies, which is based on the meeting point or ‘cross’ of two standard indicators. In a standard moving average, the price crosses above or below the moving average line to signal a potential change in trend. But, the crossover strategy applies two different moving indicators – a fast EMA and a slow EMA – to signal trading opportunities when the two lines cross.

An FX trader would enter into a long position when the fast EMA crosses the slow EMA from below, and enter into a short position when the fast EMA crosses the slow EMA from above.

The placement of stop-losses is also determined by this strategy. The stop-loss for a long position would be placed at the lowest price point of the candlestick before the crossover occurred, while the short position stop-loss would be placed at the highest price point of the candlestick before the crossover.

In our example below, the blue line is the fast EMA, set to a nine-day period, while the red line is the slow EMA – set to a 14-day.

Moving average crossovers forex strategy

6. MACD Forex Strategy

MACD stands for moving average convergence divergence. The basic aim of a forex strategy that uses the MACD is to identify the end of a trend and discover a new trend.

Like the momentum indicator, the MACD appears at the bottom of the main price chart. It consists of three parts: the MACD line, the signal line and the histogram.

The MACD is a momentum indicator that plots the difference between two trend-following indicators or moving averages. As the two moving averages converge and diverge, the lines can be used by forex traders to identify buy and sell signals for currencies – as well as other markets like commodities and shares.

When the MACD line crosses above the signal line, it is a buy signal, and when the signal line crosses above the MACD line it is a sell signal. In the below chart, the MACD line is blue and the signal line is red.

MACD Forex Strategy

7. Keltner Channel Forex Strategy

The Keltner Channel is a volatility-based trading indicator. Forex traders can use a Keltner Channel strategy to determine when the currency pair has strayed too far from the moving average.

Like the Bollinger band indicator, the Keltner Channel uses two boundary bands – constructed from two ten-day moving averages – either side of an exponential moving average. Traders can use the channels to determine whether a currency is oversold or overbought by comparing the price relationship to each side of the channel.

The theory goes that by plotting the bands a certain distance away from the average of the market price, a trader can ascertain a significant market move. If the market moves through the boundary bands, then in all likelihood the market price will continue to trend in that direction.

Keltner Channel Forex Strategy

8. Fractals Indicator Forex Strategy

Fractals refer to a reoccurring pattern in the midst of larger price movements. The fractal indicator identifies reversal points in the market, found around key points of support and resistance. Forex traders can use a fractal strategy to get an idea about which direction the trend is heading in by trading when a fractal appears at these key levels. Fractals occur extremely frequently, so they are commonly used as part of a wider forex strategy with other indicators.

The fractal pattern itself consists of five candlesticks, and it indicates where a price has struggled to move higher or lower. A fractal must have a central bar that has a higher high or a lower low than the two bars on either side of it.

In an upward fractal, the focus is on the highest bar, and in a downward fractal, the focus is on the lowest bar. A forex strategy based on the fractal indicator would trade if the market moves beyond the high or low of the fractal signal.

Fractals Indicator Forex Strategy

9. RSI Indicator Forex Strategy

The relative strength index (RSI) is a popular technical analysis indicator used in a lot of trading strategies. The RSI helps traders to identify market momentum and overbought or oversold conditions.

The RSI indicator is plotted on a separate chart to the asset price chart. It consists of a single line and two levels that are automatically set.

The vertical axis of the RSI goes from 0 to 100 and shows the current price against its previous values. If the price rises to 100, this is an extremely strong upward trend, as typically anything above 70 is thought of as overbought. And if the price falls to 0, it is a very strong continuous downtrend, as anything below the level 30 is considered oversold.

This forex strategy would be based on taking advantage of the market retracements between these price levels. However, it is important to use the indicator as part of a wider strategy to confirm the entry and exit points, as sharp price movements can cause the RSI to give false signals.

RSI Indicator Forex Strategy

10. Breakout Trading Forex Strategy

Breakout trading involves taking a position as early as possible within a given trend. A breakout occurs when the market price ‘breaks out’ from a consolidation or trading range – this is typically when a support or resistance level has been met and surpassed.

Trading breakouts is an important strategy, especially in forex, because the movement represents the start of a volatile period. By waiting for a key level to break, forex traders can enter the market just as the price makes a breakout and ride it until the volatility calms down again.

Commonly, breakouts occur at a historic support or resistance level, but this could change depending on how strong or weak the market is. Your stop-loss should be placed at the point the point the market broke out.

Using a breakout trading strategy relies on being able to see the volume of trades that are taking place on the market. However, there is no way of knowing the volume of trades made in the forex market, as it is decentralised. This makes it imperative to have a good risk management strategy in place.

Breakout Trading Forex Strategy

About Forex

Many have heard about the possibilities of fairly large earnings on Forex, but not everyone clearly understands what kind of Forex market is and exactly how you can make money on it. The Forex market began to form in the 70s of the last century. The refusal of all world powers from the gold standard in 1976 served as the basis for the creation of Forex. Since that time, countries have switched to the Jamaican system. Currency rates began to depend on market relations, and not set by the state, as it was before.

Many have heard about the possibilities of fairly large earnings on Forex, but not everyone clearly understands what kind of Forex market is and exactly how you can make money on it. The Forex market began to form in the 70s of the last century. The refusal of all world powers from the gold standard in 1976 served as the basis for the creation of Forex. Since that time, countries have switched to the Jamaican system. Currency rates began to depend on market relations, and not set by the state, as it was before.

This development of events contributed to the normal functioning of the world economy. The exchange of capital between different countries became fully possible. Today, the daily and increasing over time, the turnover of the international Forex trading platform is from 5 to 7 trillion dollars.

Forex is an international global market. Currencies are used as commodities. It is quite acceptable to compare the Forex market with a currency exchange office, in which one currency is bought (or sold) for another.

For example, if in the near future it is known that the price growth of the US dollar will occur, then this circumstance can be used to make a profit by buying the American currency and reselling it at a favorable price for oneself. Financial transactions in the international market are carried out in a similar way, but with larger amounts.

Forex provides an opportunity to get profit due to the exchange rate difference. The rate is usually understood as a unit of one currency, expressed in units of another. When the demand for any of the currencies falls, it becomes cheaper. Therefore, another monetary unit begins to be in great demand, and its price rises. You can make money both on falling prices of currencies and on their growth.

Distinctive Features of the Forex Market

Forex prices are formed by agreement between trading participants depending on supply and demand for a particular currency. Among the many features of the international Forex trading platform, the most important ones can still be identified:

  • Functionality. The original purpose of Forex creation is currency exchange. Market relations allow it to be carried out at favorable rates for the participants. Subsequently, traders began to use Forex to make money. Central banks of all countries make foreign exchange interventions in this market in order to stabilize the exchange rates of their national currency units.
  • Lack of exact geographic reference to any local exchange platform. This allows anyone who wants to carry out trading operations around the clock from anywhere in the world with the presence of the Internet. Forex trading is carried out using a special program installed on a computer or other personal devices.
  • Diverse composition of Forex market participants: majority shareholders (central banks, commercial banks, large commercial and investment organizations), various trading firms, ordinary traders.

Forex from the Position of a Trader

The trading scheme on the international currency market Forex looks like this. A trading participant, using a special program (often the Metatrader platform), observes the charts of the traded assets. After analyzing and making a decision to buy or sell currency, he issues a command to open a trading position.

The command goes to the broker's server, on the website of which the trader is registered. The broker, using information from liquidity providers (market makers), immediately gives the client the current result for this position on his trading terminal. Depending on the circumstances, the trade can be profitable or unprofitable. Subsequently, observing the price of the asset, the trader makes a decision about the moment of closing the deal. This can be done manually or automatically by placing orders for take profit and possible loss limitation in advance.

What is Forex? Features of the Forex Currency Exchange.

Forex Geography

Unlike stock and commodity exchanges, Forex does not have a specific trading platform. Regional currency markets act as working platforms for the implementation of banking transactions. The most significant of them are: Asian, European, American and Pacific. The interaction of the sites takes place through the latest information technologies.

Trading is carried out via the Internet or using the phone. Moreover, you can trade around the clock. Exceptions are holidays and weekends. There is no specific schedule of trading sessions on Forex. Different banks start their business at different times, as reflected in the GMT formats. On Forex, there is summer and winter time.

Forex Participants

Forex development at a rapid pace contributes to the emergence of more and more new trading participants. They can be divided according to their importance into several groups:

The first and perhaps the most basic are central and commercial banks. They account for the bulk of all foreign exchange transactions in the interbank Forex market. Other trading participants in these banks keep their accounts through which they carry out financial transactions. As regulators of Forex, central banks manage gold and foreign exchange reserves and conduct foreign exchange interventions. Thus, the Central Bank and the Treasury influence demand by increasing or decreasing the supply of national and foreign currency units.

Quite significant representatives of the first group are the Federal Reserve System of the United States, the European Bank, as well as the Central Bank of Germany, the Central Bank of Great Britain, and the Central Bank of Japan. It is precisely the stabilization of the exchange rates of national currencies and the replenishment of their reserves, rather than making a profit, that is the main task of the first group. By injecting significant funds, the Central Banks have a very significant impact on the market situation and tangible changes in exchange rates.

Commercial banks represent a significant number of counterparties who are intermediaries in the financial transactions of their clients. The purpose of these counterparties is to generate profits from market transactions and commissions from clients. Deutsche Bank, Citibank, Standard Bank and Union Bank of Switzerland are the largest representatives of commercial banks.

Investment funds and companies belong to the second group of participants. Placing funds in the securities of corporations and governments of different countries is their main activity. International corporations, in turn, invest these funds in production abroad. For normal financial activity, a constant exchange of one type of currency for another is required. Payments or money transfers through commercial banks are carried out online. However, due to the difference in exchange rates, it is more profitable to purchase currency on Forex on your own.

The third group includes currency exchanges, brokerage and dealing companies. Currency exchanges do not take part in exchange operations as separate representatives of the market, but they form its structure. Although in a number of countries there are such organizations that carry out currency exchange for legal entities. In this case, the state itself has an active influence on the exchange rate.

Brokerage companies act as intermediaries. For communication of sellers with buyers, they take a percentage of the transaction amount. Quite often, brokers are intermediaries for trading corporations, investment funds and companies.

Traders, or individuals, represent the fourth most numerous group of participants. Since 1986, they have had an excellent opportunity to invest money in Forex trading. The development of the Internet, correct forecasting of the dynamics of changes in exchange rates, the optimal choice of trading strategy allow them to get a good profit on the exchange rate difference. In addition, private individuals are engaged in non-trade operations in the field of foreign tourism, the purchase and sale of cash currency, the receipt of fees and pensions.

What is Forex? Features of the Forex Exchange.

How to Trade Forex?

Any currency in Forex is expressed by a three-letter code. For example, the British Pound / US Dollar pair looks like this: GBPUSD. The currency on the left is called the base currency (in this case it is GBP), and the one on the right is called the quote currency (in this case USD).

Since any currency can be bought or sold, there are two prices:

  • Bid - the bid price. According to it, the seller is ready to sell the base currency (in this case, GBP) and purchase the quote currency (USD).
  • Ask - the ask price. According to it, the buyer is ready to buy the base currency (GBP) and sell the quoted one (USD).

The spread is the difference between the bid and ask. This is the earnings of the brokerage company, the commission, without which trading is impossible. The spread is paid once - at the time of opening a trade.

The volume of any transaction is measured in lots. The standard is 100 000 lots of the base currency. Previously, individuals did not have the opportunity to trade on Forex, since not everyone had such a sum of money. Now, thanks to leverage, anyone can trade. It is this circumstance that made Forex so popular.

The broker provides leverage against the collateral amount (margin) on the trader's deposit. Hence the name - margin trading. For example, a leverage of 1: 100 implies that a Forex trade can be executed with an amount that is 100 times less than the trade amount. For example, to trade $ 100,000 on Forex with a leverage of 1:100, you only need to have $ 1,000.

Popular Forex Terms You Should Know

  • Pip - Generally the lowest increment in which a currency pair is priced. Pips are used to measure movement in a forex pair.
  • Bid - The price at which the market maker/broker is willing to buy the currency pair.
  • Ask - The price at which the market maker/broker is willing to sell the currency pair.
  • Spread - The difference between the Buy/Sell (Bid/Ask) prices, offered to traders on the trading platform. When a CFD provider offers lower spreads than its competitors, this means traders can enjoy a smaller difference between the Buy and Sell price of the underlying FX trading pair.
  • Base - The first currency in a currency pair, also referred to as the nominator (or top number).
  • Quote - The second currency in a currency pair, also referred to as the denominator (or bottom number).
  • Leverage - The means of gaining exposure to larger amounts of currency without having to pay the full value of your trade upfront. It effectively allows you to trade larger amounts with less capital. For example, a leverage of 1:100 means you could use $100 to open a trade valued at $100,000. This means that both profit and losses are magnified.

Forex Market Trading Terms

  • Bear Market - A market on the decline, where traders expect prices to fall, which indicates there is going to be more short selling (or traders ‘going short’).
  • Bull Market - A market that is appreciating, where traders are eager to increase their long trading activity (also known as ‘going long’).
  • Broker - An intermediary for traders and financial institutions to go through for executing transactions.
  • Federal Reserve - The official centralised bank for the regulation of economic activity in the USA. Often abbreviated as the ‘Fed’.
  • GDP (Gross Domestic Product) - The total sum of the economic activity of a country.
  • Inflation - The rate of increase in the price of goods and services in a national/state economy.
  • Interest Rates - The rates of interest charged for lending money from a bank or credit provider. Generally, central banks control the levels of interest rates, which is critical to the strength or weakness of a currency.
  • LIBOR (London Interbank Offered Rate) - the rate at which banks lend money to each other in the London Interbank market, and is a commonly used benchmark interest rate.
  • Foreign Exchange Volatility - The level of fluctuation of a currency pair, or a measure of how dramatic/unpredictable its price movement can be. This is generally an indicator of how risky a currency pair can be to trade.

Forex Indicators

  • RSI (Relative Strength Index) - An indication of whether an asset is overbought or oversold. It is expressed between 1 - 100.
  • CCI (Commodity Channel Index) - A measure of the statistical variation from a defined average, from -100 to +100.
  • MACD (Moving Average Convergence/Divergence) - A trading indicator that identifies moving averages and helps to potentially represent a new upward/downward trend in the market.
  • Correlation - The mutual relationship between two assets, indicating similar (or dissimilar) they are to each other. Correlations range between +1 and -1.
  • CPI (Consumer Price Index) - A common inflation measurement that helps to track the price of goods and services.
  • PMI (Purchasing Managers Index) - An indicator on the relative strength of the manufacturing industry.
  • QE (Quantitative easing) - The process of injecting money into the market to help the wider economy avoid recession.

Additional Terms Related to Forex

  • Stop Loss - A market order used to close a losing position once it has reached a certain level.
  • Take Profit - A market order used to close a profitable position once it reaches a certain level.
  • Fundamental Analysis - Relies on wider economic and political data to predict which way a currency pair will move.
  • Technical Analysis - Relies on chart patterns (of past performance) to predict which way a currency pair will move next.
  • Major Pairs (or Majors) - A list of the most traded pairs of currencies in the world. They constitute the largest share of the foreign exchange market and all are priced and traded against the USD.
  • Minor Pairs (or Minors) - Currency pairs that are not as heavily-traded, nor as liquid as the Majors. Sometimes also referred to as Exotics.
  • Cross Currency Pairs (or Crosses) - Currency pairs that do not involve the USD. Popular crosses include Euro to Pound (EUR/GBP), Euro to Swiss Franc (EUR/CHF) and Australian Dollar to Japanese Yen (AUD/JPY).


Simple Forex Trading Strategies for Beginners

Opening Range Breakout Trading Strategy

Breakouts are one of the most common trading strategies. They involve identifying a key price level you expect the price to break through, and then buying or selling at that price in order to take advantage. Generally breakouts are used when the market is already near the extreme high or low of the recent past. When the market is trending and moving strongly in one direction, breakout trading ensures that you never miss the move.

One breakout strategy is the European Opening Range. This strategy typically focuses on EURUSD (Euro/U.S. Dollar), although it could be applied to any of the European majors.

While the Forex Market is open for 24-hours a day (Sunday evening through Friday evening ET), market activity in a given pair is not necessarily consistent throughout.

FX market is typically divided into 4 major sessions (times adjusted for Eastern Time):

Simple Forex Trading Strategies for Beginners

Trading the European Opening Range has three steps:
  1. First, you identify the high and low during the half hour just prior to the London open (2:30-3am ET).
  2. Look for a breakout of this range +/- 10 pips, or 1/10th of the daily Average True Range (ATR), to maintain above/below this level for 10-15 minutes. This is an attempt to detect a direction of the ‘flow’ for the remainder of the day.
  3. Finally, you attempt to manage this bullish or bearish bias by focusing on 1-, 2- or 5-minute charts and utilizing a combination of moving averages (13-sma, 144-ema & 169-ema) along with oscillators (RSI, Stochastics & CCI).

Other factors to include are major news announcements (usually in efforts of avoidance) as well as the time of day (when major markets open/close, option expirations, fixings, etc). If the Average True Range is achieved earlier in the week, the likelihood of it occurring twice in the same week is dramatically reduced. If this does occur, it’s typically in opposing directions.

As a currency trader, when volatility begins to pick up you usually want to be trading, not sitting on the sidelines. As a result, if this strategy has yet to achieve the Average True Range target on Monday, Tuesday or Wednesday of a particular week, then it may be sensible to pay close attention to this tactic on Thursday and Friday. Conversely, if the ATR is reached earlier in the week it may be prudent to be on the lookout for potential market failures in the latter half of the week as they could be the marking of a false break and/or possible outright reversal.

Noteworthy times to be aware of:

Simple Forex Trading Strategies for Beginners

Ideally, if price is struggling near these events (typically spotted by a bullish/bearish divergence with an oscillator), then it might be prudent to reduce the position size ahead of time. This type of approach may help to minimize the emotional aspect to trading, since there’s an identifiable area to know where you’re wrong (the opposite side of the breakout’s high/low).

Here’s an example: EUR/USD (2 minute chart)

Simple Forex Trading Strategies for Beginners

In the above example, EUR/USD made an important low during the 2:30-3:00am ET timeframe (which was preceded by an RSI bullish divergence with price) and shot higher shortly thereafter. EURUSD appeared comfortable above the 2-minute 144/169-EMA’s, while the 13-period SMA remained above the EMA’s, and RSI continued to find support into the key 40/45 zone. Consequently, there was no reason to divert from the intraday bullish bias.

As highlighted earlier, another factor to keep in mind is the time of day –in the FX market, most London traders tend to close their positions between 11:00 am and noon ET, while traders in New York close between 4-5pm ET. Accordingly, price will often see a final end-of-day push, followed by profit-taking (typically spotted by a bullish/bearish divergence with an oscillator) near these times of the day.

You’ll note that just after 11am ET EUR/USD pushed higher once again to finally reach the intraday Average True Range target of 1.2927, which was then followed by a bearish divergence with the RSI oscillator just ahead of 12pm ET.

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Tell me how to start trading on the Forex (Foreign Exchange) market?

Three easy steps to start trading Forex:

1. Open an account for Forex trading. Find a reliable Forex broker, necessarily with a license giving the right to engage in brokerage Forex activities in your country. You can start trading on Forex without fear of losing real money on a Demo Account Forex using any number of "virtual" funds. This will help you choose the most profitable Forex trading strategy.

2. Download a trading terminal to work on Forex. Forex broker provides terminals for various devices (PCs and mobiles), which allow you to track asset quotes, make buy / sell transactions. The most popular trading terminal is Metatrader, but there are others.

3. Fund your Forex account with money and start trading. If you have good profitable results on a demo account, then start trading Forex with real money.

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