FOREX STRATEGIESFOREX STRATEGIES
Forex trading can't be consistently profitable without adhering to some Forex strategy. It takes time and effort to build your own Forex trading strategy or to adapt an existing one to your trading needs and style. It's important to choose a strategy or system that is easy to follow with your daily trading schedule and that can be applied successfully with your account balance size. In this Forex strategy repository you'll find various strategies that are divided into three major categories:
• Indicator Forex Strategies
• Price Action Forex Strategies
• Fundamental Forex Strategies
Indicator Forex Strategies are such trading strategies that are based on the standard Forex chart indicators and can be used by anyone who has an access to some charting software (e.g. MetaTrader platform). These Forex strategies are recommended to traders that prefer technical analysis indicators over everything else:
Moving Average Cross Strategy
Parabolic SAR Strategy
Stochastic Oscillator Strategy
MACD Divergence Forex Strategy
Combined Stochastic Oscillator/MA Strategy
Price Action Forex Strategies are the currency trading strategies that don't use any chart or fundamental indicators but instead are based purely on the price action. These strategies will fit both short-term and long-term traders that don't like the delay of the standard indicators and prefer to listen as the market is speaking. Various candlestick patterns, waves, tick-based strategies, grid and pending position systems — they all fall into this category:
Inside Bar Strategy
Simple Price Based Trading System
Martingale Trading System
Scalping Forex Strategy
Support and Resistance Strategy
Fundamental Forex Strategies are the based on purely fundamental factors that stand behind the bought and sold currencies. Various fundamental indicators, such as interest rates and macroeconomic statistics, affect the behavior of the Forex market. These strategies are quite popular and will benefit long-term traders that prefer fundamental data analysis over technical factors:
Important News Trading Strategy
Carry Trade Strategy
Wednesday AUD/JPY Strategy
Forex Gap Strategy
If you want to share your Forex trading strategy with other traders, or want to ask some questions regarding the strategies presented here, please, join a discussion of the Forex strategies at the forum.
Moving Average Cross Trading Strategy
Moving Average Cross Forex trading strategy — is a simple system that is based on the cross of the two standard indicators — the fast EMA (exponential moving average) and the slow EMA. You can also use our free Adjustable Moving Average Cross expert advisor to trade this strategy automatically in MetaTrader platform.
Features
• Very easy strategy to follow.
• Simple indicators used.
• It's easy to set stop-loss.
• Moving averages are laggy — can lag up to 10 bars.
• Ineffective during the flat markets.
Strategy Set-Up
1. Any currency pair and timeframe should work.
2. Add an exponential moving average to the chart, set its period to 9, apply to Close, set color to red (optional) — this is your fast moving average (FMA).
3. Add another exponential moving average to the chart, set its period to 14, apply to Close, set color to blue (optional) — this is your slow moving average (SMA).
Entry Conditions
Enter Long position when FMA crosses SMA from below.
Enter Short position when FMA crosses SMA from above.
Exit Conditions
Stop-loss for Long positions should be set to the Low of the last candle before the cross occurred. For Short positions — to the High of the last candle before the cross.
Take-profit should depend on the stop-loss and should be not less that stop-loss. I recommend setting TP to 1.5 * SL or 2 * SL.
If another cross appears before the stop-loss or take-profit are triggered close the position.
Example
As seen on the example chart, entry conditions are quite clear and with the proper TP/SL ratio, this strategy can be quite profitable.
Warning!
Use this strategy at your own risk. EarnForex.com can't be responsible for any losses associated with using any strategy presented on the site. It's not recommended to use this strategy on the real account without testing it on demo first.
Parabolic SAR Trading Strategy
Parabolic SAR Forex trading strategy — is a rather risky system that is based on direct signals of the Parabolic SAR indicator, which shows stop and reverse levels.
Features
• Simple to follow.
• Only one standard indicator used.
• Entry and exit conditions are given directly by the indicator.
• Indicator lag.
• Very risky and not always effective.
Strategy Set-Up
1. Any currency pair and timeframe should work.
2. Add a Parabolic SAR indicator to the chart, set its step to 0.05 and maximum to 0.2.
Entry Conditions
Enter Long position when the current price touches the indicator from below and it changes its direction.
Enter Short position when the current price touches the indicator from above and it changes its direction.
Exit Conditions
Set stop-loss directly at the indicator level — above the price for Short positions and below the price for Long positions. Adjust stop-loss with each new bar.
Take-profit should be set to the same value as stop-loss but you shouldn't adjust it.
Example
As you can see on the example chart above, there are 6 entry points. The first one is bullish and leads to a profit. The second one is bearish and also reaches take-profit level. The third one is bullish and is a complete loss, as is the fourth one, which is, of course, bearish. The fifth one doesn't reach take-profit level but it closes with only a minor loss; it's bullish. The sixth one is a short position and has already reached its recommended take-profit.
Judging from above it's easy to conclude that short and long positions always follow one after another in this strategy and that it's not very reliable one.
Warning!
Use this strategy at your own risk. EarnForex.com can't be responsible for any losses associated with using any strategy presented on the site. It's not recommended to use this strategy on the real account without testing it on demo first.
Stochastic Oscillator Trading Strategy
Stochastic Oscillator Forex trading strategy — it's an interesting system with a rather low fail rate. It's based on a standard Stochastic Oscillator indicator, which signals a trend fatigue and change. That means that you will almost always enter on pull-backs, guaranteeing rather safe stop-loss levels.
Features
• Simple to follow.
• Only one standard indicator used.
• Safe stop-loss levels.
• Take-profit level isn't optimal.
Strategy Set-Up
1. Any currency pair and timeframe should work. But longer timeframes are recommended.
2. Add a Stochastic Oscillator indicator to the chart, set its %K period to 14, %D period to 7 and slowing to 7, use Simple MA method.
Entry Conditions
Enter Long position when the cyan line crosses the red one from below and both are located in the bottom half of the indicator's window.
Enter Short position when the cyan line crosses the red one from above and both are located in the upper half of the indicator's window.
Exit Conditions
Set stop-loss to the local maximum if going Long and to the local minimum if going Short.
The most comfortable level for take-profit is between 1 * SL and 1.5 * SL.
Close position immediately if another signal is generated.
Example
5 signals for this strategy can be seen on the example chart above. All stop-loss levels are marked with the yellow horizontal lines on the chart. The first signal is for Short position with a close stop-loss; take-profit is achievable here. The second one is a bullish signal, which turns out to be a wrong pull-back, but, fortunately enough, the stop-loss is quite tight here. The third signal is not a signal actually, because it's a bearish figure cross that appears in the bottom half of the window and thus is disregarded. Fourth signal is bullish with a stop-loss quite far away, but even the most aggressive take-profit level would work here. The final signal is for Short, with tight stop-loss and a lot of place for a rather profitable TP setting.
Ideally bullish and bearish signals should follow one after another but due to the occurrence of the false signals (bearish in the bottom half and bullish in the upper half of the window) it's not always so.
Warning!
Use this strategy at your own risk. EarnForex.com can't be responsible for any losses associated with using any strategy presented on the site. It's not recommended to use this strategy on the real account without testing it on demo first.
MACD Divergence Trading Strategy
MACD Divergence Forex trading strategy — is one of the quite reliable systems and is based on the standard MACD indicator. Actually, the divergence between MACD line and the currency pair rate is the basic signal in this strategy. This system has rather fuzzy entry and exit points, but it's easy to spot the signal and the trades can be rather profitable, as it helps to catch the pull-backs and the trend reversals.
Features
• Easy to spot signals.
• Only one standard indicator used.
• Good profit potential on positions.
• Take-profit and stop-loss levels are rather indefinite.
• Rare occurrence on the long-term charts.
Strategy Set-Up
1. Any currency pair and timeframe should work. But shorter timeframes are recommended, as they yield more opportunities.
2. Add MACD (Moving Average Convergence/Divergence) indicator to the chart, set Fast EMA period to 12, Slow EMA period to 26 and MACD SMA to 9; apply to Close.
Entry Conditions
Enter Long position when the price shows a bearish trend and MACD indicator shows a bullish trend.
Enter Short position when the price shows a bullish trend and MACD indicator shows a bearish trend.
Exit Conditions
Set stop-loss to the nearby support level, when going Long, or to the nearby resistance level, when going Short.
Set take-profit to the next resistance level for Long positions, or to the next support level for Short positions.
If the system generates a reversal signal — close the previous position first.
Example
The example chart is EUR/USD currency pair at M15 timeframe. As seen on the chart, the price line was declining in a bearish trend, while the MACD indicator was rising in a bullish trend during rather long period. The entry point is marked at the level, where it's became clear that the downtrend is over on the currency pair chart. Stop-loss was set to the support level formed by the double-bottom chart pattern, while the take-profit level was set to the level of resistance formed by bearish trend's short-lived pull-backs. The TP/SL ratio is rather good here — about 1.5.
Warning!
Use this strategy at your own risk. EarnForex.com can't be responsible for any losses associated with using any strategy presented on the site. It's not recommended to use this strategy on the real account without testing it on demo first.
Combined Stochastic Oscillator/MA Trading Strategy
Combined Stochastic Oscillator/MA Forex trading strategy — is a relatively safe trading system that is based on the standard Stochastic Oscillator indicator in combination with the standard Exponential Moving Averages. You can use the moving averages as the general long-term trend indicator, while the stochastic will show you the short-term overbought/oversold states, where you can enter a successful pull-back trade.
Features
• Rather reliable.
• Trading with the trend.
• Isn't very easy to follow.
• No definite target/exit levels.
Strategy Set-Up
1. Any currency pair should work. Use D1 timeframe for the long-term trend detection with the Exponential Moving Averages and H1 timeframe for the short-term signal receiving with the Stochastic Oscillator.
2. Add 3 Exponential Moving Averages to the D1 chart, set periods to 50, 100 and 200.
3. Add a Stochastic Oscillator indicator to the H1 chart, set its %K period to 14, %D period to 3 and slowing to 3, use Close/Close price field, set overbought level to 90% and oversold level to 10%.
Entry Conditions
Enter Long position when the long-term trend is bullish (the D1 chart shows price above EMA50, EMA50 above EMA100 and EMA100 above EMA200) and the stochastic crosses the oversold level from below on H1 chart.
Enter Short position when the short-term trend is bearish (the D1 chart shows price below EMA50, EMA50 below EMA100 and EMA100 below EMA200) and the stochastic crosses the overbought level from above on H1 chart.
Exit Conditions
There are no definite SL/TP levels, but the recommended risk/reward ratio is 1/2.
A rather tight trailing stop should be maintained.
Example
Bearish trend:
Bullish trend:
On the example charts you can see the December 14, 2009 signals generated both for the bearish EUR/AUD and for the bullish AUD/CHF charts. As you see, the signal line for stochastic oscillator is the actual stochastic, not its MA. The exponential moving averages should form an almost perfect trend for the more accurate signals. In the Short position example both positions would hit a rather optimistic take-profit. In the Long position example the second trade would end with almost no loss if a tight trailing stop was used.
Warning!
Use this strategy at your own risk. EarnForex.com can't be responsible for any losses associated with using any strategy presented on the site. It's not recommended to use this strategy on the real account without testing it on demo first
Inside Bar Trading Strategy
Inside Bar Forex trading strategy — a popular system with a nice win/loss ratio but a rather rare occurrence of the proper entry conditions. It doesn't require any indicators and can be applied on the bare candlestick or bar chart.
Features
• Entry conditions are clearly defined.
• Very simple bare chart system.
• High success rate.
• Rare occurrence of the proper conditions.
How to Trade?
1. An inside bar is a bar or a candlestick that completely fits into the first preceding bar (also called a "container" bar), including its High and Low values.
2. If the current bar has an index of 0 and the previous bar has an index of 1 then the following conditions should be true for the current bar to count as an inside bar: High[0] < High[1] and Low[0] > Low[1]. Mind the strict "greater" and "less" operators.
3. Bearish inside bar that follows a bullish "container" bar on the clearly visible uptrend signals a Short position.
4. Bullish inside bar that follows a bearish "container" bar on the clearly visible downtrend signals a Long position.
5. Stop-loss is set to the Low of the "container" bar for the Long positions and to the High of the "container" bar for the Short positions.
6. Take-profit should be set to the nearest support/resistance level formed by the trend.
Example
A bullish inside bar after a downtrend is shown on the example chart. The inside bar is easy to identify and the stop-loss level is rather conservative here. The target was set to the resistance level formed by the previous downtrend. As you can see, the currency pair rate reached the take-profit level without any problems.
Warning!
Use this strategy at your own risk. EarnForex.com can't be responsible for any losses associated with using any strategy presented on the site. It's not recommended to use this strategy on the real account without testing it on demo first.
Simple Price Based Trading System
Simple Price Based Forex trading system — an interesting system that was developed by one of the Forex traders recently. It works for any pair (though, EUR/USD is recommended) and in all market conditions. No indicators are required to trade using this system. All you need is the ability to set up the pending orders.
Features
• Position-based trading for any state of the market.
• Trailing stop protects profit.
• Lack of statistical proof.
How to Trade?
1. Higher timeframe chart is recommended as each trading setup requires some calculations based on the latest bar.
2. Key number should be calculated first. It's based on the current price. For the quotes with 4 digits after a dot the key value is the current price multiplied by 10 and then rounded. For the quotes with 2 digits after a dot the key value is the current price divided by 10 and the rounded.
3. Place pending Buy order at Current Price + (2 * Key value).
4. Place pending Sell order at Current Price - (2 * Key value).
5. Place stop-loss for pending Buy order at Open Price - (2 * Key value).
6. Place stop-loss for pending Sell order at Open Price + (2 * Key value).
7. Take-profit for both orders is calculated similarly to the key value but the current price should be multiplied by 100 for the quotes with 4 digits after a dot and shouldn't be divided for the quotes with 2 digits after a dot. In both cases the values should be rounded.
8. Trailing stop is also applied to the orders and is set to 2.5 * Key value.
9. Don't forget to cancel the untriggered orders after the timeframe period ends.
10. If this sounds too complicated, see the example below.
Example
Let's calculate the entry conditions and parameters for an example presented on the chart:
1. It's a EUR/USD H4 chart.
2. The current price is 1.4810, the current bar's open price is 1.4832.
3. There are 4 digits after a dot in the quotes for EUR/USD. That means that the Key value is calculated as 1.4810 * 10 = 14.8. Rounding it results in 15 pips.
4. Pending Buy order level is calculated as 1.4810 + (2 * 15) = 1.4840.
5. Pending Sell order level is calculated as 1.4810 - (2 * 15) = 1.4780.
6. Stop-loss for pending Buy order is calculated as 1.4832 - (2 * 15) = 1.4802.
7. Stop-loss for pending Sell order is calculated as 1.4832 + (2 * 15) = 1.4862.
8. Take-profit for all pending orders is calculated as 1.4810 * 100 = 148.1 or, after rounding, 148 pips.
9. Take-profit for pending Buy order is set to 1.4840 + 148 = 1.4988.
10. Take-profit for pending Sell order is set to 1.4780 - 148 = 1.4632.
11. Trailing stop for both orders is set to 2.5 * 15 = 37.5 or, after rounding, 38 pips.
Credits
This trading system was originally developed by The Forexkid. The version presented here has some minor modifications.
Warning!
Use this strategy at your own risk. EarnForex.com can't be responsible for any losses associated with using any strategy presented on the site. It's not recommended to use this strategy on the real account without testing it on demo first.
Martingale Trading System
Martingale trading system — is based on the popular betting (gambling) system of the 18th century France. The main principle of this system is to double the bet each time you lose so that if you win (considering a 100% bet win/loss each time) you recover a previous loss and will also gain the first bet amount. If one had an infinite amount of money, this strategy would be a sure-fire thing as with the infinite amount of bets the necessary result will with probability 1 eventually come. The problem is that no trader possesses an infinite wealth and thus utilizing this strategy eventually leads to a wiped account. Although it's a very popular Forex trading system and is used in many paid Forex expert advisors, I strongly don't recommend trading with it.
Features
• Theoretically bullet-proof system.
• Practically unsound.
• Reward/risk ratio can reach extremely low values.
How to Trade?
1. Any currency pair and timeframe will work.
2. Determine your basic position size.
3. Place an order in a random direction (Buy or Sell) with some fixed stop-loss and the same take-profit.
4. After the SL or TP is triggered you either win or lose.
5. If you win, set the position size to the initial and go the step 3.
6. If you lose, double the position size and go to step 3.
7. If you have infinite trading account balance, eventually you'll win a lot. If your account balance is limited you'll lose it eventually.
Example
No example chart is present for this trading system as there is nothing important to be shown on the chart. Let's view the following example.
1. You start with $10,000 account and can trade with mini Forex lots (0.1 of the standard lot) and decide to trade on EUR/USD.
2. You define your basic position size as 0.1 lots.
3. You decide to go Long setting stop-loss at 40 pips (or $4). The take-profit is set to the same value.
4. You lose the position. Now your account balance is $9,996.
5. You double your next position size to 0.2 lots, so that using the same stop-loss and take-profit levels you risk $8 and also have a chance to win $8. You decide to change the position's direction and go Short.
6. You win and now you've recovered lost $4 and also won $4. Your account balance is $10,004.
7. You return your position to initial 0.1 lots and start over.
8. With $10,000 account balance and $4 basic risk value you'll have to lose 11 positions in a row to wipe your account. You'll have to win 250 positions to double your balance.
Scalping Forex Strategy
Scalping Forex strategy — is a simple trading system that relies on very close targets, extremely low stop-loss and a lot of positions opened and closed during a short period of time. Not all Forex brokers allow scalping and not all that allow are good to scalp with. Scalping may not be suitable for all traders and, personally, I don't recommend scalping to anyone. The most simple scalping Forex trading system is presented here.
Features
• Nice profits for lucky (intuitive) traders.
• No need to pay attention to technical, fundamental or any other analysis.
• Spreads eat a big part of profit.
• Reward/risk ratio is usually too low.
• Not all Forex brokers allow scalping.
• Requires a lot of time for trading and monitoring.
How to Trade?
1. Currency pairs with a lot of intraday volatility but low spreads are recommended (EUR/JPY, GBP/USD, EUR/USD and USD/JPY are good examples).
2. M1 timeframe or lower is optimal.
3. Optimal trading time is during the European/U.S. and U.S./Asian trading sessions' intersection.
4. Prepare to enter the positions by closely monitoring the market activity for 5–15 minutes.
5. When you think that you "caught" the current short-term trend, enter a position.
6. Set stop-loss to about 10 pips.
7. The general rule for target profit is one or one-and-a-half spreads. Setting take-profit to such low levels (2–5 pips) is almost impossible, so you'll need to monitor the position to see the target profit and close it manually.
Example
No example chart is present for this trading system as there is nothing important to be shown on the chart. Let's view the following examples.
1. You open Long position on EUR/USD with 10 pips stop-loss and target for 4 pips of profit. After 20 second the position reaches 4 pips of profit and you close it.
2. You open Short position on GBP/USD with 10 pips stop-loss and target for 4 pips of profit. After 3–4 minutes the trend unexpectedly reverses and the position is closed by stop-loss.
3. You open Short position on USD/JPY with 10 pips stop-loss and target for 3 pips of profit. After about 1 minute the position reaches 4 pips of profit and you close it.
4. You open Long position on EUR/JPY with 10 pips stop-loss and target for 5 pips of profit. After 5 seconds the price spikes and the position reaches 12 pips of profit and you close it.
5. That's 10 pips of profit in less than 6 minutes. Of course, it's purely hypothetical.
Support and Resistance Trading Strategy
Support and Resistance Forex trading strategy — is a widely used trading system based on the horizontal levels of support and resistance. These levels are formed by the candlesticks' highs and lows. A break-through of these levels after a period of consolidation gives a signal for a trend. This strategy doesn't require any chart indicators except for the ability to draw lines (at least imaginary).
Features
• Well-defined low stop-loss.
• Relatively high success rate.
• Unclear target levels.
How to Trade?
1. Support level is formed by the lows of two or more candlestick bars that form a rather straight horizontal line with no lower lows between them.
2. Resistance level is formed by the highs of two or more candlestick bars that form a rather straight horizontal line with no higher highs between them.
3. Consolidation is a period without any trend, forming near support or resistance level, with the relatively small candlestick bodies.
4. A close below the support level signals a short position.
5. A close above the resistance level signals a long position.
6. Stop-loss is set to the low of the previous candlestick (for the long positions) or to the high of the previous candlestick (for the short positions).
7. Take-profit can be set relatively to the stop-loss or as a trailing stop of some sort.
Example
Support set-up:
Resistance set-up:
A period of consolidation is clearly seen on both example charts. In both cases the support/resistance level is formed by two candles on a rather short period. Stop-loss is placed close to the entry level. Take-profit couldn't be clearly set at the position entry moment, but a risk/reward ratio of not less than 1:2 could be used easily. If you are having trouble detecting support and resistance levels on the chart you can use our free MT4/MT5 indicators for that: Support and Resistance or TzPivots.
TzPivots
TzPivots MetaTrader indicator — should be attached to the H1 or lower timeframe chart. This indicator will display the pivot points and support and resistance lines for the intraday trading. It calculates them by its own formula based on the previous trading session. You can use the resulting lines as entry and exit points. The indicator also outputs all the data into the MetaTrader global variables, which can be accessed by any expert advisor on the terminal. TzPivots is available for MT4 and MT5.
Input parameters:
• LocalTimeZone (default = 0) — the timezone of your MT4 or MT5 server. For example, if your server is in New York you should set this parameter to -5.
• DestTimeZone (default = 0) — the timezone of the trading session you are using to trade in. For example if you trade in London set this parameter to 0.
• Other parameters — modify the visual representation of the lines. Don't change them.
If you are acquainted with the pivot points and support and resistance lines using this indicator will be easy for you. The central pivot line bears a very high chance of reversal. The support and resistance lines become less strong the farther they are from the central pivot line. The weaker the line is the easier it is to break.
