Nadia Jenkins

Are you looking for success as a trader in the currency markets? Then you require logical and robust winning Forex strategies that can be easily applied to your preferred style of trading. In this article, we examine three aspects that characterize all profitable Forex trading systems.

The Trading System

First, we will examine a kind of Forex trading which has worked well and will always work well – the trading of asset price breakouts to new price highs or lows. It is a well-known fact that the majority of Forex trends begin from new highs and lows. When you have a strategy that helps you to know when to buy breakouts, you take advantage of all the big trends that have the potential to give you significant profits.

To consistently make profits in the Forex market, you need to make long term trades, which means that you look for support and resistance points within a daily chart. In an ideal case, you want to carry out at least 3 tests. To further validate the price breakout, it is important that the tests be spaced widely apart.

One of the most important traits you must develop as a Forex trader is patience. Good breakouts are not a daily occurrence and you must wait for your system or winning Forex strategies to show that the odds are in your favor. How frequently you trade has no bearing on your profits, so you should only trade on the back of a valid asset price breakout.

Confirmation of Trading Signals

When you want to trade breakouts in the Forex market, you must be absolutely certain that the price momentum is on your side to boost your odds of success. This means that you need to make momentum indicators a big part of your Forex trading strategy. Momentum indicators are leading indicators which you use to gauge both the strength and momentum of the price. What you want is for your strategy to support evidence of a breakout before you execute your trade since this increases the odds that the trend will continue for some time.

Some good trading signals to include in your winning Forex strategies include Average Directional Movement (ADX), Stochastic and Relative Strength Index (RSI). There are several others, but these are a good place to start.

Money Management and Stops

One major advantages of trading breakouts is that your stop level is pretty obvious: behind the price breakout point.

However, what you need to be careful about is ensuring that the stop stays behind the normal volatility of the market so that it can protect your trade. Your strategy should ensure that it is not so close that it could see your investment wiped out by random volatility, while still allowing you to stay with the trend.

A popular money management strategy is to wait for the price to move until you have a profit cushion. You can then trail the stop behind a 40-day moving average while the 20-day MA is used to add positions.

You could experiment with several different averages, but these are the two which work best with strong trending markets.

Conclusion

All of the above are the major aspects of the most simple winning Forex strategies in use today. What is important to keep in mind if you are to be successful is that Forex trading is less about complex methods and trying to be clever, and more about having a robust system behind your trades - a system that you understand intimately, can apply with confidence and which you can follow without deviating from the plan.