1. Trend trading is the mother of all strategies both in stock and Forex markets
It took me more than one year to find out that I must follow a tendency in order to make money trading currencies. If you study lives and ways famous traders and speculators of the past made money you will find out that trend trading was most often used way to have profit. But how does that work? Most of the time securities stay in their ranges. In 2004 when I started trading Foreign Exchange market eur/usd was fluctuating in a pretty narrow range 1.1950-1.2460 from June to October when it exploded upwards. One should know that when a security stays for a long time in a narrow range it then forms a very powerful and often long term move. And that is when most Forex hedge and investing funds make money. You trade this kind of move by placing buy orders above the top of the range and sell orders below the bottom of the range. When price goes beyond one of the levels one of your orders is opened and you go with the market wherever it takes you.
It is important to get out of your trades when signs of a reversal start appearing. Two major problems appear for traders who use this kind of strategy. One is that they run away from the market too early with very little profit, because they are afraid to lose it. Another is that they keep two positions too long and when a sharp reversal comes their profits are sharply reduced or they still sit hoping that trend will resume itself. They consequently lose all of their profit. So, watch for signs to determine your entry and exit levels.
2. Forex range trading system for those who like playing with support and resistance
As has already been said most securities stay in tight ranges most time of the year. At this time prices tend to go to the top and bottom of the range a few times or even more till the extreme points are broken. What you want to do while trading this strategy is to trade a reversal at the top by selling a given security and buying a security around bottom. This is how you can make profits trading ranges. A few technical indicators can help you to filter your trades.
Using this trading system one should remember that the longer the range continues the great odds are that a breakout is coming and one should be very careful when next time he sees price approaching key support or resistance levels as those can be taking in no time and one can experience severe losses.
3. Breakout trading strategy for breakout traders
Breakouts of various levels happen on daily, weekly and monthly basis. Some even watch for hourly and minute basis to see a decent break and make fast money. One should find a period of time where a Forex pair is contained within small channel or a range and wait for it to be broken. It can be Asian session low and high or weekly top or bottom of any security depending on what Forex market hours you like trading most.
There are too many false breakouts nowadays and if you really want to trade well the currency trading system you should have a number of filters to determine when to stay and when to get into the market. It is good when some fundamental news event makes the price go out of its’ range and the breakout is not only a technical one. I tend not to trade breaks that are not backed up by some fundamental news.
4. Swing trading as an alternative of trend following
The difference between swing and range trading is very narrow. Some would even say that it can be the same. It is also following a move that is usually shorter than a trend. Some say it could be from a few days to a few weeks. Trend on the other hand usually lasts from a few months to a few years (some Forex brokers can provide you with Forex trading software with a big choice of swing trading techniques by various providers). Traders who want to catch this kind of move tend to wait for some kind of news event which will give stimulus for a pair to move forward without stopping at least for a few days. This brings us to another strategy.
5. Forex news trading system for admirers of volatility
Economic news releases tend to catch markets by surprise and we usually see huge volatility in the markets when NFP or interest rate decision is announced. You should not be shocked to see 200 or even 400 pip moves in one minute during these events. It is intelligent to be out of the market if you are not sure what you are doing though. Some, however, love it and take advantages of the events by placing buy stop or sell stop orders minutes before the event happens.
Beginners should avoid this trading method as it takes great skill to manage problematic situations that occur when news comes out. Your stop order might not be filled (it happened to me once when I was trading on Refco company platform) and you might be looking at the market going against you without being able to change anything. That’s when Forex trading online becomes dangerous. However, it is good to see what happens during these volatile sessions in the market and just analyze without any financial commitment. You will see the currency market in various aspects of it. Lots of my posts on the blog contain my comments on how you could have traded this or that Forex news event. (Free Forex charts with live Forex quotes are available at dailyfx.com or metaquotes.net (metatrader platform, one of the best Forex platforms that I often use in my examples).
6. Forex scalping strategy
As Forex is a very liquid market and traders can open and close huge positions within minutes or even seconds making hundreds of trades per day has become popular among lots of day traders. When one is scalping he/she is making hundreds of trades per day and the average length of them is only a few minutes. As soon as the trader gets minimum profit (a few pips) he runs out of the position. It is a dangerous way to trade if one does not know how to control risk. Depending on your trading style: more aggressive or more conservative, you might be willing to choose one or another pair. For more aggressive traders gbp/jpy pair might be good way to scalp fx. If you are a more conservative trader you might be willing to find how to trade eur/gbp pair (the most orderly Forex pair in the market).
When scalping you would want to have as low spread as possible (that’s why eur/gbp is good). You want to grab your few pips as fast as possible without having to wait too long till you break even due to unfavorable spread (15 pips or more).
Problems with this kind of trading systems arise because stops are usually larger than take profits targets and one has to win many more trades just to break even. You should be careful and not go against theory of probability in terms of making profitable trades by scalping. Too many Forex scams turn around this way to trade the market and one must be aware of that in order not to be deceived.
7. Overbought and oversold levels trading strategy
This is indicator based Forex trading system that a trader may use to make reversal trades when indicators give signals about a security being overbought or oversold. This works on various time frames and the most popular indicators for trading the method is RSI and MACD. I do not trade that way, but I often put RSI on my charts to see whether it is above 70 level (overbought) or below 30 (oversold) to know what I can anticipate in the coming days or even hours.
You should also have in mind that when Forex pairs are in a trend state all technical indicators will be at extreme levels and stay there for quite some time. This strategy is good in range bound markets and is not good at all when you a tendency is in place.
If you look at various Forex signals providers you will notice that most of them widely implement these support and resistance levels in making predictions about move of securities they trade.
8. Bollinger bands trading system
Bollinger bands is a pretty powerful indicator and can be used in various types of strategies both long and short term. I like using the indicator on weekly charts to identify possible resistance and support levels and trade a reversal. You most probably know that John Bollinger does not consider bands to be working as support and resistance, but they fulfill this function when trends exhaust themselves and ranges start. That’s what I am waiting for in order to trade BB. When there is a prevailing tendency in a market, price slides through BB and one should not expect the indicator to act as support or resistance, but when price finally finds a top and starts going down, or a bottom and start going up, BB start flattening and form a nice channel to trade support and resistance. So, you need for price to hit the same are for the second time to be able to trade a reversal in a BB channel. (See the weekly chart in gbp/usd below). I heard that some guys include this trading pattern in their automatic Forex robots to identify tradable situations.
9. Forex trading strategies with daily RSI indicator
There are a lot of techniques that one can apply for making trading decisions with any technical indicator, but I consider RSI to be the best for both long and short term trading systems. For catching bigger moves it is good to use 14 day RSI. One would wait for daily RSI to go above 50 to go long and below 50 to go short. It works pretty well when markets develop big ranges and swings and not so good when it goes sideways. The most recent example with gbp/aud is quite good for that. Check the chart below to see how this type of strategy could have been traded. You may also do your own analysis of gbp/usd (of April and May (daily chart)).
10. 123 Forex trading strategy
123 trading pattern has been known for decades and successfully used in futures and stock markets by many traders. This is a reversal pattern that indicates that a major change of trend is coming. This pattern maybe found on various time frames but works best on long term charts, especially monthly. When you see it forming on a monthly chart you can be pretty sure that a major tendency shift is at hand and you can prepare for a few years of a different type of trend a trade accordingly. You will see this structure on small time frames too (all over the place), but they are not very reliable. I fully described this trading system here.
I am convinced that you have to use this method together with a few technical indicators such as RSI or MACD and it is recommended to draw trend lines on important support and resistance areas to see if the pattern forms at those levels. By no means make it an automated Forex trading system based just on one Forex technical indicator.
