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Best Forex Strategies for Consistent Profits

Overview

Traders can earn a decent pay-out at times depending on several factors such as their trading strategy, market conditions, and the drivers that influence prices in the forex market.

However, traders who want to have a career in forex trading and become professional traders must ensure that they have a consistent profit forex strategy.

This may seem like an impossible task, especially when considering that the market conditions are never the same.

According to analysts and experts, 33% of forex traders can profit for up to 3 months, but the number of market participants who can do this sustainable stands at 7.7% annually, which means that more than 92% of traders will not be profitable.

The odds may seem astronomical, but there are a few ways in which traders can achieve their long-term forex trading goals. An important first step is to set proper risk-reward ratios and to have realistic profit targets.

Money management aside, traders also need to ensure that they use leverage correctly and that they do not risk more of their capital than they can afford to lose.

It is also important to keep a trading journal to allow traders to track their performance, repeat their successes and avoid making the same mistakes.

Finally, it requires regular, in-depth research, technical analysis, and fundamental analysis by using the latest indicators and latest economic information, allowing traders to direct their trading decisions better.

Traders must also remember that not all complex trading systems are always the most profitable, many proven profitable trading strategies are straightforward, with a smaller learning curve than a more complex system.

 

Why is a Trading Strategy Important?

The best forex traders know that one of the most important things to do to trade and earn consistent profits is to be prepared by planning on how to enter a position in the market.

Without a trading strategy, traders will be gambling blindly in the direction that the market may take. In addition, by trading without a plan, the chance of long-term success is slim.

When traders use a trading strategy, they have a clear idea of the direction in which the market may be heading, how? By conducting either technical analysis to identify certain movements or trends, fundamental analysis on news that may send the market in one direction, or a combination of both.

Trading strategies do not guarantee accuracy in predicting the direction of the market, but they provide traders with a high probability where directional bias may be heading.

 

Main Categories of Forex Trading Strategies

There are many different types of trading strategies, but all can be divided between these distinctive categories:

  • Scalping
  • Day Trading
  • Swing Trading
  • Position Trading
  • Trend Trading or Following
  • Range Trading

 

Scalping

Scalping is a short-term and fast-paced trading style that happens when traders open and close their positions in a matter of seconds or minutes, depending on the specific scalping trading strategy that the trader uses.

Scalpers try to take advantage of short-term movements in the price of currency pairs, especially when there are breakouts. When the price breaks a crucial technical level, there is a cluster of stop-loss and pending orders that causes the market to accelerate in the direction of the breakout.

Scalping is an active trading style and scalpers often open many trades every day that they actively manage.

 

Day Trading

While scalping is a form of day trading, day trading is a type of trading strategy on its own with many other strategies that form part of it. Day trading refers to the opening and closing of positions within the same trading day.

Day traders will consider trading opportunities early in the morning, or during the day, and they will subsequently close all open positions before the trading day concludes.

Day trading is a simple, profitable forex trading strategy and it still offers traders a variety of different viable options. Day trading is believed to be the most accurate forex strategy among others, but it requires a great amount of discipline, patience, and skill for traders to master.

 

Swing Trading

Swing trading is a trading style used over longer terms and it involves keeping positions open for several days and even weeks. Swing traders only use back-tested forex strategies, and they aim to take advantage of swings that may occur in the markets, especially strong moves in long-term charts.

This entails using a wider stop-loss order that will accommodate market volatility, leading to returns that can be measured in hundreds of points, or pips.

Swing trading is a simple profitable forex trading strategy that can be applied across a range of financial instruments if traders ensure that they have the necessary risk management protocols in place to protect them from sudden movements and the inherent volatile environment.

 

Position Trading

Position trading is the most long-term trading style where traders keep their positions open for months and even years. Position trading may seem more like investing, but it is considered a trading style on its own.

Position traders can either open long or short positions, use stop-loss and take-profit orders, and use several other indicators while they hold their positions.

Position trading is heavily influenced by market fundamentals including economic cycles, credit cycles, the balance of payments, interest rate differentials, and several others.

 

Trend Trading/Following

Trend following trading strategies create trading opportunities in the typical mid-term direction of a financial market. The idea behind these strategies is that the market will continue in a specific direction for a certain amount of time.

These strategies involve opening positions at the start of the trend and closing them once the trend has reached a peak before it goes in the opposite direction.

 

Range Trading

Range trading strategies work to extract profits from the financial markets when it is either in a lull or it is moving without bias in a certain direction. When this occurs, the financial instrument will oscillate between higher and lower barriers, allowing the trader to catch either the top or the bottom of a move.

 

Always remember these rules when using a trading strategy

Before exploring the best forex strategies for consistent profits traders must consider these tips to ensure that they trade consistently and profitably:

  • No strategy is guaranteed to work, there will be losing trades. Evaluate each trade in back-tests to see what will work and what can be set aside.
  • Ensure that you have efficient money and risk management in place.
  • Always maintain realistic profit targets.
  • Experiment with timeframes to choose one that works the best for you.
  • Always keep your emotions in check and keep to your trading plan no matter what.

 

The Best Forex Strategies for Consistent Profits

Moving average crossover

Moving average (MA) is a simple and straightforward technical analysis tool that is used in profitable moving average forex strategies, smoothing out the price data by developing a constantly updated average price.

This average can be viewed across different timeframes and this trading strategy has become very popular among a wide range of forex traders. Some of the typical reasons that traders create moving averages are to identify any trend directions and to determine the levels for support as well as resistance.

When the currency pairs’ prices cross over their moving averages, it will provide the trader with a trading signal, especially for technical traders.

One of the main moving average trading strategies involves price crossovers. This occurs if the price rises either above or below the moving average, indicating a potential change in the trend.

Another trading technique that traders can use is to use two moving averages instead of just one, a longer and a shorter average. Once the short-term moving average crosses the long-term moving average, traders will receive a buy signal, indicating a rising trend.

If the shorter moving average crosses below the long-term moving average, it indicates a sell signal, showing that the trend is decreasing, or it has reached a “dead cross” or a “death cross”.

For a very easy and profitable trading strategy, MT4 offers traders a range of technical indicators that can be used to develop, test, and back-test this type of strategy against historical data.

 

EMA Crossover Strategy

EMA, or Exponential Moving Average is one of the best technical indicators that traders can use in forex trading. This technical indicator works to provide traders with a directional bias on any chart type, despite the time frame, at just one glance.

These EMA crossover strategies make use of two different EMAs that have differing values, lower and higher, and they subsequently take a position in the market according to the direction of the crossing.

Traders are urged to enter a sell trade if the lower EMA value crosses the higher value from the top to the bottom, indicating a downward trend. When the lower value EMA crosses the higher value from the bottom, it indicates an upward trend.

 

Gann Trend Following Strategy

This trading strategy uses a technical indicator which is based on William Delbert Gann’s angles which decide the next possible direction of the financial market. The Gann Trend Following Strategy can require that traders download a specific indicator for their trading platform.

It is especially useful in MetaTrader 4 as traders have a variety of Gann-related indicators that they can use for free.

 

Support and resistance strategy

This is one of the most popular range trading strategies that work to try and identify where the market is likely to turn. The logic surrounds the theory that the market will become bearish at a resistance level and bullish at a support level.

This means that traders need to enter a sell trade at the resistance level and a buy trade at the support level. This trading strategy is compatible with a variety of tools that help traders establish support and resistance levels including Bollinger Bands, Pivot Points, Fibonacci Ratios, and several others.

 

Pinbar Strategy

This strategy employs an element of the Japanese Candlesticks to predict any future price movement in the financial market. The logic surrounds the fact that the Pinbar indicates that the market will change direction, like an arrow that is created by the behaviours of market participants.

This trading strategy is often used in combination with several others including Support and Resistance, ensuring that there is a higher probability of success when using this strategy.

 

Bollinger Bounce

The Bollinger Bands are a powerful and popular technical analysis indicator that has been in use for decades. The Bollinger Bands create a channel around market movements on a price chart. If the price touches the lower boundary, the lower band will likely act as a support level and lead to a reversal.

 

Bollinger Breakout

This is also based on the technical analysis indicator and the strategy is designed to help traders locate the start of a new trend before it begins. Before the strand can begin, the Bollinger Bands go into a squeeze and a break in any direction can indicate the possible start of a trend.

 

Carry Trade

This is a certain type of forex trading involving traders trying to profit from interest rate differentials between countries. Traders use this strategy to buy and hold currencies overnight, allowing traders to be paid the interbank interest rate.

Traders who use this strategy borrows from a lower interest rate currency to fund their purchase of a currency that has a higher interest rate, allowing the trader to profit from the difference between the rates.

 

FAQ

 

What is the difference between swing and day trading?

The amount of time that positions are held. Day trading aims to open and close trades within a single trading day while swing traders can hold positions for weeks and even months.

 

How do I choose a trading strategy as a beginner forex trader?

You will need to determine what type of trader you are and whether you can hold positions short- or long-term, how much time you can dedicate to trading, how much funds you can dedicate, and so on.

 

How much time must I devote to trading forex?

This will depend on whether you want to trade as a hobby, side hustle, or full-time. Certain trading strategies require different durations of time. Day traders are in front of their terminals full-time whereas position traders only check up on their trades every few weeks or months.

 

Why is risk management important?

If you use risk management effectively, you can protect yourself, your capital, and your profits, thus ensuring that you incur less loss.

 

Why should I test my trading strategies?

Because you need to make sure that your trading strategies will work in a live trading environment where your capital is at risk.

 

Which are the best day trading indicators?

RSI, Moving averages, and several others.

 

Which is the best forex trading strategy?

Several forex trading strategies can be used. There is no holy grail of strategies that all traders can use for consistent profits. Different strategies will suit different traders depending on their trading needs, objectives, and different styles of trading.

 

 

Author Details

Louis Schoeman

Louis Schoeman

Featured Forex and Stocks writer

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