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Best forex strategies for consistent profits

There are many ways to achieve success and profit in Forex, but here are some of the best Forex trading strategies for consistent profits. Some cornerstones of good trading strategies are:

  • Setting realistic profit targets
  • Avoiding the high leverage
  • Invest only 5 per cent on your trading capital on each trade
  • Keep trading journal
  • And make regular fundamental analysis

Best forex strategies for consistent profits

However, not every strategy requires every single point to be checked. So, let’s take a close look at the best forex strategy for consistent profits and what these imply.

  • Scalping
  • Day trading
  • Swing trading
  • Support and Resistance trading strategy

First and foremost, what makes a difference between these strategies is the time frame.

Scalping

Scalping is very short trades, sometimes held open for just a few minutes, even seconds. A scalper wants to quickly beat the bid or ask price spread. They can rack up just a couple of profit points before closing. In this strategy, tick charts are typically used.

Day trading

All the trades that are closed before the end of the day make part of the day trading style. This minimizes the chance of being adversely impacted by large movements over the night. The latter is the most advantageous side of said trading. However, it could be time-consuming since the trader has to monitor the market almost all day long. Here, the fundamental and technical analyses are equally important. New traders could often feel over stress with day trading, while it’s one of the favourite strategies for professionals.

Swing trading

Buy low sell high is what briefly describes this trading strategy. The aim is to always be on the right side of the market, using technical analysis and scrutinizing the currency pair you want to play on. Determining high and low as well overbought and oversold rates is what swing traders do. Swing traders mostly use the Relative Strength Index to determine the trading range for a particular currency.

Forex trader with charts and news, swing trading
Swing trading combines fundamental and technical analysis in order to catch momentous price movements while avoiding idle times.

Forex strategies that follow trends

Sometimes a market leaves its horizontal channel and moves below support or above resistance to start a trend. How is it going?

When support is broken, and the market moves to new lows, and buyers start to have reservations. This is because buyers constantly seek lower prices and wait for new lows to be hit.

At the same time, there will always be traders who sell out of panic or simply because they are forced to close their trades. The trend continues until the sale becomes exhausted and the belief that prices will no longer fall begins to return to buyers.

Trend following strategies buys the markets once they break through the resistance level and sell once they break through the support level. Trends can be dramatic and protracted.

Due to the scale of the movements involved, this type of system has the potential to be the most successful Forex trading strategy. Trend following systems use MetaTrader trend indicators to indicate when a new trend may have started, but there is no dead-cert way to know for sure.

The good news

If the indicator can distinguish a point in time when there is an improved chance that a trend has started, you are tilting the odds in your favour. The indication that a trend might form is called a breakout.

A breakout occurs when the price moves past the highest high or lowest low for a particular time frame. For instance, a 20-day breakout to the upside is when the asset price goes above the high of the last 20 days.

Systems that follow the trend require a special mindset. Due to the long duration, during which profits can disappear as the market swings, these trades can be more demanding from a psychological point of view.

When markets are volatile, trends tend to be more disguised, and price fluctuations will be larger. This means that a system that follows the trend is the best trading strategy for Forex markets that are calm and trending.

An example of a simple strategy that follows the trend is a Donchian Trend system.

Donchian Channel

Donchian Channel was invented by futures trader Richard Donchian and represents indicators of already established trends. The settings for the Donchian channels can be changed as you see fit, but for this example, we’ll be looking at a 20-day breakout.

Basically, a break in the Donchian Canal suggests one of two things:

  • Buying if a market’s price goes above the previous 20-day high.
  • The sale if the price drops below the low of the previous 20 days.

There is an additional rule to be traded when market conditions are more favourable to the whole system. This rule is created to filter out breakouts that go against the long-term trend.

Basically, you’re looking at the 25-day moving average and also the 300-day moving average. The conduct of the shorter moving average determines the direction that is allowed.

According to this rule, you can only go:

  • Short – if the 25-day moving average is less than the 300-day moving average.
  • Long – if the 25-day moving average is greater than the 300-day moving average.

Orders are closed in a similar fashion to the opening but using a 10-day breakout. This entails that if you open a long order and the market drops below the previous ten days low, and you want to sell to close the order – and vice versa.

Counter Trend Forex Strategies

Counter Trend strategies rely on the fact that most breakouts do not occur in long term trends. So, a trader using such a strategy seeks to gain an advantage following the price trend to bounce from previously established highs and lows.

Counter-trend strategies are the best Forex strategies for building confidence because they have a high hit ratio.

However, it is important to keep in mind that the rules regarding risk management must remain strict. These Forex strategies rely on the exploitation of support and resistance levels. But there is a risk of great inconvenience when these levels are broken.

Constant monitoring of the market trends is a good idea. The market condition that perfectly matches this type of strategy is stable. This sort of market environment enables one to get an insight into healthy price swings, which are constrained into a horizontal channel.

It should, however, be noted that the market can change state. For example, a stable and calm period could start the trend, continue to remain calm, and then become volatile.

It is uncertain how the state of a market can change. You should identify the current state of the market in order to find out whether it is suitable for your trading style.

Compounding strategy

We talk about compounding when the value of the investment increases exponentially over time. The increase is an exponential vehicle of the initial investment and the interests continuing with the two to generate interests. For example, a person who invested 20,000 USD and a 25% interest on this investment in the first year, at the end of the year, will invest about 25,000 USD. Next year, this is the total amount of $ 25,000 that will be reported, which will increase the value of the investment to $ 31,250 next year. It means that with compounding the net amount of interest, per annum is bigger than that from the previous year.

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