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One potentially beneficial and profitable Forex trading strategy is the 4-hour trend following strategy. However, the 4-hour timeframe makes it more suitable for swing traders. This strategy uses a 4-hour base chart to screen for potential trading signal locations. The 1-hour chart is used as the signal chart, to determine where the actual positions will be taken.
Some of these factors include political stability, interest rates, inflation, terms of trade, public debt and current account deficits. For example, in the case of interest rates, if rates are higher, lenders get a better return compared to those in a country with lower rates; therefore the higher rates attract foreign capital which causes the exchange rate to rise. This is one of the reasons forex traders may look to trade on interest rate announcements from central banks like the US Federal Reserve or the Bank of England.
Stochastics are then used to identify entry points by looking for oversold signals highlighted by the blue rectangles on the stochastic and chart. Risk management is the final step whereby the ATR gives an indication of stop levels. The ATR figure is highlighted by the red circles. This figure represents the approximate number of pips away the stop level should be set. For example, if the ATR reads 41.8 (reflected in the last ATR reading) the trader would look to place the stop 41.8 pips away from entry. At DailyFX, we recommend trading with a positive risk-reward ratio at a minimum of 1:2. This would mean setting a take profit level (limit) at least 83.6 (41.8 x 2) pips away or further.
Risk warning: Trading Forex (foreign exchange) or CFDs (contracts for difference) on margin carries a high level of risk and may not be suitable for all investors. There is a possibility that you may sustain a loss equal to or greater than your entire investment. Therefore, you should not invest or risk money that you cannot afford to lose. Before using Admiral Markets UK Ltd, Admiral Markets Cyprus Ltd or Admiral Markets PTY Ltd services, please acknowledge all of the risks associated with trading.
Some of the other best forex trading strategies are based on the technical analysis. This method is particularly important in day trading. Technical analysis is useful to traders in that it gives them an indication of times when they can enter or exit the market. It also helps the trader to make the most out of the existing market status. Given below are brief explanations of some of the technical analysis based trading strategies.
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If you believe that a currency pair such as the Australian dollar will rise against the US Dollar you can place a buy trade on AUD/USD. If the prices rises, you will make a profit for every point that AUD appreciates against the USD. If the market falls, then you will make a loss for every point the price moves against you. Our trading platform tells you in real-time how much profit or loss you are making.
Counter-trend strategies rely on the fact that most breakouts do not develop into long-term trends. Therefore, a trader using such a strategy seeks to gain an edge from the tendency of prices to bounce off previously established highs and lows. On paper, counter-trend strategies are the best Forex trading strategies for building confidence, because they have a high success ratio.
This is an exceptionally good strategy and works across all timeframes and for all currency pairs. This trending strategy picks breakouts from a continuation so as to help traders trade the retests. Candlesticks, pivot points, support and resistance levels and round numbers can be used when employing this strategy. Off-chart indicators are not necessary.
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