Top 10 Forex Strategies
In the fast and dynamic Forex market, successful trading is achieved by finding an edge. This is done by utilizing a solid, tried and tested strategy. A strategy is a systematic set of analyses that help Forex traders make decisions in the market. A good strategy will help traders minimize trading risks as well as boost their profitability.
Here are the top 10 Forex strategies among traders:
1. News Trading
Among the top 10 Forex strategies, news trading is probably the most important. This is because economic news remains the single major catalyst of price movement in the Forex market. Using this strategy, traders track upcoming financial news using the economic calendar and make trading decisions depending on the actual released figures, in relation to analysts’ expectations.
2. Support and Resistance
Price movement in Forex is determined by the forces of supply and demand. In a price chart, these forces are well illustrated by support and resistance levels. Using this strategy, traders draw resistance levels along price peaks and support levels along price troughs. Traders then seek to place Buy orders at support areas and Sell orders at resistance areas.
3. Pivot Points Strategy
Pivot points are an efficient way of deriving multiple, definitive support and resistance horizontal lines in the market. The lines are derived using an asset’s price previous open, high, low and closing prices. When the pivot point indicator is applied, 7 lines are derived: 1 pivot point (PP), 3 resistance lines (R1, R2 and R3) as well as 3 support lines (S1, S2 and S3). Traders use these levels to identify optimal entry points in the market.
4. Bollinger Band Strategy
One of the most versatile of the top 10 Forex strategies, this strategy uses the Bollinger bands indicator. It helps in determining volatility: when the bands squeeze, it denotes low volatility and vice versa. In ranging markets, traders apply the bounce strategy, using the upper band as a dynamic resistance line and the lower band as a dynamic support line.
5. Hedging Strategy
Hedging is designed to limit or even eliminate trading risks when trading Forex. This is done by opening offsetting trades in the market. Traders can hedge directly; for instance, by opening a Buy order on the EURUSD and later opening a Sell order on the same currency pair using same or different parameters. Or they can hedge indirectly; for instance, by opening a Buy order on GBPUSD, and a Sell order on USDJPY - they are still betting against the US dollar, but on different assets.
6. Moving Averages
Probably the oldest among the top 10 Forex strategies, moving averages help traders to smooth out price action. Moving averages help traders identify trend direction as well as trend momentum. Typically, an uptrend is in place if prices are above a moving average, while a downtrend is in place if prices are below a particular moving average. To establish the trend momentum, traders simply observe the steepness of a moving average - the steeper the slope, the more momentous the trend and vice versa.
7. The Trendline Strategy
Trendlines are the most basic form of technical analysis and they are the most common strategy among the top 10 Forex strategies. Trendlines help traders place trades in the direction of the prevailing trend in the market. Trendlines are drawn connecting two or more price highs or lows and projecting it into the future. Traders then pick out optimal entry points in the market when future prices are at or near the projected line.
8. Fibonacci Strategy
This strategy utilizes the Fibonacci indicator, which helps in tracking and predicting future price movements in the Forex market. The Fibonacci tool is used in two ways: Fibonacci Retracements and Fibonacci Expansion. Fibonacci retracement levels help traders pick out optimal levels to enter trades in trending markets, while Fibonacci expansion levels help traders set price targets when a market is trending.
9. Parabolic SAR Strategy
A price and time indicator, the Parabolic SAR (Stop and Reverse) not only helps traders track prices in trending markets, but also prompts traders when a potential reversal has happened in the market. Traders place Buy orders when the dots are below the asset price, and Sell orders when the dots are above. They also prepare to shift their trend direction bias if the dots jump from either side.
10. Stochastics Strategy
Markets move in cycles, and this movement can be illustrated using oscillators. Stochastics is one of the most common oscillators and it helps traders determine overbought or oversold conditions in the market. A stochastic reading of below 20 implies oversold conditions and traders will seek opportunities to place Buy orders; whereas a stochastic reading of above 80 implies overbought conditions and traders will seek opportunities to place Sell orders in the market.
In the dynamic Forex market, consistent successful trading can be realized by using the appropriate strategy under different market conditions. We have outlined the top 10 Forex strategies that can help traders find high quality trading signals consistently throughout the different market cycles and conditions.