Now that you know some of the main categories of forex trading strategies, here are some powerful strategy options you should consider adding to your trading arsenal. Remember, while these strategies can be highly effective, they are not infallible—none of them is.
They can help you generate profits, but you will also have losing trades. Use them at your discretion. Try them out on theMitrade demo accountbefore risking your live funds with them.
Risk-Free Demo Account
Direct market access | Deal on rising and falling market | 24-hour trading | Limit and stop-loss for every trade
1 The EMA Crossover Strategy
The Exponential Moving Average (EMA) is one of the best technical indicators in forex trading. It helps you to get a directional bias on any chart with just one glance. EMA crossover strategies deploy two EMAs of different values (lower and higher) and then take a position in the market based on the direction of the crossing.
Some popular EMA combinations for this strategy include 5 and 7, 10 and 20 (the combination used in our sample image), and 15 and 30. Generally, you should enter a sell trade if the lower value EMA crosses the higher value option from top to down, indicating a downward trend (as shown in the image above). If the lower value EMA crosses the higher value variant from the bottom, it signifies an upward trend.
In a buy trade, your Stop-loss limit should be set at the most recent low. In a sell trade, it should be set at the most recent high. The Take Profit level should be at least two times the Stop Loss Value. Some users of this popular trend-following strategy hold their position until they get an opposite crossing, but this increases the chances of losing some or all of your existing profits if the market makes a sudden reversal.
2. Gann Trend Following Strategy
The Gann trend-following strategy uses a technical indicator based on William Delbert Gann’s angles to decide the market’s next possible direction. This strategy may require you to download a technical indicator for your trading platform. For Metatrader 4, there are lots of Gann-related indicators available for free. One of them is shown in the chart below:
When the displayed Gann indicator shows a yellow ribbon, it signifies that the market has potentially entered a downtrend. The blue ribbon indicates an uptrend. Ideally, you should enter a position just after the close of the candle that triggered the color switch, which is marked by three arrows.
As shown on the chart, some of the trend switches were false dawns that could have resulted in losing trades. However, the successful trades were highly profitable. This is why you need to be careful with your Stop Loss and Take Profit limits when using this strategy.
Many users of this strategy place a Stop Loss limit at the low or high of the signal candle (the first candle that caused the switch) depending on the direction of the trade. They also trade without a designated Take Profit level, trailing profits instead.
3. Support and Resistance Strategy
This is a powerful range trading strategy that attempts to predict where the market is likely to turn. The logic is that the market will turn bearish at a resistance level and bullish at a support level. This means that at a resistance level, you enter a sell trade, and at a support level, you enter a buy trade.
There are many tools for establishing support and resistance levels, including Bollinger Bands, Pivot Points, Fibonacci Ratios, and more. Choose a specific method and research it extensively.
With Pivot Points, for example, you can map out the possible support and resistance levels for a day, week, or month, and take trades off these levels. Below is a chart that demonstrates what trading off a support or resistance level looks like:
You can see how the price reacted at the top of the range (resistance) and bottom of the range (support).
If you enter a sell at resistance, your profit target is the support level, and vice versa. The Stop Loss limit should be 10-20 pips away from the latest high or low before your entry.
4. Pinbar Strategy
The pinbar strategy is a technique that uses one element of Japanese Candlestick topredict future price movement. The logic behind this strategy is that a pinbar indicates an upcoming reversal in the market, similar to an arrow created by the behavior of market participants. It is often used in combination with other strategies such as Support and Resistance for a higher probability of success.
The accompanying illustration depicts how the pinbar strategy works in practice. The red arrow highlights a pinbar formed exactly on a support zone in the chart. This market then went on to experience a mini bullish run. When using such strategies, your profit target can be set at the next support or resistance zone, or multiples of your Stop Loss value to achieve a good risk-to-reward ratio. Your Stop Loss limit should be placed below or above the pinbar, depending on whether it's a buy or sell trade.
5. Bollinger Bounce Strategy
The Bollinger Bands is a highly effective technical analysis indicator that has been in use for decades. It creates a channel around the market movements on a chart, with the lower boundary acting as a potential support level if touched, and causing a reversal. This behavior is demonstrated in the image below.
Gold real-time quoteon Mitrade
In this case, wait for a bullish candle to close, then enter a buy trade. Place a Stop Loss limit a few pips below the latest low. Your target should be the upper Bollinger band. The accompanying illustration depicts the Bollinger Bounce strategy in action using a real-time gold quote on Mitrade.
6. Bollinger Breakout Strategy
Still based on the Bollinger Bands, this strategy is designed to help you find the start of a new trend. Before the trend starts, Bollinger goes into a squeeze. A break of it in either direction signifies the possible start of a trend.
GBP/USD real-time quote on Mitrade
The red arrow highlights the squeeze, while the green arrow signifies the breakout. In the chart, entering a sell trade at the breakout of the lower Bollinger would have yielded a decent profit. Conversely, if the breakout occurs on the upper Bollinger, it signals a buy trade.
To execute a breakout entry, place a Stop Loss limit directly above or below the candles in the squeeze area. To secure your profits, use a trailing stop or a fixed profit target. If you're trading on MetaTrader 4, custom indicators like "DDFX" or "Tidane Trend" are based on the Bollinger Breakout strategy and can help improve your trading outcomes.
7. The London Breakout Strategy
The basic principle of this strategy is that the start of the London session (8 am British Summer Time) is typically when the day's direction is set for many trading pairs. To trade this strategy, open the 1-hour chart of the pair you are interested in and mark the high and low for the day (from the opening of the Asian session to the start of the London session).
For a buy trade, wait for an hourly candle to close above the existing high before the London session opened, and wait for an hourly candle close below the existing low for a sell trade.
In a buy trade, your Stop Loss limit should be set at the day's low, and vice versa for a sell trade. The Take Profit level should be at least two times the Stop Loss value.
