Forex trading can be quite complicated. Currency prices move every day, and usually on a second-by-second basis. This makes predicting the long-term price of a forex pair rather tricky. With no strategy in place, it is unlikely that you would have long-term success in the forex market. This guide will look at some of the best forex trading strategies to use when trading forex. These strategies are suitable for all types of traders, from beginners to experienced traders. Let’s get started!
What Is Forex Trading?
In the simplest of terms, forex trading, or foreign exchange or FX trading, is the conversion of one currency to another. The forex market is one of the world’s most active and liquid markets. Retail traders, institutions, businesses, and banks carry out over $6 trillion worth of forex transactions each day.
A lot of forex trading is done for practical purposes. However, a majority of trading is undertaken by forex traders to make a profit. The sheer magnitude of currencies converted every day can make their prices quite volatile. You must be aware of this volatility before you begin trading forex.
The forex market is open 24 hours a day, for five and a half days of the week. Currencies are traded in all major financial centers of the world. Forex markets are the only truly continuous and non-stop trading market in the world. Initially, the forex market was dominated by institutional firms and large banks.
These institutions and banks acted and traded on behalf of their clients. However, forex has seen an influx of retail traders in recent years. As a result, all types of traders trade in forex.
The forex market does not have any physical buildings or trading centers. Instead, the market comprises a series of connected terminals and computer networks.
Types Of Markets
Forex is generally traded via spot, forward, and futures markets. The spot market is the largest of the three because it is the underlying asset upon which the forward and futures markets are based. When people talk about the forex market, they are referring to the spot market. The forward and futures markets are more popular with companies or financial firms that need to hedge their foreign exchange.
Top 10 Best Forex Trading Strategies
Now, let’s take a quick look at the best forex trading strategies to use when you begin trading. The strategies listed below include those ideal for beginners as well as those used by intermediate and experienced traders. These strategies are in no particular order.
- Moving Average Crossovers – Allows traders to discover potential changes in direction.
- Momentum Indicator – This strategy helps recognize overbought or oversold pairs.
- Fibonacci Flush – Identifies potential entry and exit orders.
- Parabolic SAR – This strategy helps identify potential short-term reversal points.
- Stochastic Oscillator – Helps recognize potential trend reversals.
- Bladerunner – Shows the disparity between the indicator and the current market price.
- MACD – Pinpoints possible new and ending trends.
- Relative Strength Index – Indicates market momentum
- The Pivot Point – Shows the supply and demand levels.
- Bollinger Bands – Support and resistance
Best Forex Trading Strategies Reviewed
Now that we have reviewed our list of best forex trading strategies let’s look at each in more detail. Most traders will utilize more than one strategy.
1. Moving Average Crossovers
Moving Average Crossovers is the first strategy in our guide on the best forex trading strategies. This strategy is ideal if you want to spot potential changes in direction. This can help traders spot patterns such as probable trend movements, prospective entry points, and the possibility of reversal.
A moving average crossover generally occurs when the shorter-term or fast-moving average goes below the longer-term or slow-moving average at a certain point on the chart.
Forex strategies like the Moving Average Crossovers generally revolve around traders timing their entrance and exits while trading moving average crossings. This approach gives names to crossovers like “Death Cross.” In this, the shorter-term moving average crosses below a longer-term trend. Another example is the “Golden Cross.” The Golden Cross occurs when a shorter-term moving average crosses above a longer-term trend line.
A common forex strategy for beginners is to enter a trade with a clearly defined risk-reward ratio. For example, traders can position a stop-loss order above or below the crossing level if a forex pair has a history of trending.
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2. Momentum Indicator
The next strategy in our guide on the best forex trading strategies is Momentum Indicators. Momentum indicators measure the velocity behind price fluctuations. The indicator’s algorithm compares a closing price from a time frame in the past to the most recent time frame. This makes it one of the best forest strategies to identify overbought and oversold currencies.
A momentum indicator is categorized as an oscillator because the resultant curve oscillates between the centerline and 100. The distance between the indicator line and 100 indicates how rapidly the price is changing. When the moment indicator curve hits its maximum or minimum value, it could indicate potential overbought or oversold situations.
3. Fibonacci Flush
Fibonacci Flush is the next trading strategy on our list of best forex trading strategies. The Fibonacci Flush strategy helps traders locate hidden levels of support and exit for entry, exit, and stop placement.
This forex strategy is used by traders who wish to buy or sell during a strong trend. Traders can identify the prevailing trend by examining the support and pullback levels. Traders often use this strategy to trade the most volatile pairs in the market.
Long-term investors, scalpers, and swing and pullback traders can also profit from this strategy. This is because the strategy can be adapted to benefit from short-term momentum and more extended plays. Ratios become more apparent when looking at one or two periods. Market timers can make gains when they combine daily and weekly charts. On the other hand, swing traders can opt for daily and 60-minute trading charts.
In such a situation, the alignment of Fibonacci levels over several frames reveals hidden levels of support and resistance to traders. Some traders consider the Fibonacci Flush the best strategy for consistent profits.
4. Parabolic SAR
Traders use the Parabolic SAR (Stop and Reverse) because it is one of the best forex trading strategies. It allows traders to forecast the short-term momentum of currencies. The Parabolic SAR is represented visually on a chart depicting the asset. Depending on the asset’s momentum, it is viewed as a series of dots positioned either above or below the price.
When the forex pair’s momentum is upward, a dot representing the Parabolic SAR is visible below the price. When the momentum is downward, the dot is placed above the price. Any move beyond this indicates a reversal, and traders must expect a move in the opposite direction.
Traders generally set a trailing Stop-Loss order at the Parabolic SAR value. As we have already mentioned, the best forex trading strategies use multiple indicators. The Parabolic SAR works well with ADX, moving average, and the next indicator, Stochastic Oscillator.
78% of retail investor accounts lose money when trading CFDs with this provider.
5. Stochastic Oscillator
The Stochastic Oscillator is the next trading strategy in our guide on the best forex trading strategies. The strategy allows traders and analysts to foresee any potential future reversals. Instead of measuring price or volume, the oscillator measures range. It does this by comparing the most recent closing price to the range of a specified period. While the Scholastic Oscillator can be changed to suit any requirement, a typical time frame is limited to 14 days.
Because the Scholastic Oscillator is range-bound, it is constantly between the range of 0-100. As a result, it acts as a helpful indicator to determine overbought or oversold conditions. The Scholastic Oscillator can be calculated by deducting the low for the specified period from the current closing price. Following this, it is divided by the entire period range and multiplied by 100.
The two lines on a Scholastic Oscillator chart represent a 3-day Simple Moving Average and its value for each session. The meeting point of both lines is generally regarded as indicative of an imminent reversal.
6. Bladerunner
Bladerunner uses pivot points, candlesticks, support/resistance levels, and basic price movement. A significant factor to remember when searching for forex strategies that actually work is to research when and how to utilize the indicators and charts required.
Traders must ensure that the market is trending before they can implement Bladerunner. They can also use the Bollinger Band indicator’s middle line and a 20-Day EMA. You can view the 5-minute EUR/USD chart in the chart below using the EMA.
When the price is above the EMA, it is assumed it will see a decline. On the other hand, when the price is below the EMA, it is expected that it will increase. The first candle to touch the EMA is called the “signal candle.” The second candle that moves away from the EMA is called the “confirmatory candle.” Forex traders can choose to place their orders at this level to benefit from the rising price.
7. MACD
The MACD allows traders to follow trends in the market, meaning it falls in the category of a momentum indicator. A signal line that consists of a 9-day exponential moving average is added to the forex pair chart. This signal line is used to validate momentum changes.
When the MACD line crosses above the signal level, a buy order is considered. However, when the MACD crosses below the signal line, it indicates selling pressure. The most commonly used moving averages for intraday traders are 12, 26, and 9.
On the other hand, some commonly used moving averages for swing traders are 5, 13, and 1. Scalpers can choose to opt for hourly or four-hour charts. However, the period chosen depends on the individual trader and the strategy adopted.
Most traders use this strategy alongside the exponential moving average (EMA) to help identify entry points. Traders use the EMA along with the MACD to determine market volatility. The EMA can also help identify market uptrends and downtrends. This is why it is considered one of the best forex trading strategies to identify bullish and bearish momentum.
8. Relative Strength Index (RSI)
The next strategy on our list of best forex trading strategies is the Relative Strength Index (RSI). The Relative Strength Index evaluates the speed and amplitude of any recent price fluctuations.
The strategy is one of the easiest market strategies to assess market momentum. Let’s understand the Relative Strength Index better with the help of a chart. Looking at the chart below, we can see that an oscillator (line graph) has been used to represent the RSI, with a scale ranging from 0 to 100.
Apart from identifying overbought and oversold assets, the RSI can also be used for other things, such as acting as a buying and selling cue. Additionally, the RSI can also signal currencies poised for a price correction or trend reversal. When the RSI reading is above 70, it generally indicates that the asset is overbought, indicating a price drop. Meanwhile, an RSI reading of 30 or lower indicates that the asset is oversold.
Traders can benefit from using EMAs that react to price changes more quickly. The best indicators to use with the RSI are short-term focused, like the 5-day EMA crossing over the 10-day EMA.
9. Pivot Point
The next strategy in our guide on the best forex trading strategies is the Pivot point. The Pivot point strategy highlights a currency pair’s supply and demand balance levels. When the price reaches a pivot point, the supply and demand for the currency pair are equal. When the price movements cross the pivot point, it indicates a greater demand for the currency pair.
However, if the price movements drop below the pivot point, it indicates a greater supply for the currency pair but lesser demand. Pivot points can also be described as a way to identify support and resistance levels. If this strategy is used correctly, it could be the best forex strategy, giving consistent profits. For example, traders can use daily data to help them identify pivot points. On the other hand, swing traders can use weekly data to identify pivot points.
But how can position traders use this strategy? Position traders purchase and keep investments for a prolonged period, hoping their value will increase over time. In such a situation, position traders can use data from the beginning of each month. Pivot points can also be utilized in conjunction with the RSI oscillator.
10. Bollinger Bands
The last strategy in our guide on the best forest trading strategies is Bollinger Bands. This trading strategy could possibly be the most effective forex trading strategy for support and resistance. The bands begin to constrict each time the Bollinger squeeze occurs. This is widely considered a signal that a breakout could be on the horizon.
So, how does it look on a graph or chart? If we look at the graph, we will see the move rising as candles start breaking out above the upper band. The price tends to decline if candles begin breaking out from the bottom band. The Bollinger Band’s channel width helps measure price volatility. To explain it in simpler terms, the Bollinger Band’s breadth would increase if a forex pair registers a string of large price movements.
On the other hand, if the price changes are smaller, the band gets narrower, as seen around the 20:30 mark in the chart above. Additionally, momentum is strong when the price consistently tests the upper or lower bands or breaks through one of them.
78% of retail investor accounts lose money when trading CFDs with this provider.
Choosing A Forex Strategy
This part of our guide on the best forex trading strategies will discuss selecting a suitable strategy when trading currency pairs. Choosing a forex strategy when day trading can be difficult. This is because there are several factors you must consider and master. Let’s consider some points when selecting strategies for small and big accounts.
- You must always understand your risk tolerance before selecting a trading strategy.
- Traders must also consider their financial objectives when developing a forex trading strategy.
- Traders with a low risk tolerance prefer open small positions. As a result, they generally choose strategies that indicate where they must place a stop-loss order. Examples of such strategies are moving average crossovers and Parabolic SAR.
- Experienced traders have a relatively higher risk tolerance. This is why some traders prefer managed forex accounts.
- As a trader, you must evaluate your risk tolerance from time to time. This will help establish an effective forex trading strategy.
- Traders looking for a trend trading strategy can opt for the MACD, Stochastic Oscillator, or the RSI.
Additionally, it is crucial to decide whether you want to trade currencies as a short-term trader or a long-term trader.
Best Places t0 Trade Forex
This part of our guide will look at where you can trade forex and put your trading strategies to use. There are several trading platforms and brokers that allow you to trade forex. However, selecting one can be pretty tricky. However, we have made the process simpler.
In all our previous guides, we have found eToro to be one of the best forex brokers and trading platforms for FX trading, including forex. In this section, we will look closely at eToro, its tools, leverage, fees, and more.
1. eToro – A Low Cost Broker Offering Multiple Asset Classes
eToro is our pick for the best platform for forex traders. The platform offers 49 currency pairs to trade. It is also highly secure and regulated by multiple entities such as the FCA, ASIC, and the CySEC. The platform also follows FINRA and SEC regulations in the United States.
Traders can expand the price charts of their chosen currency pair and access the tools required to implement their preferred forex strategy. Additionally, traders can choose different themes, scales, and time zones through the click of the “cog wheel” button on the page. This allows traders to optimize the analysis platform according to their preferences.
One of the most sophisticated tools provided by eToro is ProCharts. ProCharts can be accessed easily through the app or directly online. Once ProCharts is launched, traders can implement their chosen strategy and select a range of tools and indicators.
Traders can select a time period, choose from forex strategies such as Bollinger Bands, RSI, and Pivot points, and compare different markets. What’s more, eToro is also one of the best trading platforms in the UK. This allows traders to mirror trades of seasoned trades, allowing them to trade and profit passively.
Additionally, there is also an overnight financing fee. However, this is shown when placing an order to ensure transparency.
| Leverage | Starts at 1:30 for retail clients |
| Forex Pairs | 49 |
| Commission | Spread-only |
| EUR/USD Pair | 1 pip |
| Deposit Fee | 0% on USD deposits, 0.5% on other currencies |
| Copy Trading | Yes |
| Overnight Fee | Depends on market conditions |
| Minimum Lot Size | 0.01 |
78% of retail investor accounts lose money when trading CFDs with this provider.
2. AvaTrade – Best Broker to Trade Forex
AvaTrade is regulated by several financial regulators, such as FCA and ASIC. Traders can open an account on the platform within minutes, with a minimum first-time deposit of $100. The platform also supports a number of payment methods, such as bank wire transfers and debit/credit cards.
When it comes to forex trading, AvaTrade offers traders access to several currency markets. Trading pairs can be accessed commission-free, with spreads starting from 0.9 pips. AvaTrade also provides traders with a dedicated mobile app that is compatible with Android and iOS. Additionally, the platform also offers CFDs via indices, along with stocks, crypto, and commodities.
3. Pepperstone – Top Forex Broker with Fair Spread
Pepperstone is the ideal platform for traders looking to open a raw spread account. A raw spread account allows traders to buy and sell best forex pairs with spreads starting from 0 pips. This is made possible by trading directly with other market participants. However, to access zero spreads, Pepperstone users must pay a commission of $3.50 for each currency lot traded.
Pepperstone also offers standard forex trading accounts with commission-free trading. This account requires traders to cover spreads starting from 0.6 pips. Traders can fund their accounts in several ways, such as debit and credit cards, bank transfers, POLi, BPay, and a number of eWallets. The platform offers traders several major, minor, and exotic currency pairs.
Apart from forex, Pepperstone offers users shares, commodities, crypto, and indices.
4. Plus500 – Best Forex Platform with Heavy Regulations
Plus500 is an excellent choice for those looking for FCA and ASIC-regulated broker. The platform gives users access to over 60 currency pairs, including major ANDminor ones. The platform also offers a dedicated mobile application, a demo account, and a seamless web platform.
Plus500 allows traders to incorporate several advanced indicators and fundamental data into their analysis. This is done through news and critical market insights. Price alerts let traders know when a particular currency has reached a specified exchange rate.
Additionally, traders can also use the stop-order feature to lock profits and minimize losses. Plus500 also offers a dedicated educational and FAQ section. Additionally, the platform also has a dedicated support center that is available 24/7.
Read More: What is a Pip in Forex
Conclusion – Best Forex Trading Strategies
And that wraps up our guide on the best forex trading strategies you can use in 2024. In this guide, we have discussed the best forex trading strategies and reviewed brokers that offer low spreads and an array of trading tools. The best forex trading strategies include those that highlight trends, volatility, momentum, and potential reversals.
Our choice for the best and most reputable trading platform for forex trading is eToro. eToro offers traders several charts and indicators and allows forex trading at 0% commission.
eToro Broker
- Free Copy Trading of Professional Traders
- Best Forex Broker 2024
- Minimum Deposit only $10
75% of retail investor accounts lose money when trading CFDs with this provider.
FAQs - Forex Trading Strategies:
What Is A Good Forex Strategy?
A good strategy depends on the trader’s goal, experience, and appetite for risk. The best trading strategies traders can use are Bollinger Bands, MACD, Fibonacci Flush, Moving Average Crossovers, Bladerunner, and more.
What Forex Indicators Are The Most Profitable?
The most profitable indicators are the Bollinger Bands, Parabolic SAR, MACD, Relative Strength Index, and Stochastic Oscillator. Traders must always remember never to allocate more than what they can afford to lose. This is because the forex markets are highly volatile and could lead to huge losses.
What Is The Most Successful Trading Strategy In Forex?
The most successful strategy in forex is trend trading. This strategy can be implemented using several indicators, such as the MACD and Scholastic Oscillator. However, it would be best if you remembered that forex trading is not risk-free. Even the top forex strategies are risky and require considerable research and consideration.
What Is The Easiest Forex Trading Strategy?
The Relative Strength Index is the most straightforward forex strategy to master. The strategy measures market momentum and can be used in tandem with other strategies to maximize results. However, traders must learn multiple strategies, as a single strategy will be inadequate when trading.
What Strategy Is Profitable In Forex?
No strategy can guarantee profits when it comes to forex trading. However, one strategy that can suit a number of traders is the Fibonacci Flush. This can be used by scalpers, day traders, swingers, and more.