The Best Forex Trading Strategies That Work In 2022
Forex strategies are an integral part of trading for any trader. Unlike chaotic trading, forex trading strategies are distinguished by clear rules for entering a trade, the exact observance of which allows making a regular and stable profit. Often success in the forex market depends not on luck, but the right trading strategy. In this article, we will discover some of the best strategies for you to apply next year.
Picking the Best Forex & CFD Strategy for You in 2022
Choosing a forex trading strategy is one of the most important steps for a successful trader. Exactly due to the right strategy, it is possible to stay in the money: to determine the opportune moment to enter the market and exit unprofitable trades with minimal losses. Even the simplest forex trading strategies can be effective if they perfectly match the trader's experience and work style.
First off, the chosen strategy must be very clear to a trader. Even a potentially highly profitable, but difficult-to-understand strategy will not allow feeling all the advantages due to the lack of experience of the trader.
The main thing a good strategy gives a trader is a clear understanding of the market and a trading plan. This is especially true for beginners, as even studying the fundamental and technical analysis aspects does not always result in understanding when it is necessary to open a position. A ready-made strategy can effectively solve this problem. Entry or exit is made now when the trader sees the market situation defined in the strategy: the price reaching a certain level, the formation of familiar shapes on the chart, the crossing of indicators set on the chart, etc.
In addition, the strategy removes such an important issue as the choice of the asset. Many strategies are designed for specific currency pairs and help to determine the behavior of this particular asset.
Using a strategy can protect the trader from complete zeroing of the account, which often happens when trading haphazardly. Of course, a hundred percent success is not guaranteed in this case, but strategies help to trade competently, as they are designed for a certain level of risk and profitability.
There are a great number of forex trading strategies and here are some of those that will work in 2022.
50-Pips a Day Forex Strategy
The strategy uses price action and some basic understanding of fundamental analysis.
First, we open a daily chart of any pair. Once there, mark the zones and levels of support and resistance. Once this is done, use the trend line to identify the trend, if there is one. We are going to use a trendline trading approach. Now that all our key levels and trend lines are drawn, we are ready to look for a trade.
The first thing we need to do is determine where the price is now. Is price near key support or resistance? Is it about to touch a trend line? If the price is near support or resistance, look for a breakout - retest - deviation will occur. That is, wait for the price to break above or below that level and only then enter the market.
Over time, as you practice this strategy, you will realize that certain pairs or market conditions favor the 50-pips a day strategy. For example, many majors and minors are compatible with this strategy. Exotics, because of their volatile nature, can lead to many fake signals using this strategy. Also, the best market condition for this strategy is when pairs are consolidating or in a range. This usually occurs in the absence of fundamental releases such as NFP. If a currency has shown a better-than-expected fundamental release, you should look for potential buying opportunities using this strategy for that pair.
Forex Daily Charts Strategy
There is a good option to work in the market without fuss, constant presence at the terminal. Trading daily charts will fit perfectly into the weekdays of people who are busy during the day and cannot constantly be distracted by the market.
Open the chart of the currency pair, for example, EUR/USD on time frame D1. This method can be used for different currency pairs, but the best results will be obtained with instruments with high volatility, such as EUR/USD and GBP/USD. We open the economic calendar and study what important events concerning our currency pair will appear during the week.
To make it easier to understand the strategy, let's look at examples of one week. If you don't know too well the levels of importance of certain events, the economic calendar tips will help you. Financial events have a maximum level of importance marked with three stars; these are the cases we will need.
Here we place orders not following the market, but with the help of pending orders, which can also be recorded in the advantages of the strategy on D1. On January 6, in the evening, we place two pending orders Buy Stop and Sell Stop at the High and Low of the end day, respectively. We do not set Stop-Loss and Take-Profit, as the fixing of the result of the order will take place according to the time.
The calculation of the D1 trading strategy is since important news will be a catalyst for market price movements. On such days, there is a high probability that the price will break the previous day's High or Low, which will allow us to profit. If the data is not unexpected for the participants of the trade, nothing special will happen. In this case, most likely, a trade will not open.
The position closing, be it profitable or unprofitable, takes place one day after the pending orders have been placed. Thus, we are required to place two pending orders in the evening before important financial events, about which we learn in the economic calendar, and either delete the orders the next evening, if they did not work out, or close the open trade.
Forex 1-Hour Trading Strategy
First, we need to put four Exponential Moving Averages with periods of 8, 12, 24 and 72 on the chart. It will look like this:
Hourly time frame is the most optimal for trading, both in terms of financial efficiency and comfort while searching for signals and following orders. One of the advantages of trading on H1 is that you do not need to look into the trading terminal every minute and keep your hand on the mouse button all the time.
Here is a strategy of trading on the H1 time frame with a combination of Moving Averages.
Moving Averages are a simple and effective tool for market analysis, which has not lost its relevance over the years. They are the basis of many trading systems and are perfect for beginners, who are just getting acquainted with the currency market.
Trading is based solely on the trend. How to determine the trend? If EMA 8, 12, and 24 are above EMA 72, the dominating trend is upward. If the auxiliary moving averages are located under the main one (EMA 72), the trend is downward. The trades shall be opened only in this direction.
It is necessary to buy only if the condition described above is met, and the currency pair rolled back to EMA 12 or EMA 24. At this point, it is necessary to buy. Stop Loss should be placed below EMA 24. You can close the position when the price reaches 20-40 points of profit, or you can put a trailing stop.
Forex Weekly Trading Strategy
The strategy is based on the principle of the rule - if there was a strong movement during the week, it should rollback. In simple words, a pair that passed over 85 pips in a week, often rolls back 50 pips within 2 days. The rule does not, of course, apply to all currency pairs, below will be a sampling of the groups.
Pairs are divided into three groups - the most profitable and safest, with medium profits, and the last one is up to you.
- AUD/JPY, AUD/USD, GBP/USD;
- EUR/AUD, EUR/USD, EUR/CAD, EUR/JPY;
- GBP/JPY, NZD/JPY, GBP/AUD, USD/CAD, AUD/NZD, CAD/JPY, EUR/NZD, GBP/CAD, NZD/CAD, NZD/USD, EUR/GBP, AUD/CAD.
Here is what we are looking for: before the opening of the candle on Monday, we analyze the pairs from the first group and look for a weekly candlestick, which has passed in one direction more than 85 points during the week. Moreover, this distance should be from the opening to the closing of the candle.
If the first group does not contain such candlesticks, let's pass to the second group, and if none is found there, let's pass to the third group.
If there are several candlesticks in one group, which have passed 85 points, then the biggest one is chosen.
On Monday, 2-5 minutes after the opening of a trading session, when the spread settles down, we open an order in the opposite direction of the previous candle. Take-Profit 48-50 points, Stop-Loss - 100-110 points. Usually, the order is closed within 2 days. If it remains open after this period, it is better to close it, regardless of the result.
The Role of Price Action Trading in Forex Strategies
The method of trading without indicators based on the study of market behavior on the history on the daily time frame shows the greatest effectiveness. Price Action technology involves the search for patterns - candlestick patterns, the appearance of which the market behaves predictably. The signals based on this forex strategy for D1 are profitable in 9 out of 10 cases. What is its essence and what are the rules?
Any financial instruments are suitable for the system, except for low-liquid exotic currency pairs. The algorithm of trading consists of two stages. First, it is necessary to determine the important price levels, from which the price pushed back in the past. Usually, local extrema are formed at such levels. The more of them, the stronger the level and the higher its importance to the trader. It is better to trace the lines in advance to have an idea of the distance of the price from them at the moment.
The second step is to wait for the appearance of the necessary pattern at one of the levels. There are quite a lot of Price Action candlestick formations - more than a dozen. Find out more over here.
Trend-Following Forex Strategies
Before you start applying trend-following strategies, you must first recognize a potential trend. Experienced traders will tell you that "The trend is your friend!" because the profits from a trending instrument are much greater and such trades can involve less risk.
Basically, trend trading can be divided into two approaches: systematic and discretionary.
The first one clearly defines all the rules you must follow in your trading: entry point, profit taking place, risk management, and trade management.
Most of these actions can be automated by building automated models that are based on technical analysis with limited intervention by the trader. This approach is widely used by large hedge funds.
The trader can only determine the level of risk and markets to be traded.
Discretionary trading, on the other hand, has less clear-cut rules that a trader must follow. This approach requires constant participation in trades and is widely used by individual traders. Although discretionary trading is more subjective, it is still based on a trading plan.
Remember that when trading a trend, you also need to consider risk management, find the right trending markets, cut your losses, and try to take as many trend moves as possible. All these things combined will give you an edge in trading and help you become a profitable trader.
Trading the trend is easy, and it feels safe. You move with the crowd, and you feel more confident because of it. There is not as much risk here as in the case of trading against the crowd. However, this method has significant drawbacks:
Frequent and inevitable rate reversals, which lead to losses.
All trend signals lag. It is impossible to determine the trend before it has begun. Accordingly, by the time a signal is formed, most of the price action is already behind. Because of this, it is impossible to get a good profit.
The big bankers (market makers who shape the market) can always turn the situation in a convenient direction and "beat" the whole crowd, screwing up their forecasts.
To understand how successful such a strategy is, let's look at the numbers. Statistics show that 70% of traders lose money every month, and the figure reaches 90% during the year.
4-Hour Forex Trading Strategy
Forex trading strategies for the H4 chart are characterized by their accuracy and a small number of incoming signals. Since the rendering time of one candle takes exactly 4 hours, the signals will come very rarely, and one position may be active for several days. Therefore, any medium-term strategy will be suitable for H4.
For instance, here is one applying MACD and Stochastic.
This strategy is a trending one. It is most profitable when trading on the volatile major EUR/USD pair. Stochastic and standard MACD are used to search for signals.
The settings should be as follows:
- Stochastic oscillator. %K = 8 bars, %D = 3 bars, deceleration = 3. Levels 20 and 80. In addition, add an additional level of 50.
- MACD. EMA Fast - 52, EMA Slow - 104, period of signal MACD SMA - 9 bars.
If the MACD bars are above zero and the signal moving is moving above the bars, open a buy position. Stochastic curves should confirm the signal by crossing each other below the 50 mark. Stop-Loss should be equal to at least 50 points. Take-Profit - 2-2.5 times the Stop-Loss.
The short position is placed at the opposite conditions. Take-Profit and Stop-Loss are set by the same rules as for the Buy order.
Counter-Trend Forex Strategies
Counter-trend trading seems illogical at first glance. After all, if the price goes up, it would be logical to buy the asset or on the contrary sell it on a falling market. But the reality of the market makes its adjustments. The market is volatile, the trend is never perfectly straight up. There is always a place for local corrections, bull and bear capital struggles, etc. There are many reasons for pullbacks. Moreover, no one can predict with 100% accuracy whether the rollback is the creation of a new strong trend in the opposite direction. Practice shows that the price shows a clear upward or downward movement only 25-30% of a fixed period, the rest of the time it fluctuates in the flat.
When it comes to opening a position, we are guided by the following two principles:
- If everyone says that the price will go up, it means that they have already stocked the asset and are waiting for it to go up. And the fire is fanned by those who benefit from losing the crowd. Amateur traders rush to buy the asset if the trend is going up, the sellers appear, and the trend reverses accordingly;
- The same situation is with the fall of the market. If everyone is waiting for the fall, most likely everyone is short. There are no sellers, so the trend slows down and turns around soon.
Trading against the trend is opening a position following the prediction of a reversal soon. It provides several options (strategies):
- Trading pullbacks. Any strong trend is alternated by pullbacks. It can be seen on the chart now of the news release. At first, the price rushes upwards under the pressure of speculative capital, where more conservative traders fix their positions. After that, it turns down. It only remains to catch the moment of reversal and earn on the opposite position;
- Scalping. The most popular strategy in the flat, providing earnings on short movements of the price as along the trend as against it. The duration of the deal is up to 10 minutes;
- Trade in the channel. The example of the indicator used is the Bollinger Bands, resistance, and support levels.
- Rebound occurs most frequently from them. Therefore, it is possible to set a pending order on their value in the opposite direction with a Stop-Loss 1.5 times greater than the standard correction for the last several timeframes.
Dangerous points of trading against the trend:
- Not every asset that has fallen in price immediately goes into a reversal. In other words, betting on the rapid rise of a falling asset is dangerous;
- A trend reversal may turn out to be a small correction. If you don't know how to handle short-term intraday trading - don't take the risk.
- Counter-trend trading requires the trader to be very attentive. To avoid possible pullbacks and reversals, it is necessary not only to be at your computer all the time but also to understand the market. To make money by trading against the main direction, it is necessary to be able to feel the market saturation, to understand the fundamental factors that move it up or down. Some expert advisors can determine the nature of the market direction by patterns and open an opposite position now of its saturation of buyers or sellers. Still, algorithmic trading should not be abused.
Night trading strategies
The main disadvantage of night trading is the lack of activity on the market. However, it can be regarded as an advantage. The movement of currency pairs becomes more predictable, and it is easier to gain profit on such a market, even if the profit will be many times less than on daytime trading. There is no news released at night that is why prices do not fluctuate. It means that trades can be predicted more precisely.
Before you start night trading, you should know the phases of market activity. After 8 p.m. GMT, the market usually slows down and enters a flat condition. This is also considered to be the most suitable time for the use of night forex trading strategies. It is better not to trade in currencies containing the Japanese Yen after midnight (GMT) because at this time, Asian markets open, and there is a possibility of movements in these financial instruments.
It is also worth familiarizing yourself with the size of spreads during the night. Some brokers increase it to such a value that trading becomes meaningless.
The quiet nature of night trading should be noted as an advantage. A trader can approach the market analysis in a more balanced way, and since there are usually no big price fluctuations, trading is insured against big losses with a reasonable approach. Also, at night there is a more stable connection to the trading servers because the load on them is minimal, which means faster execution of orders if there is the appropriate liquidity.
The main way to trade the market at night is a channel strategy or a level trading system. This is not surprising because at night the pair usually forms a clear range with its borders acting as strong support and resistance levels - horizontal for a level system and inclined for trading inside the channel.
It is not recommended to trade breakouts at night because the price is likely to be within the channel, and the breakout will be done closer to the morning when more participants enter the market and the major exchanges open. The Stop-Loss is usually set outside these levels, and Take-Profit rarely exceeds 8-10 points, even if the width of the corridor is 40 points.
If you see that the price has exhausted its potential and the movement has almost stopped, go to bed, further trading will only lead to a pointless waste of time.
Discovering the Best FX Strategy for You
A trader should understand that there are no one hundred percent profitable algorithms of work - in every trading scheme there is a certain level of risk and probable profit. The same system can be an effective tool in the hands of one trader, but not bring a good income to another. It is due to the influence of psychological factor, discipline on the market, moods of financial market participants.
We won't surprise you if we say that the best strategy is the one that is perfect for you and your trading background. So, take your time and test several different approaches and assets, and only by trial and error, you can find that system of your own.
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