Succeeding in the forex market is basically about finding ways to identify setups that can lead to winning trades.
You do this with the help of a trading strategy like this one which is a set of rules you use to spot opportunities in the market.
There are many strategies you can find out there, but which of them can actually make you money?
Using a strategy that hasn’t been proven to work or isn’t suitable for your personality may be a recipe for failure.
So, how do you know the most suitable strategy for your trading style? Well, you alone can answer that, and the only way to know for sure is to try out the top forex trading strategies to see the one that works for your style and the market you’re trading.
What a trading strategy means
A forex trading strategy is a system a forex trader uses to define what constitutes a tradable opportunity in the market.
It is a set of rules used by a trader to determine where and when to look for a trade signal and what the trade signal should be.
For example, a trader’s strategy may be to look for a specific candlestick pattern when the price hits a support or resistance zone, while another trader’s own may be to enter a trade when a short-period moving average crosses a long-period moving average. Or a strtagy that is based on traps that are made by banks like the one that i offer here
While forex trading strategies mostly involve the technical approach to trading, a trader can build a strategy that is based completely on fundamental analysis.
In this case, the trader has an action plan for trading the market based on his analysis of key economic data, political news, and some social situations, like the coronavirus pandemic.
Whatever your approach to the forex market — technical or fundamental — a good forex trading strategy is one that allows you to analyze the market and execute trades with a high probability of success.
For technical traders, a trading strategy can focus completely on price action patterns, which include chart patterns and candlestick patterns, or it can be based on indicators like moving averages, stochastic, MACD, and others.
However, most traders use some sort of combinations of price action patterns and indicators.
It is important you know that a trading strategy is different from a trading plan.
While a trading strategy represents the way you identify a potential trade setup, a trading plan encompasses everything from identifying a trade setup and placing the trade, to managing the trade and managing your trading account.
In other words, a strategy helps you to identify and place a trade, but a trading plan includes the rules that govern all the trading processes, including trade identification strategy, money management, risk management, and trade management.
Your money management rules determine the percent of your trading account that you can bet on the market, as reflected in the lot size you’re willing to trade; risk management rule governs your stop loss; while trade management rules determine how you exit your trades —trailing profits, close in parts, or full exit at one profit target.
Some people confuse trading styles with trading strategies. Trading styles classify the personality of traders based on how long they are willing to stay with a trade, and they include scalping, day trading, swing trading, and position trading.
So, they are not trading strategies , because, for each one of the styles, you will need a suitable strategy to identify trade setups.
Why you need a trading strategy
Your price chart is like a sea, but, instead of water, it is filled with market information. So, you need a compass to navigate your way around the market.
A forex trading strategy is your compass in the forex market. It helps you to extract, from the chart in front of you, the only information that matters — where the price is about to go next.
It is not always possible to predict what is going to happen in the market. But some patterns can tell whether the price is more likely to head in one direction than the other.
Hence a system built to exploit such greater odds tends to provide an edge in the market — this is what a trading strategy does for you.
To put it simply, you need a trading strategy to provide you with an edge in the market, which, if consistently implemented, can lead to more profits than losses.If you want really want to learn a simple and profitable trading method i highly recommend you to join my entire trading course here
Mind you, trading is a game of probability, and no strategy is a holy grail — there will definitely be winning and losing trades.
What a good strategy can do is offer you more profits than losses so that in the long run, you remain profitable.
The top five forex trading strategies that work
There are many forex trading strategies you will find online — so many that you can’t finish going through them in a day.
In fact, there are almost as many trading strategies as there are forex traders. But how many of them are really profitable? The truth is that some of them are inherently doomed to fail because they go against the trend or have unfavorable reward/risk ratio.
Nevertheless, there are great strategies that, when tailored to your trading style, can provide you with a solid edge in the market. Here are our top five forex trading strategies:
- Bank Breakout traps
- Pullback reversals
- Moving average crossovers
- Chart patterns
- Spring and Upthrust
1. Pullback reversals
This is a strategy for trading the impulse price swings in a trending market, and swing traders use it a lot.
To trade this strategy, you must be able to identify the trend and the various waves — impulse and corrective waves — so as to know the direction to look for trade setups.
The impulse waves move in the direction of the trend. Thus, in an uptrend, the waves move upwards, while in a downtrend, they move downwards.
Expectedly, the impulse waves are stronger, faster, and longer than the corrective waves, which is why swing traders try to capture it in a trending market.
On the other hand, the corrective waves, also known as pullbacks, move against the trend direction.
So for an up-trending market, a corrective wave moves downwards and tends to reverse anywhere it can find support, while in a down-trending market, a corrective wave appears in the form of a rally and reverses at any level if finds resistance.
The reversal of a pullback (corrective wave) marks the beginning of a new impulse wave.
Therefore, traders, who use this strategy, aim at entering the market when they feel that a pullback is losing momentum and may likely turn and start a new impulse wave in the direction of the trend.
Knowing when a pullback will reverse is not an easy task, but there are tools experienced traders use to anticipate the most likely levels where a pullback might show some weakness.
Some of those tools include the following:
If you observe closely, you will notice that all these tools can show important price levels where there are huge orders, especially opposite orders, lying in wait in the market.
Most of these are limit orders and take profit orders, as well as market orders from traders who have been on the sidelines waiting for the price to reach a particular level before entering a trade in the opposite direction.
As a result of these huge orders, a pullback is more likely to be forced to reverse at these levels.
But the price getting to any of these levels is not enough for you to place a trade.
You need to see a convincing sign that the pullback is losing momentum and about to turn after it has reached a particular level of interest.
This sign is what traders refer to as a trade signal or trade trigger.
It can be a candlestick pattern, such as a pin bar, engulfing bar, or an inside bar, or it may be an indicator signal — an oscillator or momentum indicator turning to the trend direction or a divergence between the indicator and the price swing high/low.
So, putting it all together, this is how you trade this strategy :
-Identify the direction of the trend and note the various waves
-Wait for a pullback to any of those tools that indicate important price levels
-After the price has reached a particular level you are watching, look out for whatever you use as a trade signal (candlestick pattern or indicator signal) — a bullish signal in an uptrend and a bearish signal in a downtrend
-When you see your signal, enter a trade in the trend direction and place your stop loss above or below the preceding swing low/high — as the case may be
-Place your profit target at the next resistance or support level or a 100% or Fibonacci expansion level, which also function as a resistance/support level — as the case may be — so as to get out before the next pullback starts,It’s important to note that when there is a combination of signals (say, candlestick pattern plus a divergence) is more significant than a single signal.
But what is even more significant is a confluence of important levels — a 68.1% Fib level corresponding with important support or resistance level, for example.
A trade signal that occurs when the price is at a confluence of important levels has a higher odds of yielding a successful outcome, which is why such trade setups are considered high probability setups.
Here are examples:
In this USDCAD chart, the market was trending up. Notice the inside bar pattern that occurred around a confluence of a support level and a trend line.
Even at the potential stop loss level, there’s a bullish engulfing bar at the trend line that also coincides with a hidden bullish divergence in the stochastic indicator.
The second chart below is for GBPUSD. The market was in an uptrend too. Notice the bullish pin bar at a support level, which coincides with the 50% Fibonacci level.
In this third chart below, the USDCAD was in an uptrend, a bullish pin bar occurred at the trend line. Later on, an inside bar occurred at the confluence of the trend line and support level.
The WTI Crude Oil chart below was in a downtrend. Notice the bearish pin bar that occurred at a resistance level and how the price dropped thereafter.
In this gold chart, the price was trending downwards. A bearish engulfing pattern occurred at the trend line following a rally.
There was a classical bearish divergence there too. Later on, a bearish pin bar formed at the trend line, and the price descent continued.
-You are trading with the trend
-You profit from the impulse swings and don’t hold on for the next pullback to starts
-The strategy combines the two most important factors in the market — the trend and price levels.
-The market is not always in a trend.
-You need to learn how to identify the trend, read price waves, and spot important levels.
The breakout strategies are another method of trading in the direction of the trend. With this method, a trader tries to benefit from the powerful momentum of the impulse waves.
The strategy involves entering a trade after the price has broken above a resistance level in an uptrend or below a support level in a downtrend.
- Entering at the close of the breakout candlestick
- Waiting for a pullback to the breakout level
Some traders believe that the price accelerates after a breakout has occurred, so it’s better to enter immediately a candlestick closes beyond the price level of interest to ride the breakout momentum.
But this method is more like hopping onto a moving train, rather than waiting at the train station.
This group of breakout traders usually enter with a market order at the breakout candlestick’s close.
Alternatively, they may place a buy stop order above the high of the candlestick that closed above the resistance level, in the case of an uptrend or put a sell stop order below the low of the candlestick that closed below the support level if it’s in a downtrend.
The stop loss order is safer when placed below the preceding swing low if it’s a long position in an uptrend.
In the case of a short position in a downtrend, a safer stop loss would be at above the preceding swing high.
You may want to ride the trend with a trailing stop or use a profit target at 2:1 reward/risk ratio.
See the examples below:
The first example is a USDCAD chart that was in an uptrend. Notice the resistance level and how the price later broke above it.
A typical breakout trader would’ve gone long at that point and place a stop loss below the preceding swing low, as you can see on the chart.
Here is a GBPUSD chart showing a downtrend. Notice the support level and how the price later broke below it.
A typical breakout trader would’ve gone short at that point and place a stop loss above the preceding swing high.
-The trade is in the direction of the trend.
-The impulse wave is already in motion.
-You won’t miss the trade
The breakout may be a false one.
To put a safe stop loss order, you may have to risk more pips because it’s not uncommon for the price to linger around the level for a while before continuing its journey.
The price often pulls back to the breakout level, after the initial surge, before the real move starts.
Pullback after a breakout
For lovers of pullback reversals, the best way to trade a breakout is to wait for the price to pull back and retest the breakout levels and, then, enter when the pullback is showing signs of reversal.
This way, you can ride the next impulse wave. It is like waiting for a train at the station.
When the price has retested the breakout level, look for a candlestick setup, such as a pin bar, engulfing bar, or inside bar pattern.
Alternatively, you can use an indicator signal such as a divergence between an oscillator and the price swing high/low.
For your stop loss, you may place it some pips beyond the breakout level, but that may be risky.
A safer place to place is below or above the preceding swing low or high, as the case may be.
You can choose to get out before the next pullback and place your stop at a Fibonacci expansion level or a known resistance/support level.
See the USDCAD chart we showed earlier. A pullback trader would’ve waited for the price to pull back to that breakout level, as it later did.
Notice the hidden bullish divergence in the stochastic indicator.
In the GBPUSD chart, some traders would’ve waited for the price to pull back to the breakout level before going short. Stop loss would have been safer at the same level.
-You are trading at an important price level.
-A trade candlestick pattern or indicator signal is confirming the trade.
-Although rare, there may not be a pullback to the breakout level, so you may miss the trade entirely.
-The breakout may fail, and the pullback turns to a full trend reversal.
3. Moving average crossover
The moving average crossover is an indicator-based strategy that is very common among forex traders.
In fact, many technical indicators, such as the Oscillatory Moving Average (OsMA) and Moving Average Convergence Divergence (MACD), are based on moving average crossovers.
As a trading strategy, the moving average crossover is a trend-following strategy, where a short-period moving average crossing a long-period moving average may be regarded as a trade signal.
A cross above the long-period moving average is known as a golden cross and may be a buy signal, while crossing below the long-period indicator is known as a death cross and may indicate a sell signal.
However, it’s not every moving average crossover that is regarded as a tradable signal. There should be other factors that support the direction of a crossover before you will consider trading it. One such factor is the trend direction.
Although a moving average crossover may be one of the early indications of a change in a trend direction, it is mostly a sign of a deep pullback, and the price will later continue in the trend direction.
So, it’s not advisable to trade a crossover against the already-established trend. You are better off trading it in the direction of the trend.
Thus, in an uptrend — as indicated by an upward-sloping, long-period moving average — the short-period moving average line crossing above the long-period moving average line (a golden cross) after a deep pullback can be a good buy signal.
In this case, you may place your stop loss below the swing low preceding the crossover. You can choose to ride the trend up with a trailing stop a few pips below the long-period moving average line or place a profit target at a 2:1 reward/risk ratio.
When a long-period moving average is sloping downwards, indicating a downtrend, a short-period moving average crossing below it (a death cross) after a deep pullback might be a good signal to go short.
Your stop loss, in this case, can be placed above the swing high preceding the death cross.
For your profit, you may choose to ride down the trend with a trailing stop a few pips above the long-period moving average line or place a take profit at a 2:1 reward/risk ratio.
The GBPAUD chart below shows an up-trending market, as evidenced by an up-sloping long-period moving average.
Two major pullbacks made the short-period moving average cross below the long-period moving average.
When the short-period indicator crossed back above on each occasion, it’s an indication to go long and put a stop loss below the swing low.
In the NZDUSD chart below, there were two occasions where you could’ve gone short. For the first signal, the price moved back and forth for a while, with the indicator providing several signals at the same level before the price finally dropped.
In the second one, the signal occurred once and the price dropped. Note the right place for the stop loss.
-It is a trend following strategy.
-You only enter a trade when the indicator confirms that the price.
-Moving averages are lagging indicators, so the price may have made an appreciable move before the moving average crossover occurs.
-Your stop loss may be unusually too wide.
4. Chart patterns
Some people trade only chart patterns, which are structures formed by price action over a variable period.
You can easily identify the patterns on the price chart if you know what to look for. Interestingly, most of the chart patterns have measurable profit targets.
There are numerous chart patterns out there, such as head and shoulder, double top or bottom, triangles, wedges, rectangles, flags, and pennants, which you can learn and trade, but here we will only discuss these:
Head and shoulder and the inverse
The head and shoulder pattern is a popular trend reversal pattern. Most times, it forms after a prolonged uptrend, can also occur as an extended pullback in a downtrend.
The pattern implies that the price is unable to make a higher swing high and would likely head downwards.
It consists of three price swing highs: an initial swing high (the left shoulder), a higher swing high (the head), and a lower swing high (the right shoulder).
With the right shoulder making a lower high, it’s safe to assume that the uptrend may have come to an end since it typically consists of higher swing highs.
While some traders may decide to go short at this time, especially if the preceding swing low made a lower low, the pattern is considered complete only when the price breaks the neckline —the trend line connecting the swing lows.
If you enter a trade at this point, you can place your stop loss above the right shoulder. You estimate your profit target by measuring the height of the head from the neckline.
In the GBPJPY Daily chart below, you can see a head and shoulder pattern that led to a trend reversal. Notice that the price fell far below the profit target.
The EURUSD chart below showed a head and shoulder pattern that occurred as an extended pullback in a downtrend. You can see the labeled parts and the estimate of the profit target.
An opposite pattern that forms after a prolonged downtrend or an extended pullback in a downtrend is known as the inverse head and shoulder pattern.
It is regarded as a powerful bullish reversal pattern. See the GBPUSD chart below.
-It has a measurable profit target.
-You may be able to catch a new trend early.
-The pattern doesn’t occur often.
-You may be trading against the trend.
Double top or bottom
The double top pattern is a bearish reversal pattern that occurs after a prolonged uptrend.
It consists of two swing consecutive swing highs formed at a similar price level. A line connecting the intervening swing low to the preceding swing low is known as the neckline.
The pattern is considered completed when the price breaks below the neckline. When this happens, you can go short and place a stop loss above the swing high.
Your profit target is the height of the swing high, measured on the other side of the neckline. See the example below.
A double bottom is a bullish reversal pattern that occurs after a downtrend.
It consists of two consecutive swing lows that occurred at a similar price level and a moderate swing high in-between them.
A line joining the intervening swing high to the preceding swing high is called the neckline.
When the price breaks above the neckline, the pattern is complete, and you can go long and place a stop loss below the swing lows.
Estimate your profit target from the size of the swing low. See the example below:
-It has a measurable profit target.
-You may be able to catch a new trend early.
-The trend may not have ended.
-The pattern is not that common.
-Your reward/risk ratio may be less than 1:1.
Triangles are usually regarded as trend continuation chart patterns. They are seen as price consolidations before a trend continuation.
However, the price can break out in either direction. The three types of triangles you may find on the price chart are ascending, descending, and symmetric triangles.
An ascending triangle is formed around a resistance level where the swing highs maintain a similar level, while the swing lows are ascending.
The descending triangle is the opposite. It is formed around a support level with the swing lows at the same level, while the swing highs are descending.
For the symmetric triangle, the swing highs are descending, while the swing lows are ascending.
It is preferable to trade the pattern in the direction of the trend, however, the breakout can occur in either direction.
You trade it with the typical breakout strategy and put your stop loss on the opposite side of the pattern. The height of the base of the triangle gives you an estimate of the profit target.
In the USDJPY chart below, the market consolidated between June and December 2015, forming a symmetric triangle.
Notice that the estimated profit target was hit after a breakout to the downside. Note the position of the stop loss.
-There is a measurable profit target.
-You can trade in either direction.
-There is a favorable reward/risk ratio.
-You don’t know where the breakout will occur.
-There may be many false breakouts.
5. Spring and Upthrust
These are strategies for trading a ranging market. They are basically false breakouts at either side of the trading range and indicate a possible reversal to the opposite end of the range.
The strategy was formulated by a stock trader, Richard Wycoff, and in the stock market, it is usually analyzed with the volume chart.
But in the forex market, it better to combine it with candlestick patterns.
A spring (so-named because of how the prices “spring” back) occurs when there is a false breakout below the lower boundary (support level) of the range, and the price turns to head upwards.
It shows a price rejection below the support level, and it’s more significant if it occurs with a bullish pin bar, an inside bar, or a bullish engulfing pattern.
When the pattern occurs, go long and place your stop loss below the pattern’s low. Your profit target should be a few pips below the upper boundary of the range.
An upthrust occurs when there is a false breakout above the upper boundary (resistance level) of the range, and the price turns downwards.
It indicates a price rejection above the resistance level. The pattern is more significant if it occurs with a bearish pin bar, bearish engulfing bar, or an inside bar.
When the pattern occurs, go short and place your stop loss above the high of the upthrust. Put your profit target a few pips above the lower boundary of the range.
The USDCHF chart below shows that the market was in a range between March and November 2016.
You can see the bearish pin bar that occurred with the upthrust and the bullish pin bar that formed with the spring.
In the EURGBP chart below, you can see a market that was in a range from March to December 2015.
Notice the inside bars and bullish pin bar that occurs with the springs. The upthrust too formed an inside bar.
-The patterns provide good swing trading opportunities.
There is a clear stop loss level — below the spring and above the upthrust.
You can easily place a profit target, which is often bigger than 2:1 reward/risk ratio.
-The pattern can only be traded in a ranging market.
-You must get out quickly when a real breakout happens or risk taking a big loss.
There are many forex trading strategies available, and you can’t possibly trade all of them.
Most of the strategies presented here can also be traded in lower timeframes. Pick the one that suits your style and personality and adapt it the way you want.But if you want to learn my own trading strategy you can find it here .
In whatever you do, remember that the trend is your friend, and money can be made in a ranging market too.